Delaying insolvency

1. What is insolvency delay?

Delaying insolvency refers to the late or omitted filing of a company's insolvency despite knowing that it is insolvent or over-indebted, which is a criminal offense in Germany. Management or the responsible bodies (e.g., the board of directors, managing directors) are obligated to file for insolvency as soon as they become aware of the financial difficulties.

2. Legal basis & criminal liability

The greatest criminal risk in the liquidation or closure of a company therefore lies in the violation of the obligation to file for insolvency. This obligation is now clearly regulated in Section 15a of the Insolvency Code (InsO). According to this, managing directors, board members, and other authorized representatives of corporations must file for insolvency no later than three weeks after the onset of insolvency or over-indebtedness. Failure to do so may result in criminal consequences—including imprisonment (up to three years) or a fine. It should also be noted that even a not correctly posed An application for opening proceedings may result in criminal liability.

For managing directors, this means that a timely and careful review of the company's financial situation is essential. Insolvency already exists when the company is no longer able to pay its outstanding liabilities. Over-indebtedness occurs when assets no longer cover existing liabilities – unless there is a positive prognosis for continued operations, i.e., a realistic prospect of economic recovery.

Especially in economically strained times or when payments are looming, delaying the filing of insolvency proceedings is a key criminal risk factor. The obligation to file for insolvency is therefore not only a legal responsibility, but also a highly relevant business responsibility. Delaying the filing of insolvency proceedings is often associated with other criminal offenses, such as bankruptcy (Section 283 of the German Criminal Code), favoring creditors (Section 283c of the German Criminal Code), and fraud (Section 263 of the German Criminal Code). Therefore, in critical situations, legal assistance should be sought immediately.

3. When does insolvency occur?

Legally, insolvency exists according to Section 17 (2) of the Insolvency Code (InsO) if the debtor is no longer able to meet his or her payment obligations. As soon as a debtor has ceased to make payments, insolvency is presumed by law (Section 17 (2) Sentence 2).

According to Section 19 (2) InsO, over-indebtedness exists when the assets no longer cover the existing liabilities – unless there is a positive prognosis for continued operation, i.e. a realistic prospect of economic recovery.

4. Early warning signs of impending insolvency can be:

a) Payment and liquidity problems:

Payment deadlines are regularly exceeded.
Longer payment terms are requested.
Discounts are used less frequently or not at all.
Installment payments to settle outstanding debts are requested.
Liabilities to suppliers increase despite constant cost of goods sold.
Receivables grow faster than sales.
Overdue invoices and reminders are piling up.
Suppliers only deliver against advance payment, cash on delivery or security.
Bills of exchange are used to extend payment.

b) Conspicuous business conduct:

New contracts are awarded despite outstanding legacy issues.
Acceptance obligations for work contracts are delayed.
Business relationships (e.g. bank details) are changed at short notice.
The business partner changes the legal form (e.g. to UG, Ltd.).
The company headquarters is relocated and branches are closed.
Employees are laid off or the company is significantly downsized.

c) Supplier relationship & contractual breaches:

Delivery conditions are changed unilaterally or contracts are terminated.
The quality of the delivered goods decreases.
Discounts are no longer granted, although they were previously common practice.

5. Who is required to apply?

The application for the opening of insolvency proceedings in the case of insolvency or over-indebtedness must be filed According to Section 15a of the German Insolvency Code (InsO), the obligation to file a complaint is submitted by members of the representative body of legal entities (e.g., limited liability companies, stock corporations, registered companies), i.e., managing directors of a limited liability company or members of the board of directors of an stock corporation. In the case of partnerships with limited liability partners (e.g., a GmbH & Co. KG), the obligation also applies to the persons appointed to represent the general partner (GmbH).

Of particular relevance in this regard is the ruling of the Federal Court of Justice (BGH, judgment of February 27, 2025, 5 StR 287/24 LG Leipzig), which emphasizes that individuals who manage a company's business in the background can be held criminally liable even without being formally appointed as managing directors. In particular, structures aimed at circumventing the obligation to file for insolvency by using financially inexperienced straw men may be liable for aiding and abetting insolvency.

For entrepreneurs and advisors, this means that the actual conduct of business is crucial for the criminal assessment, not just the formal position. It is therefore essential to take legal obligations seriously and seek legal advice promptly if there are signs of financial distress.

The obligation to apply therefore also applies to so-called de facto managing directors, if they actually run the business. In this respect, it depends on the decisive decision-making power, even without a formal appointment.

6. Corporate funerals & bogus companies

In connection with corporate crises and impending insolvency, the phenomenon of so-called corporate burials often occurs. This involves transferring financially troubled companies to third parties – often foreign companies or economically inexperienced individuals. The goal of these measures can be to avoid the statutory obligation to file for insolvency under Section 15a of the German Insolvency Code (InsO).

What is a corporate funeral?

A corporate burial is generally understood to mean the transfer of an over-indebted or insolvent company to a third party without the latter actually intending to continue the business. Typical features of such transactions include:

Sale to foreign companies
Appointment of people without entrepreneurial experience.
Dissolution of bank accounts and emptying of accounts.
Accounting irregularities such as fictitious invoices or missing documentation.
Relocation of the business location or complete cessation of business.

The role of shell companies

In this context, shell companies are deliberately used to simulate business transactions. Although they formally exist, they possess neither significant substance nor operational business operations. In connection with corporate burials, they can be used, for example, to issue invoices without actually providing services, to divert assets, or to hamper creditor prosecution.

Indications of a bogus company:

No own staff, no business premises
Inaccessibility of those responsible
Repeated changes of headquarters and management
No discernible economic activity

Connection with delaying insolvency

If a company is not filed for insolvency in time despite the occurrence of a reason for insolvency, the fact of Delaying insolvency (Section 15a InsO) In this context, corporate burials and bogus companies can be viewed as a means of circumventing the obligation to file for insolvency, which can result in significant criminal consequences. Those affected should seek expert legal advice early on.

7. Avoiding insolvency delay

Do you have a question that remains unanswered? This text is not intended to be exhaustive and is intended only as a first guide; it is not a substitute for personal consultation with a lawyer. Consult a lawyer specializing in delayed insolvency proceedings early on to optimally address your defense and legal protection options. Contact us for a free initial consultation and learn how we can effectively defend your rights.