In addition to redevelopment advice, we are of course also at your side if redevelopment is no longer possible for various reasons or is simply no longer available as a sensible alternative. We understand that the insolvency of a company is a complex and often unknown process. Therefore, we would like to give you an overview here and answer questions as to when and why an insolvency has been determined and what needs to be done.

Insolvency law

What is insolvency?

There are two main types of insolvency in Germany: consumer insolvency andordinary insolvency proceedings. Insolvency proceedings may be opened against the assets of any natural or legal person. Legal entities include self-employed persons and companies. Insolvency proceedings serve the joint satisfaction of creditors by liquidating the assets of a debtor and distributing the proceeds. In addition, the debtor should be given the opportunity to free himself from remaining liabilities (debts). Insolvency proceedings may be opened at the debtor’s request or at the request of a creditor.

Insolvency proceedings can only be opened if there is a reason for opening them, a so-called reason for insolvency.

Reasons for insolvency:

In order for insolvency proceedings to be opened against the assets of a natural or legal person, there must be a reason for insolvency.

The law prescribes 3 reasons for insolvency:

Insolvency is considered a general reason for opening insolvency proceedings, i.e. both natural persons and legal entities can apply for insolvency for this reason. A debtor is considered to be insolvent if he is not able to fulfil the due payment obligations. Insolvency is given, among other things, when the debtor has stopped all payments.

According to the BGH, insolvency is generally given if the debtor is not able to pay at least 10 percent of his total due liabilities within 3 weeks. In order to determine the actual insolvency, the following examination steps, among others, are prescribed by the BGH:

First of all, a distinction must be made between the examination ex ante (assessment from an earlier perspective) to determine a possible obligation to file for insolvency and the examination ex post (assessment from an ex-post perspective) to determine possible liability and rescission claims.


Ex post it can be determined how liquidity has developed within the three weeks following the cut-off date. Ex ante, the managing director is obliged to make a forecast of how payments and liabilities are likely to develop.

Important:If a legal entity is insolvent, the manager is obliged to file for insolvency. Certain legal persons are obliged to apply as soon as they become aware of their insolvency or over-indebtedness. Otherwise there is a risk that they may become liable to prosecution for delaying insolvency.

If the debtor himself applies for the opening of insolvency proceedings, the imminent inability to pay is sufficient reason for insolvency. In this case a creditor cannot file a request to open insolvency proceedings.

Impending insolvency is given if the debtor will probably not be able to fulfil the existing payment obligations at the time of maturity. The threat of insolvency requires a forecast of the future liquidity situation. The impending insolvency must be proven by means of a prepared financial plan.

The advantage here is that early filing for insolvency increases the chances of corporate restructuring during the insolvency proceedings.

Over-indebtedness can only be assumed as a reason for insolvency for legal entities. Over-indebtedness occurs when the debtor’s assets no longer cover the existing liabilities. Over-indebtedness is to be denied if the continuation of the company is likely under the circumstances.

To determine over-indebtedness, the first step is to determine balance sheet over-indebtedness. In simplified terms, balance sheet over-indebtedness exists when the assets no longer cover the debts.

Regular insolvency proceedings - procedure

In the following, we will explain the individual phases of regular insolvency proceedings. The course of private insolvency proceedings differs in its main features.

Any insolvency proceedings can only take place on request. Insolvency proceedings without application are inadmissible.

The insolvency petition can be filed by the debtor, but also possibly by a creditor.

In the insolvency application, the following information, among others, must be identified:

  • Person making the application (position of the person in the company)
  • Company
  • Reason for insolvency

As soon as the request is received by the insolvency court, the court examines the admissibility requirements for opening insolvency proceedings. The application for insolvency is examined in particular to determine whether the reason for insolvency actually exists. The court must also examine whether the debtor’s remaining assets are sufficient to cover at least the costs of the insolvency proceedings.

During the examination of the application, the insolvency court may take provisional security measures, cf. section 21 InsO. This is to prevent the debtor’s existing assets from being adversely affected.

  • Provisional insolvency administrator

The court may, inter alia, appoint a temporary insolvency administrator. As regards the temporary insolvency administrator, the main distinction is between the strong and weak insolvency administrator.

Once a strong insolvency administrator has been appointed, a general prohibition of disposal can be imposed on the debtor. The temporary insolvency administrator then has all administrative and disposal powers over the debtor’s assets.

If a weak insolvency administrator is appointed, the debtor retains the general power of disposal. However, the court may order that the debtor’s orders are effective only with the consent of the provisional insolvency administrator.

  • Provisional creditors’ committee

In addition, the court may establish a provisional creditors’ committee. The members of a creditors’ committee can examine the debtor’s books, money holdings and monetary transactions. The creditors’ committee is intended to assist the insolvency administrator and safeguard the interests of creditors.

As soon as the court determines that the reason for insolvency exists and the insolvency assets are sufficient to cover the costs, the insolvency proceedings are opened by order. At the latest at the time of the opening of insolvency proceedings, the power of administration and disposal is transferred to the insolvency administrator, section 80 InsO.

In the opening decision, the now appointed insolvency administrator must be named. At this stage, creditors are invited to submit their claims against the debtor to the table. Creditors must file their claims in writing with the insolvency administrator. Subsequently, the insolvency administrator must enter each filed claim in the so-called insolvency table.

Insolvency proceedings have been opened.

