Definition and Fundamentals of the Corporate Crisis
The corporate crisis is a legal term that plays a central role in various areas of law, especially in corporate law. It refers to a situation in which a company—regardless of legal form—finds itself in a state that endangers its existence, frequently affecting its solvency, going concern prognosis, or continued existence. The corporate crisis can have various causes and regularly leads to heightened demands on the management, shareholders, and their advisors, significantly influencing actions and responsibilities.
Causes and Manifestations of Corporate Crises
Economic Crisis
The classic economic crisis of a company is characterized by a significant loss in value, drop in sales or profits, up to insolvency. Insolvency (§ 19 InsO) is often the starting point for economic problems.
Legal Crisis
A company often also undergoes a legal crisis if it violates statutory requirements, such as failure to pay in share capital in the case of a GmbH, improper distributions to shareholders, or breaches of public law provisions. Legal violations can result in fines, coercive measures, and damage compensation claims.
Tax Crisis
Tax problems arise when tax liabilities can no longer be serviced, or tax crimes or regulatory offenses have been committed. Failure to submit tax returns or unjustified tax benefits can also trigger a corporate crisis.
Internal Corporate Crisis
Internal conflicts among shareholders, such as differences of opinion or voting blockades, can paralyze company bodies, resulting in the company’s inability to act or conduct business.
Legal Consequences of the Corporate Crisis
Duties of Board Members
Once a corporate crisis is identified, members of the management and other officers have special duties of care, including obligations to inform, review, and act. If there are signs of insolvency or over-indebtedness, they are required under § 15a InsO to promptly file for insolvency. Failure by management to fulfill this duty exposes them to civil and criminal liability risks.
Aspects under Insolvency Law
Upon the occurrence of insolvency maturity, the legal situation fundamentally changes. Payments made after the onset of insolvency or over-indebtedness are, according to § 64 GmbHG and § 92 AktG, only permissible in exceptional circumstances. From this point onwards, insolvency law provisions determine the company’s fate—with the insolvency proceedings possibly resulting in reorganization, restructuring, or liquidation.
Obligation to File for Insolvency
The obligation to file for insolvency (§ 15a InsO) generally exists within three weeks after the occurrence of insolvency maturity. Directors who fail to comply with or delay this obligation are liable for damages caused and face the risk of criminal penalties.
Liability of Shareholders and Board Members
In crisis situations, shareholders and board members face increased liability risks. Typical liability scenarios arise, for example, from prohibited payments, late filing, defective delay of insolvency, or unauthorized distributions. Furthermore, corporate fiduciary duties may trigger repayment obligations for benefits received.
Challenging Legal Actions
Resolutions or dispositions made during the crisis may, under §§ 129 ff. InsO, be challenged by the insolvency administrator in subsequent insolvency proceedings. The aim is to ensure equal treatment of creditors and to correct actions that are disadvantageous or preferential.
Special Corporate Law Considerations by Company Type
Crisis in the GmbH
Limited liability companies (GmbH) are subject to special regulations regarding capital maintenance (§ 30 GmbHG), payment prohibitions during crises, and extensive management reporting obligations. Especially for shareholder loans and economically comparable transactions (“capital credit” under § 39 (1) No. 5 InsO and § 135 InsO), specific rules apply to prevent endangering creditors.
Crisis in the Stock Corporation (AG)
The stock corporation is also subject to strict capital maintenance provisions. § 92 (2) AktG regulates the obligation to file for insolvency in the event of over-indebtedness or insolvency. In addition, the actions of the executive board and supervisory board during crises are particularly strictly bound to legal requirements.
Crisis in Partnerships
Partnerships, such as the OHG or KG, can also encounter crisis situations. Here, shareholders often have personal liability for company obligations per § 128 HGB. Shareholder resolutions concerning restructuring or reorganization frequently require unanimity, posing additional challenges.
Impact on Restructuring and Reorganization
Restructuring Measures and Legal Framework
To secure the company’s continued existence, measures for restructuring or reorganization may be taken. These include injecting new capital, restructuring liabilities, changing the business model, or personnel reorganization of management. Legal provisions such as the Act on the Stabilization and Restructuring Framework for Companies (StaRUG) have, since 2021, provided additional tools for out-of-court restructuring.
Protective Shield and Self-Administration Proceedings
Insolvency law enables special proceedings during crises (protective shield proceedings, self-administration under § 270b InsO) aimed at the sustainable restructuring of the company. These procedures offer management greater influence over reorganization. A prerequisite is usually a viable restructuring concept.
Corporate Law Information and Disclosure Duties in a Crisis
Disclosure Obligations
Disclosure obligations rise significantly during a corporate crisis. This includes, in particular, the timely and complete submission of annual financial statements as well as disclosure of restructuring plans to creditors, lenders, and—in the case of listed companies—the capital market.
