Definition and legal classification of insolvency offences
Insolvency offences are criminal acts committed in the context of insolvency proceedings or imminent insolvency. They involve unlawful actions that violate the interests of creditors or interfere with the orderly insolvency process. The main legal provisions can be found in Sections 283 et seq. of the German Criminal Code (StGB) as well as in the Insolvency Code (InsO). The legislator’s aim with the criminal law provisions is to protect honest commercial transactions and safeguard the interests of creditors against asset transfers or other unlawful conduct during economic crises.
Historical development
Since the 19th century, there have been regulations penalizing so-called bankruptcy offences. With the introduction of the StGB in 1871 and later the Insolvency Code (InsO), the previous legal foundations were revised and adapted to the requirements of modern economic structures. The current regulations are the result of a continuous development of insolvency law and the criminal classification of insolvency-related acts.
Legal basis for insolvency offences
Provisions in the Criminal Code (StGB)
The core scope of insolvency offences is regulated in Sections 283 to 283d StGB:
Bankruptcy (Section 283 StGB)
The bankruptcy provision constitutes the central offence. It covers, among other things, the following conduct:
- Concealing, removing or destroying components of assets,
- Engaging in risky transactions whose financial consequences can no longer be assessed,
- Conducting or continuing accounting irregularities, such as false entries or failure to comply with statutory accounting obligations.
The criminal offence requires that insolvency proceedings have been opened or that there is obvious insolvency.
Breach of accounting obligations (Section 283b StGB)
This is a so-called “improper insolvency offence,” as violations of tax or commercial accounting obligations only become punishable once insolvency proceedings are opened.
Preferential treatment of creditors (Section 283c StGB)
The law prohibits granting preferential satisfaction to individual creditors to the detriment of the collective. The conduct is punishable if creditors are thereby disadvantaged.
Preferential treatment of debtors (Section 283d StGB)
This provision penalizes acts by which third parties unjustifiably grant an advantage to a debtor in the insolvency process to the prejudice of creditors.
Insolvency Code (InsO) and other relevant statutes
In addition to the provisions in the StGB, the Insolvency Code contains numerous rules of civil law and liability law, whose breach may also have criminal consequences. This is especially true in connection with obligations to provide information (§§ 15a et seq. InsO) or with the duty to inform the insolvency administrator and the court, where there is an overlap between criminal and insolvency law obligations.
Elements of the offence and prerequisites
General prerequisites
Insolvency offences generally require the existence of an economic crisis, particularly insolvency or over-indebtedness. Most offences require at least negligent, but usually intentional conduct.
Objective and subjective elements of the offence
- Objective: Acts such as disadvantaging creditors, concealing assets, providing false information or violating accounting obligations.
- Subjective: As a rule, intent is required; in exceptional cases, negligence suffices (e.g. in the case of unintentional neglect of accounting duties).
Sample cases
Typical examples include transferring account balances, gratuitous transfers of real estate to close relatives immediately before insolvency, or creating fictitious invoices after the onset of insolvency.
Sanctions and legal consequences
The penalties for insolvency offences vary in principle:
- For bankruptcy (Section 283 StGB): imprisonment for up to five years or a fine
- For breach of accounting obligations (Section 283b StGB): imprisonment for up to two years or a fine
- For preferential treatment of creditors and debtors (Sections 283c, 283d StGB): imprisonment for up to two years or a fine
In addition, a particularly serious case or conduct on a commercial basis may result in an increase of penalty.
Apart from the main penalties, secondary consequences such as occupational bans under Section 70 StGB or confiscation of proceeds of the offence may be imposed.
Significance in business life
Consistent prosecution of insolvency offences serves to protect the collective of creditors, the integrity of the economic system, and the prevention of economic crime. In addition, debtors and third parties are to be deterred from unlawful transfers of assets or manipulations. The legal provisions significantly contribute to building trust in commercial business relationships.
Relationship to other criminal offences
Many insolvency-related actions constitute, in addition to the specific insolvency offences, also general property offences such as embezzlement (Section 266 StGB), fraud (Section 263 StGB), or forgery (Section 267 StGB). In case of concurrent offences, the legal assessment is generally made in accordance with the principles of concurring statutes.
Prosecution and limitation periods
Criminal prosecution
Insolvency offences are prosecuted ex officio. Often, clues about irregularities are brought to the attention of the criminal prosecution authorities by the insolvency court, insolvency administrator, or creditors.
Limitation period
The limitation periods are based on the penalties and usually amount to five years (Section 78 StGB). The period begins, at the latest, when the act is completed, but in individual cases only after the conclusion of the insolvency proceedings.
Prevention and compliance
Companies are required to establish appropriate control and monitoring systems to identify and prevent possible insolvency offences at an early stage. Compliance with proper accounting, transparent financial reporting, and lawful corporate management are key factors in minimizing risk.