The first meeting is the first creditors’ meeting in the insolvency proceedings after the court’s decision to open proceedings. This date is already set in the opening decision. At this meeting creditors are informed about the debtor’s economic situation and the reasons for this. The insolvency administrator must inform the creditors of any restructuring possibilities and the possibilities for an insolvency plan. After the report has been submitted, the creditors’ meeting decides whether the debtor’s company should be closed down or continued. The assembly may also instruct the insolvency administrator to prepare an insolvency plan.

At the verification meeting, the creditors’ claims are discussed and, among other things, the correctness of the claimed amount and rank is checked. In principle, the insolvency administrator may acknowledge or contest registered claims. In the latter case, the creditor should take action to preserve his legal position.

In the liquidation phase, the debtor’s assets are liquidated and the insolvency table is thus adjusted. The winding-up phase can last up to several years. The insolvency administrator is therefore obliged to report at regular intervals in the form of an interim report on the progress of the insolvency file. Under certain legal provisions, partial payments (partial distributions) may be made to creditors in the event of a long liquidation phase. Before any distribution the administrator shall obtain the consent of the creditors’ committee, if appointed.

After realisation of all assets and examination of all registered claims, the insolvency administrator submits a final report including a final accounting to the insolvency court. This final report must be approved by the insolvency law court. The court then sets a date for the last creditors’ meeting. At this final meeting, the final account and also the final report of the insolvency administrator will be presented and explained to the creditors. The creditors may raise objections to the final invoice as well as to the final list during the closing date. If the objections are justified, the insolvency court must ultimately decide and have the final record corrected.

Once the final record has been confirmed, the remaining assets involved in the division shall be distributed to the creditors of the insolvency proceedings in accordance with the final record. Payment is generally made by bank transfer.

After final distribution, the insolvency proceedings will be cancelled by the insolvency court. In regular insolvency proceedings, the insolvency proceedings are thus in principle finally terminated. In private insolvency proceedings, this is followed by the so-called period of good conduct.

Consumer insolvency and residual debt discharge

For natural persons there is a special feature of insolvency law: the discharge of residual debt. The residual debt discharge is intended to help debtors to free themselves from their debts after six years so that they can make a fresh start in business. If the debtor is a natural person (consumer or entrepreneur), he can submit an application for residual debt discharge at the same time as the application to open insolvency proceedings. In this case, the court must decide on the residual debt discharge.

The application for residual debt discharge is inadmissible if a so-called reason for inadmissibility according to § 287a paragraph 2 InsO is given.

The insolvency court may only grant a request for discharge of residual debt if the request is additionally accompanied by a declaration of assignment stating that the debtor assigns his attachable claims to current remuneration to a trustee to be appointed by the court for a period of six years after the opening of the insolvency proceedings. If this assignment period expires without premature termination, the court, after hearing the insolvency administrator, the creditors of the insolvency proceedings or the trustee and the debtor, shall decide on the granting of residual debt discharge by order.

Private insolvency generally lasts six years. In 2014, a reform of the insolvency law was passed which enables the debtor to be released from residual debt at an early stage. Under certain conditions, the duration of insolvency can be reduced to five or even three years.

The residual debt discharge after five years can be made possible if the debtor has paid all procedural costs during these five years. If the debtor can pay the procedural costs and also at least 35 percent of the insolvency claims within three years, he will be released from the remaining debts after only three years.

Excluded from the residual debt discharge are the types of claims listed in § 302 InsO:

  • fines and equivalent liabilities in accordance with section 39 (1) No. 3 InsO
  • Interest-free loans to cover the costs of the insolvency proceedings
  • Tort or delict arising out of an intentional tort
  • Certain liabilities of the estate and liabilities incurred after the opening of the insolvency proceedings


Shortened residual debt discharge for all – from 1.10.2020

Aufgrund der aktuellen Korona-Krise hat die Bundesregierung bereits im Sommer 2020 beschlossen, dass ab 1. Oktober die Restschuldbefreiung aller Schuldnerinnen und Schuldner auf 3 Jahre reduziert wird. This means for you: All debtors who have filed for insolvency after 1 October 2020 will be released from their debts after 3 years, regardless of whether 35% of insolvency claims have been repaid.


Obligation to file for insolvency in the Corona crisis:

In principle, the representative of a legal entity (e.g.: AG or GmbH) is obliged to file for insolvency.

Under the Act on the Temporary Suspension of the Obligation to File for Insolvency and on the Limitation of Organ Liability in the Event of Insolvency Caused by the COVID 19 Pandemic (COVInsAG), the obligation to file for insolvency was suspended retroactively as of 1 March 2020 until 30 September 2020. Now a law has come into force which extends the suspension of insolvency until 31.12.2020.

The suspension of the obligation to file an application presupposes that the insolvency maturity is based on the effects of the Corona crisis.

However, the extended suspension until 31.12.2020 only applies to companies that are overindebted due to the pandemic. This means that from 1.10.2020, insolvent companies are obliged to file for insolvency again. The reason for this is the following: In the case of over-indebted companies, there is still the possibility of averting insolvency, whereby insolvent companies can no longer pay their debts and insolvency can no longer be permanently averted.

The purpose of suspensions is to avoid that companies have to file for bankruptcy simply because the state aid due cannot be paid in time.

Are you affected or need more information? Contact your consultant directly here!

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