Non-Compliance with Information Duties
Violation of disclosure and information duties may result in personal liability of the board members and regulatory actions. Typical consequences include fines, profit forfeiture, and, in the worst case, revocation of management authority.
Summary
The crisis of a company is a multifaceted, legally complex concept with far-reaching consequences for all those involved in a company. Successfully overcoming such a crisis requires not only comprehensive knowledge of the relevant corporate and insolvency law provisions, but also meticulous observance of the resulting duties. Failure to comply with the specific legal requirements and duties during a crisis may lead to serious civil as well as criminal consequences and endangers not only the company’s continued existence and assets, but also those of the acting bodies and shareholder personalities.
Frequently Asked Questions
To what extent can corporate crises lead to restrictions of fundamental rights?
Corporate crises, such as pandemics, natural disasters, or security-related emergencies, can lead to government measures that interfere with citizens’ fundamental rights. The legal framework for such restrictions is found in the Basic Law (Grundgesetz), particularly in the so-called limitation provisions of the respective fundamental rights. Restrictions are generally permissible if based on a legal foundation, are proportionate, and serve the common good. In particular, the measures must be suitable, necessary, and appropriate to achieve the intended objective—such as protecting life and health or maintaining public order. The courts, especially the Federal Constitutional Court, examine whether such interventions exceed what is necessary or whether milder means would have sufficed. Temporary restrictions, such as curfews or assembly bans, must be regularly reviewed and lifted as soon as the crisis situation allows.
Which legal foundations empower the state to impose emergency measures during a societal crisis?
The state’s authority to take emergency measures in times of crisis derives from various legal foundations. In cases of internal emergencies, the Basic Law is especially relevant. Article 35 GG regulates so-called mutual administrative assistance between authorities and, in the emergency articles (Art. 115a ff. GG), provides specific rules for cases of defense or internal emergencies. In addition, there are special laws such as the Infection Protection Act (IfSG), which in pandemic situations provides for extensive rights to intervene—such as quarantine orders or assembly bans. State disaster protection laws also give authorities special powers to take hazard prevention measures, always observing the principle of proportionality and the constitutional requirement for judicial review.
How is the parliament’s role in monitoring crisis measures regulated?
Parliamentary oversight is a central element in upholding the separation of powers, especially during crises. Many emergency and crisis powers of the executive are therefore subject to approval requirements or demand subsequent consent by the Bundestag or state parliaments. For example, with measures under the Infection Protection Act, the Bundestag must determine a ‘national epidemic situation of national significance,’ which triggers extensive powers for the Federal Ministry of Health. Furthermore, the government has reporting duties to the parliaments, and for certain measures, legal time limits are stipulated. Such oversight mechanisms are designed to avoid concentration of decision-making power within the government and to ensure a return to constitutional order.
Can governmental decisions during crises be challenged in court?
Even during a societal crisis, executive decisions remain subject to judicial review. Under Article 19 (4) GG, every citizen has the right to seek recourse in court if they believe their rights have been violated by public authority. Courts particularly review the legal basis, proportionality, and appropriateness of the respective measure. Urgent legal protection is especially important in expedited situations—such as bans on demonstrations or curfews. Judicial review ensures that, even in times of crisis, the rule of law is maintained and disproportionate interventions can be prevented.
What is the significance of the principle of proportionality for crisis measures?
The principle of proportionality is a central legal standard in assessing interventions in fundamental rights, including in emergencies. A measure must be suitable to achieve the intended purpose, necessary—no less severe, equally effective alternative may exist—and appropriate, meaning reasonable in a weighing of interests. The courts stress that a state of emergency does not create ‘lawless zones’. Even in times of crisis, interventions must always be limited to what is necessary and must be lifted immediately once the crisis situation no longer justifies them. This is especially true for far-reaching measures such as restrictions on liberty, interventions in the right of assembly, or general bans on contact.
Who is liable for damage caused by government measures in a societal crisis?
If citizens or companies suffer damages as a result of crisis measures, they may, under certain conditions, have a claim to compensation or damages against the state. The legal basis varies depending on the type of measure: The Infection Protection Act provides for specific compensation schemes, e.g., for quarantine orders (§ 56 IfSG). In general, claims may arise from interventions equivalent to expropriation, official liability (§ 839 BGB in conjunction with Article 34 GG), or specific compensation acts. The prerequisite is usually that the measure was unlawful or at least disproportionate or represented a special sacrifice exceeding the general burden citizens must bear in a crisis. Enforcement proceeds before administrative or ordinary courts.
Are there time limits for the validity of crisis measures?
The rule of law requires that crisis measures are always time-limited and regularly reviewed. Consequently, legislation often includes an automatic expiration clause (sunset clause), so that the relevant measure lapses without further legislative extension. In addition, the executive is obliged to continuously evaluate the effects and necessity of measures and to lift them immediately once their justification ceases. This prevents permanent restrictions of fundamental rights and ensures a return to normality after the end of the crisis.
