Current decision on the assessment of insolvency

When auditing a company’s insolvency, a managing director, when previewing the next three weeks, is not only to consider receivables, but also new liabilities falling due within this period (so-called “Liabilities II”).

Background: Managing director liability pursuant to Section § 64 GmbHG

The defendant was the managing director of a GmbH and was sued by its insolvency administrator pursuant to Section 64 GmbHG [the German law pertaining to GmbH's]. According to this regulation, a managing director is liable for all outflows from the assets of the company that take place after the insolvency has occurred. The insolvency administrator demanded compensation for payments that had been made in the last year before the application for insolvency. He argued that the company had been insolvent one year before the filing of the application. It was therefore decisive whether the company's insolvency had already occurred at the time of payment.

The decision of the Federal Supreme Court: liabilities falling due within 3 weeks must be included in the preview

The debtor is deemed to be insolvent if the debtor is unable to meet his or her liabilities. If the liquid funds available are sufficient to pay at least 90% of the liabilities due, there is only a so-called payment stagnation (and no insolvency) if the shortfall can be closed within the next three weeks. For this three-week forecast, it was not yet clear whether only liquid funds (assets II) on the assets side of the balance sheet or also liabilities II on the liabilities side, which become due and are claimed within the three weeks, should be included into the forecast. The Federal Supreme Court has now decided that liabilities II must also be included. It is therefore not sufficient that the gap existing on the cut-off date can be closed by the liquid funds to be made liquid in the next three weeks. Rather, the preview must show that in the three-week period, the gap can be closed in full, even taking into account (i. e. by paying) the newly maturing liabilities.

The impact of the judgment on practice

The Federal Supreme Court has so far left open the question of whether so-called liabilities II should be included in the three-week preview. Subsequently, a dispute arose on this question in the legal literature and ambiguity in practice. This was shown, for example, in the IDW Standard S 11 for assessing the existence of reasons for opening insolvency (status: January 29, 2015), which does not provide a clear answer to this question. The ruling of the Federal Supreme Court now clarifies how the insolvency-test must be calculated in accordance with the payment stagnation.

When checking the possible insolvency of the company, managing directors and their consultants now have a clear guideline: Liabilities becoming due within three weeks after the effective date (Liabilities II) are to be considered when assessing insolvency.

The time insolvency occurs is not only relevant for the liability of managing directors according to Section 64 GmbHG, but also for criminal liability due to delays in filing for insolvency (Section 15a (4) InsO). Moreover, the determination of this point in time is also decisive for most cases of insolvency contestation.