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Criminal insolvency cases

Insolvency of a company almost always includes considerable financial and personal burdens. Prior to the actual insolvency, most entrepreneurs endure a tiresome economic process marked by intensive, albeit unsuccessful, consolidation efforts. If a company is over-indebted, insolvent or if there is the threat of insolvency, the management is obliged by law to apply for insolvency in due time. If there is a suspicion that this application has not been made within the short statutory limitation period of three weeks, the insolvency files will be submitted to the prosecutor. In more than 60 per cent of roughly 20,000 annual company insolvencies, a criminal investigation for violation of section 15a Insolvency Statute is launched.

In view of the COVID-19 pandemic, the legislator has created special provisions related to insolvency declaration (for more information see article in german language).

Criminal charges related to insolvency law are usually brought against directors of companies under the Limited Liability Companies Act, executive board members and other responsible persons of companies. In addition to personal criminal charges, civil liabilities may also apply.

Comprehensive analysis of the situation

In the event of the opening of criminal investigations, a comprehensive analysis of the situation is a crucial first step. It must be established which charges are brought and what they are based on. Often, further criminal charges are brought in addition to the central charge of delaying insolvency proceedings pursuant to section 15a Insolvency Statute: this refers mainly to bankruptcy offences (section 283 Criminal Code) and offences pursuant to section 266a Criminal Code.

Given the short deadlines, establishing the exact point of time when grounds to file for insolvency occurred is of particular importance. Determining the exact financial situation over the course of time is especially challenging. It often depends on different parameters. There is an extensive collection of court cases regarding all claims and liabilities.

In addition to criminal liability, the scope of liability is decisive. Even when the elements of the criminal offence are present, the extent of the reproach depends on numerous factors, which is pivotal for the level of penalties and other legal consequences. The defence must comprehensively clarify the legal framework and seek a quick conclusion with minimum consequences.

Criminal insolvency law

Criminal insolvency law covers several different offences: a central offence is the delaying of insolvency proceedings pursuant section 15a Insolvency Statute, which makes punishable violations of the obligation to apply for insolvency. In addition, sections 283ff Criminal Code refer to so-called bankruptcy offences. Usually, those occur only when a company is already in crisis. It punishes conduct in violation of regular business standards for example by removing or hiding assets or benefiting third parties.

Section 15a Insolvency Statute: delay in filing for insolvency

Section 15a par. 1 sent. 1 Insolvency Statute provides the general principle of filing an application for insolvency. The provision reads as follows:

Where a legal person becomes illiquid or overindebted, the members of the board of directors or the liquidators shall file a request for the opening of proceedings without culpable delay, at the latest, however, three weeks after the commencement of insolvency or overindebtedness.


Section 15a par. 4 Insolvency Statute provides the respective penal provisions:

(4) Whoever, contrary to subsection (1), first sentence, also in conjunction with the second sentence or subsection (2) or subsection (3), does not file a request for the opening of proceedings, does not correctly file a request or does not file a request in good time shall be punished with imprisonment for no more than three years or a fine.

 
 


The deadline for filing a request for the opening of insolvency proceedings is three weeks after the commencement of insolvency or overindebtedness.

Definition: delay in filing for insolvency

The obligation to file a request for the opening of insolvency proceedings draws on provisions of the Insolvency Statute (Insolvenzordnung). The obligation to file a request applies, first, only to certain companies. Section 15a par. 1 sent. 1 Insolvency Statute mentions corporate bodies; in practice, these are companies under the Limited Liability Companies Act (GmbHs). The obligation to file a request for the opening of insolvency proceedings in general applies to all members of the representative body, for example the executive directors of a corporation (Aktiengesellschaft, AG) or, most important in practice, the directors of a GmbH. Of particular importance regarding criminal insolvency law is the responsibility of the de facto manager.

Date of the insolvency application

The insolvency application must be filed within at least three weeks after the commencement of insolvency. This time period is extremely short. Often, directors or persons responsible miss the deadline, for instance in their efforts to rescue the company or in the hope for in-payments. Reasons to open insolvency proceedings are overindebtedness (sec. 19 Insolvency Statute), insolvency (sec. 17 Ins Insolvency Statute) and imminent insolvency (sec. 18 Insolvency Statute).

The three week time period starts as soon as insolvency reasons become known.

A conviction for intentional delay in filing for insolvency pursuant to sec. 15a par. 3 Insolvency Statute is often life-changing because it also results in the loss of the ability to hold a managerial position. Section 6 Limited Liability Companies Act provides special regulations.

Bankruptcy offences sections 283ff. Criminal Code

The central provision in this respect is bankruptcy pursuant section 283 Criminal Code. It criminalizes several types of conduct: first, conduct that diminishes the assets of a company in violation of regular business standards. This applies to typical cases of hiding and removing assets or selling them to the benefit of third parties. It also applies to conduct to conceal or hide the actual business circumstances. This draws on provisions of the Commercial Code regarding balancing and accounting obligations. Section 283a Criminal Code provides regulations in especially serious cases of bankruptcy, according to which the offender incurs a penalty of imprisonment up to ten years.

De facto management

The so-called de facto manager is of particular importance in this respect, especially from a practical point of view. A de facto manager is an individual who is not appointed as statutory manager or appears as such but who de facto determines the fate of the company. The de facto manager too is obliged to file for insolvency and may render themselves liable for delaying insolvency proceedings. The assessment of who is to be regarded as de facto manager is based on the overall analysis of the individual case according to specific legal criteria. This assessment is of particular importance because it constitutes the basis of culpability in each individual case.

Special provisions COVID-19 pandemic

Since early 2020, special provisions for filing for insolvency apply in consideration of the COVID-19 pandemic. However, the duty to file for insolvency is not rescinded in its entirety. For more information see here.

We are criminal lawyers

Insolvency criminal law offers special defence opportunities. We analyse the charges brought against you and develop solutions for your case. For this purpose, we can draw on decades-long specialized experiences, which allows us to achieve the optimal outcome. Of course we pay particular attention to various possibilities of proceedings being dismissed according to the Code of Criminal Procedure.

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