Insolvency criminal law

Defense in investigations relating to insolvency offences

If criminal investigations are initiated after insolvency proceedings have been opened, the focus is regularly on management, who may face allegations of wrongful delay in filing for insolvency, bankruptcy or preferential treatment of creditors.

The consequences of such proceedings can be severe: fines or terms of imprisonment, professional bans and the loss of fitness to act as a managing director (so-called disqualification under section 6 (2) of the German Limited Liability Companies Act (GmbHG)). In addition, those affected face further professional and commercial repercussions as well as substantial civil liability risks.

Insolvency criminal law becomes relevant as soon as a company enters into a financial crisis, typically when insolvency is imminent. Criminal liability is always assessed retrospectively and requires a precise legal and financial analysis.

Insolvency criminal law comprises a number of offences that may become relevant in connection with a corporate crisis, including:

• Wrongful delay in filing for insolvency (section 15a InsO)
• Bankruptcy (section 283 StGB)
• Preferential treatment of creditors (section 283c StGB) and preferential treatment of debtors (section 283d StGB)
• Violation of accounting and record-keeping duties (section 283b StGB)

Frequently, further offences are alleged in parallel, such as withholding and misappropriation of wages (section 266a StGB), breach of trust (section 266 StGB) or tax evasion (section 370 AO).

Our lawyers at Galen Rechtsanwälte provide nationwide defense in insolvency-related criminal matters. Drawing on our forensic experience in white-collar crime, we conduct a thorough legal and financial analysis of the case and develop a defense strategy tailored to your individual situation.

Please contact us to arrange a consultation.

Importance of insolvency criminal law for managing directors and companies

Insolvency criminal law is not a separate body of law, but rather an umbrella term for criminal offences that are typically committed in connection with a corporate crisis or insolvency proceedings.

In practice, the following is particularly important: once insolvency proceedings have been opened, public prosecutors frequently initiate investigations. They receive information, for example, from the insolvency court, via criminal complaints filed by the insolvency administrator, or from creditors.

The practical relevance of insolvency offences is considerable. They affect not only large corporations, but also medium-sized enterprises, start-ups and owner-managed businesses. The focus is particularly on corporate bodies of legal entities – such as managing directors of GmbHs or board members of AGs. In addition, de facto managing directors, shareholders and authorised signatories (Prokuristen) may also come under investigation.

Beyond the primary sentence, there are significant ancillary consequences, such as:

• Confiscation of assets (sections 73 et seq. StGB, sections 111b et seq. StPO)
• Disqualification from office, i.e. loss of eligibility to hold positions as managing director or board member (section 6 (2) GmbHG, section 76 (3) AktG)
• Professional consequences, e.g. for tax advisors, auditors or lawyers
• Professional bans (section 70 StGB)
• Civil liability claims, in particular actions brought by the insolvency administrator

For many individuals, insolvency criminal law is therefore existentially important.

When does criminal liability arise in insolvency situations?

A corporate crisis becomes criminally relevant in particular where insolvency (section 17 InsO), imminent insolvency (section 18 InsO) or over-indebtedness (section 19 InsO) exists. In these situations, management is subject to strict statutory duties, and breaches may trigger criminal liability.

Wrongful delay in filing for insolvency (section 15a InsO)

Wrongful delay in filing for insolvency is one of the most practically significant offences in insolvency criminal law. Managing directors and other legal representatives of legal entities are obliged to file for the opening of insolvency proceedings without undue delay once insolvency or over-indebtedness has occurred.

The law sets maximum time limits: three weeks in the event of insolvency and six weeks in the event of over-indebtedness (section 15a (1) InsO). These are absolute upper limits and may not be routinely exhausted. If there is no realistic and viable restructuring prospect, the application must be filed immediately.

Criminal liability arises where the application is filed late or not at all. Negligent conduct is also punishable (section 15a (5) InsO). Anyone who fails to monitor the company’s financial situation with due care may therefore be committing an offence.

