Insolvency is not the end.

 The most important questions and answers for companies in crisis.

Insolvency is not the end. The most important questions and answers for companies in crisis.

Insolvency law has come back into force. The few remaining pandemic-related exemptions expired on May 1, 2021. Now many companies are faced with insolvency as a result of the COVID-19 pandemic.

Suffering economic difficulties because of the COVID pandemic is nothing to be ashamed of. But what do you have to do if your own company is in trouble? We provide a brief overview, explain the various insolvency proceedings, how they work and what a delay in filing for insolvency actually is.

What is insolvency?

Insolvency is a tough test for anyone, whether private individuals or entrepreneurs and their employees but also for business partners who are left with unpaid invoices. Insolvency proceedings do not necessarily mean the end nor is the worst case inevitable. In contrast to liquidation, which always results in the complete dissolution of the company, insolvency proceedings also allow the reorganization of the company or the debtor.

The term insolvency is derived from the Latin word solvere (“to pay”). It refers to the situation in which a company or private individual is unable to settle outstanding payments. This occurs when expenses can no longer be covered by earnings.

Insolvency is the acute or impending inability of a company or an individual to pay. This characterized by being unable to settle debts or liabilities toward creditors at present or in the foreseeable future.

When companies or individuals are insolvent, they must file a request for insolvency. Over-indebtedness can also lead to insolvency. This particular case occurs when the outstanding claims are higher than the existing assets.

What does “delay in filing for insolvency” mean?

The delay in filing for insolvency can involve serious consequences under both civil and criminal law. This occurs if the request for insolvency has not been filed in time. If they become unable to pay, companies must file for insolvency within three weeks; in the event of over-indebtedness, the new law specifies a deadline of six weeks. If the request for insolvency is not filed before the deadline, this is referred to as a delay in filing for insolvency. This can incur a maximum penalty of up to three years’ imprisonment or a fine.

Overview of the various insolvency proceedings

Insolvency proceedings aim to eliminate debts. The remaining assets of an insolvent or over-indebted debtor are liquidated and the resulting proceeds then distributed.

Standard insolvency

If the debtor is a company, a self-employed person or an association, the standard insolvency procedure is mandatory. This represents the standard procedure for companies and people who are currently or used to be self-employed. In addition, they must also have 20 or more creditors or outstanding claims resulting from the employment of workers.

Consumer insolvency proceedings are initiated for the formerly self-employed if their financial circumstances are manageable and no claims from employment relationships exist. The term manageable is understood to mean that the debtor has fewer than 20 creditors at the time proceedings are initiated, i.e. a maximum of 19 creditors. Claims from employment relationships include, in particular, claims from social security institutions (e.g. health insurance contributions for employees, social fund contributions (Knappschaft), wage claims from employees) and tax offices (wage tax), as well as employers’ liability insurance associations.

Consumer insolvency

This form of insolvency is also referred to as a “private insolvency”. This procedure is used for debtors who have never been self-employed or used to be self-employed, have less than 20 creditors and no outstanding claims from employees. As a rule, consumer insolvency lasts three years.

Insolvency under self-administration

According to the German Insolvency Code, insolvency under self-administration is an option enabling a debtor to manage and dispose of the insolvency assets under the supervision of a trustee. In the process, the debtor under self-administration becomes the insolvency administrator on their own behalf.

This procedure leaves the company under the control of the management. The aim is to reorganize the company.

DIGRESSION: Non-insolvency under self-administration

The introduction of the Act on the Further Development of Restructuring and Insolvency Law (SanInsFoG) enabled restructuring proceedings outside of insolvency law for the first time. This law utilizes instruments largely comparable to self-administration under insolvency law, yet without actual insolvency.

Protective umbrella proceedings

The protective umbrella proceedings aim to prepare for restructuring in the event of imminent insolvency. In this case, the company is covered by a legal “protective umbrella” and is initially protected against access by its creditors. The management retains control over the company in a manner similar to insolvency under self-administration.

