Managing directors and other corporate representatives must continuously monitor the financial position of the company. Once signs of a crisis become more concrete, it is not sufficient to look only at account balances or individual overdue invoices. The decisive question is whether a statutory ground for insolvency exists and whether an insolvency application must therefore be filed.
Illiquidity
Illiquidity is a statutory ground for insolvency. It exists when the debtor is no longer able to meet its due payment obligations. The assessment therefore normally requires more than a review of one bank account. Available and short-term available liquidity must be compared in a structured way with due liabilities. In practice, this is commonly done by preparing a liquidity status or liquidity balance and, where necessary, supplementing it with short-term liquidity planning.
Over-indebtedness
For legal entities, over-indebtedness may constitute a further mandatory ground for insolvency. The assessment does not depend solely on whether accounting liabilities exceed assets. German insolvency law combines the asset position with a going-concern assessment. A key question is whether continuation of the business over the relevant forecast period is predominantly likely. The assessment therefore requires both legal and financial analysis.
Imminent illiquidity as a voluntary ground
Imminent illiquidity must be distinguished from already existing illiquidity. It exists where it is foreseeable that the debtor will probably be unable to meet payment obligations when they fall due in the future. This does not, as such, create the same mandatory filing duty. It does, however, allow an insolvency application to be filed at an earlier stage. An early filing may preserve room for manoeuvre before an acute liquidity crisis occurs.
Management must monitor insolvency maturity continuously
Managing directors and other representatives should therefore maintain reliable key figures and up-to-date liquidity planning. During a crisis, developments must be reviewed at short intervals. Relevant information includes due liabilities, available cash, expected incoming payments, financing commitments and forward-looking business planning. The more critical the situation becomes, the closer the monitoring needs to be.
Early legal review preserves options
A lawyer can assist in assessing the factual and legal requirements of the insolvency grounds, structuring the necessary documents and evaluating the financial information to determine whether insolvency maturity has already occurred or is becoming foreseeable. The earlier a crisis is identified, the greater the chance of reviewing available options and preparing the next steps in an orderly manner.
Civil liability and criminal-law risks
Failure to comply with a mandatory insolvency filing duty can have serious consequences. Payments made from company assets after insolvency maturity may expose management to personal reimbursement and liability claims. Further civil-law claims may arise depending on the circumstances. Criminal-law risks may also exist, including risks connected with late filing or other insolvency-related breaches of duty. For this reason, the assessment of insolvency maturity should be documented and should not begin only once liquidity has been fully exhausted.