What applies to the liability of business managers in a crisis?

Entrepreneurial life is an “up and down” business. It is not uncommon for companies to run into bottlenecks and ultimately crises. The crisis is accompanied by a number of liability risks for managers. For example, they have to take into account prohibited payments, the risk of insolvency or even possible fraud.

Therefore, the earlier critical situations are recognized, the greater the scope for action to eliminate them.

When is a company in crisis?

Whether it’s a business crisis, a legal crisis or a crisis under insolvency law, all crises end in insolvency. But when can you actually say that you are in a crisis?

If the values and goals, and in particular the continuation of the company, are at risk, then you are in a business crisis.

The consequence of the business crisis is the legal crisis, in that legal consequences, such as the denial of credit, are triggered.

If the company is then insolvent, threatened with insolvency or overindebted, the insolvency crisis has occurred. Colloquially, the company is then considered bankrupt.

Causes for a crisis can arise internally, but also externally.

  • Internal causes include management deficiencies, organizational deficiencies, a defective strategy or inadequate controlling.
  • External causes of a crisis include, for example, flawed social and wage policies, natural disasters or increasing globalization. But supply bottlenecks and payment defaults are also examples of external causes of a crisis.

What then needs to be considered with regard to an insolvency delay?

If the company is in a crisis and is ultimately insolvent or overindebted, the member of the management and representative body is obliged to file for insolvency without culpable hesitation, but at the latest within three or six weeks.

This applies irrespective of ongoing and promising reorganization efforts. If the manager fails to comply with this obligation, he is liable to prosecution for delaying insolvency, which can be punished by a fine or, in the worst case, imprisonment for up to three years.

In addition, creditors can also make claims against the manager personally if they have suffered damage as a result of the delay in insolvency.

When does one commit a possible inception fraud?

A person who enters into a contract and already knows when entering into that contract that he will not be able to fulfill his contractual obligations is deceiving his contractual partner.

This means that fraud is committed, for example, if you order deliveries on account and know or accept that you will not be able to pay the invoice. If, for example, a supplier is deceived about the lack of willingness to pay, he suffers damage as a result, since he does not receive a purchase price in return.

The fraudulent entry plays a major role, especially in a state of insolvency. After all, the manager of the legal entity knows full well that he will not be able to meet new liabilities. In terms of criminal law, this fraud entails serious consequences: there is the threat of a prison sentence of up to five years or a fine.

What payments may not be made by the managing director during insolvency?

Extended duties of care apply to the managing director of a legal entity if the legal entity is in a state ripe for insolvency, i.e. it is insolvent or overindebted.

If the manager makes payments after the company is ready for insolvency, he is obliged to compensate the company for these payments. This is intended to prevent the insolvency estate from being reduced at the expense of the creditors.

In addition to monetary payments, the term “payment” also includes other payments, such as the assignment of claims or offsetting.

The manager, on the other hand, does not have to pay compensation if the payments were consistent with the due care of a prudent businessman. This includes payments that are made in the ordinary course of business and serve to maintain business operations.

The payment of employee social security contributions, for example, is not prohibited during the period of insolvency and is therefore not subject to reimbursement. The payment of taxes, on the other hand, is subject to reimbursement according to current case law, provided that these were paid during the period of insolvency.

What impact does the COVID 19 pandemic have on the payment ban?

If the company’s economic difficulties are based on the consequences of the COVID 19 pandemic, payments may continue to be made to third parties provided they are made in the ordinary course of business.

This applies in particular to payments that serve to maintain or resume business operations or to implement a restructuring concept.

However, with the suspension of the obligation to file for insolvency, the business manager must exercise caution: If, in retrospect, it turns out that the economic difficulties already existed before the COVID 19 pandemic and the conditions for the suspension of the obligation to file for insolvency did not exist, the manager is liable for damages to the company and its creditors.

Under certain circumstances, he may also be liable to prosecution. Ultimately, there would have been an obligation to file for insolvency and the manager would no longer have been allowed to make payments.

Your ACCONSIS-contact person:

Tanja Friedrich

Tanja Friedrich
Lawyer
Specialist lawyer for commercial and company law
Autorised signatory ACCONSIS GmbH Rechtsanwaltsgesellschaft

Service Phone
+49 89 547143
or by e-mail
t.friedrich@acconsis.de