Insolvency planning procedures

Deviating from the other regulations of the Insolvency Code, an insolvency plan can be used to restructure an insolvent company. The insolvency plan serves to enable insolvency proceedings to be handled amicably and under the control of the debtor or creditor. This can take numerous different forms. The insolvency proceedings may also involve the transferring reorganization or liquidation of the company. In contrast to a transferring reorganization, an insolvency plan retains the original company owner and the company continues to operate.

Estate insolvency proceedings

If the debtor dies, an estate insolvency procedure is initiated. In this case, the liability of the heirs is limited to the estate itself.

The insolvency procedure

  1. Request for insolvency
    Only the debtor (“own application”) or a creditor (“third-party application”) may file a request for insolvency. The request must include a justified reason for insolvency (inability to pay, over-indebtedness, or imminent insolvency for the debtor).
  2. Establish a preliminary creditors’ committee
    The law stipulates diverse prerequisites for establishing a creditors’ committee (usually for more extensive proceedings). However, the prerequisites are also subject to the discretion of the insolvency court. A preliminary creditors’ committee is always recommended when business operations have ceased.
  3. Expert assessment phase
    After the request for insolvency has been filed, the insolvency court examines the admissibility. If the admissibility requirements are fulfilled, the court then assesses the ability to initiate insolvency proceedings. Proceedings can be initiated if there is a verified reason for insolvency and the costs of the proceedings are covered.
  4. Preliminary insolvency administration
    In addition to an expert assessment, the court also has the option of ordering measures to safeguard the insolvency estate. Typically, the court appoints a preliminary insolvency administrator in these cases. A preliminary insolvency administrator has the task of ensuring that the business operated by the debtor is continued until a decision has been reached with regard to the insolvency proceedings.
  5. Initiate insolvency proceedings
    The insolvency court initiates the insolvency proceedings by decision. Once the insolvency proceedings have been initiated, the power of administration and disposal passes to the insolvency administrator. Pending proceedings are interrupted by law. The insolvency administrator establishes the debts incumbent on the assets when the insolvency proceedings are initiated, at the latest. These consist of liabilities such as the costs of the insolvency proceedings along with the remuneration and expenses of the insolvency administrator and the other creditors. This also includes wages, provided that employees remain employed by the insolvent company. If the insolvency administrator terminates the employment relationship, severance payments are also included in this liability.
  6. Report date
    If proceedings are initiated, the report date (creditors’ meeting) is definitive for the further progress of the proceedings. At this meeting, the insolvency administrator reports on the debtor’s financial situation and the causes thereof. At the same time, the insolvency administrator also explains any prospects of preserving the debtor’s business as a whole or in parts along with the options for an insolvency plan as well as the resulting effects on the satisfaction of the creditors.
  7. Review meeting
    At the review meeting, the insolvency administrator submits the tabular explanations regarding the claims filed to the court.

Liquidation phase

During the liquidation phase, the insolvency administrator implements the decisions reached during the creditors’ meeting, disposes of the existing assets and updates the insolvency table accordingly. This phase may be very time-consuming, depending on the scope of the proceedings and the specific circumstances.

Final report and closing date

After all of the assets have been liquidated and all of the claims filed have been conclusively reviewed, the insolvency administrator submits a final report along with the final statement of accounts to the insolvency court.


After the final meeting, the insolvency court approves the final distribution in accordance with the distribution list submitted, provided that no objections are raised.


After the insolvency estate has been distributed, the insolvency court resolves the proceedings. In the case of companies, this represents the end of the insolvency proceedings. Only insolvency proceedings pertaining to the assets of natural persons are followed by a good conduct period.

Residual debt discharge

The conclusion of insolvency proceedings related to the assets of a natural person may be followed by residual debt discharge proceedings. After the residual debt discharge has been granted, the debtor is released from all liabilities incurred prior to initiating the proceedings.

After the end of the good conduct period, the court decides whether or not to grant the final residual debt discharge.

We support you with all issues regarding crisis, reorganization and insolvency. We are a team of experienced lawyers with empathy for companies in crisis and private individuals in desperate economic circumstances. Contact us.