Distinction from civil law claims
The criminal sanctioning of insolvency offences is independent of civil law claims for damages and rescission. Creditors may also take civil action against the offender, for example in the context of insolvency rescission (Sections 129 et seq. InsO).
International context
Within the European legal area, efforts are being made to harmonize the provisions on economic and insolvency-related offences. Directives and regulations of the European Union set minimum standards and promote cross-border cooperation in combating insolvency offences.
Summary: Insolvency offences are an essential part of German economic criminal law. They cover a broad range of conduct that endangers the orderly realisation of assets during insolvency proceedings. Consistent criminal prosecution ensures the protection of creditors and the maintenance of a functional economic system. The provisions combine preventive and repressive-punitive elements and are crucial for trust in entrepreneurial conduct in the area of insolvency law.
Frequently asked questions
What typical conduct can be prosecuted as insolvency offences?
In insolvency law, there are a range of actions that can be prosecuted as insolvency offences under Sections 283 et seq. of the StGB (Criminal Code). These include, in particular, delaying the filing for insolvency (failure to timely file for insolvency in the event of insolvency or over-indebtedness), bankruptcy offences (such as removal, concealment or hiding of assets, accounting offences, preferential treatment of individual creditors), breach of accounting obligations, and preferential treatment of creditors and debtors. Often, the offence of an insolvency crime is already established through negligence or omission; however, at least conditional intent is usually required. Actions that deprive the debtor’s assets of value, artificially increase liabilities, or grant preferential satisfaction to individual creditors are particularly conspicuous.
What criminal consequences can result from insolvency offences?
If insolvency offences are proven, severe sanctions may be imposed depending on the seriousness and specific circumstances. Penalties range from fines and driving bans to several years of imprisonment, with commercial or repeated bankruptcy offences punishable with up to five years’ imprisonment (Section 283 StGB). A conviction may, in addition to entry in the criminal record, lead to professional consequences such as a ban on engaging in certain activities. Particularly serious is the loss of the ability to serve on the governing bodies of legal entities (e.g., as managing director of a GmbH or member of the board of an AG) (Section 6 GmbHG, Section 76 AktG). Liability towards creditors and the insolvency estate is also possible.
How is the criminal assessment of an insolvency offence carried out during investigations?
The investigation procedure is generally initiated by the public prosecutor as soon as there are indications of criminal conduct in the context of insolvency—often following a report by the insolvency administrator, creditors, or due to irregularities in accounting or the balance sheet. The assessment is carried out in several stages: First, it is determined whether an insolvency event (insolvency/over-indebtedness) has occurred. The public prosecutor then investigates whether specific actions can be proven that fulfil the offence of insolvency crimes, and whether there is culpability. For this purpose, business records, account movements, and internal communications are often evaluated and witnesses—particularly with regard to the knowledge and conduct of management—are questioned.
Can insolvency offences also be committed by negligent persons?
Most insolvency offences—except for certain accounting offences (§ 283b StGB)—generally require at least conditional intent. This means that the perpetrator must at least accept the fulfilment of the offence, i.e., know that their actions or omissions may satisfy the elements of a criminal offence and still proceed. Negligent conduct is only punishable in limited exceptional cases, such as under Section 283b StGB (breach of accounting obligations). Classic cases involve intentional delay of insolvency or the deliberate removal of assets to disadvantage creditors, although gross negligence may suffice for accounting offences.
Can only managing directors or also other individuals commit insolvency offences?
Insolvency offences are by no means limited to managing directors, board members, or sole proprietors. Depending on the offence and legal situation, other responsible parties—such as members of executive bodies, de facto managing directors, or persons who exercise significant influence on management (so-called “shadow directors”)—may also be held liable. Joint perpetrators and accomplices, such as tax advisers or business consultants, may also be prosecuted if they participated in or supported criminal acts.
What role does the insolvency administrator play in uncovering insolvency offences?
The insolvency administrator plays a central role in uncovering insolvency offences. By law, they are obliged to thoroughly investigate the debtor’s financial situation and banking transactions and to promptly report any suspicion of criminal activity (§ 22 InsO). In practice, the administrator reviews bookkeeping, contracts, transfers, and unusual payment transactions and prepares detailed reports for the insolvency court. Administrators also have extensive rights to information and rescission and may assist investigative authorities if necessary.
Can actions committed before the opening of insolvency proceedings also be punishable?
Yes, insolvency offences can be prosecuted even for actions committed before the formal opening of insolvency proceedings. The decisive factor is whether the company was already insolvent or over-indebted at the time of the conduct, or was recognizably at risk of entering such a financial situation. Actions such as removal of assets, concealment of liabilities, or serious breaches of accounting duties may be punishable even in the run-up to insolvency proceedings if they are aimed at or connected to the subsequent insolvency. This serves to protect creditors and safeguard the insolvency estate.