Typical constellations in practice include:

• Waiting for further cash inflows without a realistic basis
• Relying on non-binding or unsecured financing commitments
• Continuing operations despite a sustained liquidity shortfall

Bankruptcy (section 283 StGB)

The offence of bankruptcy under section 283 StGB presupposes that the debtor is already in a financial crisis, i.e. over-indebtedness or actual or imminent insolvency. A broad range of crisis-related breaches of duty detrimental to creditors’ interests are covered. Among other things, it is an offence to conceal assets that would form part of the insolvency estate, to engage in grossly unprofitable loss-making or speculative transactions, or to commit certain violations of book-keeping, balance sheet or retention obligations.

In practice, investigations often focus on:

• Transfers of assets to relatives or related parties
• Repayment of shareholder loans
• Sale of key assets below market value

As a rule, intent is required; in certain situations negligence suffices (section 283 (4) and (5) StGB).

Section 283 StGB also requires – as do preferential treatment of creditors, preferential treatment of debtors and violation of accounting duties – the existence of an objective condition of criminal liability: either insolvency proceedings have been opened, the opening has been rejected for lack of assets, or there has been a cessation of payments (section 283 (6) StGB).

Preferential treatment of creditors (section 283c StGB)

Preferential treatment of creditors occurs where a debtor, in the knowledge of being insolvent, grants a creditor security or satisfaction that the creditor cannot claim, or cannot claim in that way or at that time. The decisive factor is the incongruent performance. Congruent payments, i.e. payments made in satisfaction of a due and enforceable claim, are generally not covered by section 283c StGB. In practice, the distinction between congruent and incongruent transactions is often complex and may offer significant avenues for defense.

As with bankruptcy, an objective condition of criminal liability must also be met: the debtor must have ceased payments, insolvency proceedings must have been opened, or an application for opening proceedings must have been rejected for lack of assets (section 283c (3) in conjunction with section 283 (6) StGB).

Preferential treatment of debtors (section 283d StGB)

In the offence of preferential treatment of debtors, the perpetrator is not the debtor, but a third party who, in the knowledge of the debtor’s imminent or actual insolvency, after cessation of payments or during ongoing insolvency proceedings, conceals assets belonging to the insolvency estate from creditors. The act must be committed with the debtor’s consent or for the debtor’s benefit.

Here too, criminal liability is subject to an objective condition: insolvency proceedings must have been opened, have been rejected for lack of assets, or there must have been a cessation of payments (section 283d (4) StGB).

Violation of accounting and record-keeping duties (section 283b StGB)

Section 283b StGB links to commercial and tax law accounting obligations. It penalises, for example, those who fail to keep proper books or do not prepare financial statements in due time in breach of commercial law duties. The provision functions as a catch-all for cases covered by section 283 (1) nos. 5 to 7 StGB in which other elements of bankruptcy are not fulfilled, for instance because no crisis existed at the time of the act or the crisis was not recognised due to negligence.

Section 283b StGB also requires an objective condition of criminal liability: a cessation of payments, the opening of insolvency proceedings or the rejection of an application for lack of assets (section 283b (3) in conjunction with section 283 (6) StGB).

How are insolvency offences detected?

Investigations in insolvency criminal law are frequently triggered by notifications from the insolvency court to the public prosecutor’s office, reports by the insolvency administrator, criminal complaints by creditors or information from (former) employees.

The public prosecutor’s office will then assess whether there is initial suspicion of an offence. Typical investigative measures include:

• Searches of business and private premises (sections 102 et seq. StPO)
• Witness interviews
• Securing business records and electronic data
• Expert reports on the management of the business and the financial crisis

A central element is often a retrospective insolvency report, which determines the exact date of (imminent) insolvency or over-indebtedness. This report has a decisive impact on the criminal assessment and is therefore a key point of attack for the defense.

The reason: the assessment of liquidity forecasts and going-concern assumptions necessarily involves judgment calls, which must be carefully reviewed and, where appropriate, challenged.

Sanctions in insolvency criminal law

The range of penalties varies depending on the specific offence:

• Wrongful delay in filing for insolvency (section 15a InsO): imprisonment for up to three years or a fine; in cases of negligent commission, imprisonment for up to one year or a fine.
• Bankruptcy (section 283 StGB): imprisonment for up to five years or a fine; in cases of negligent commission, imprisonment for up to two years or a fine. In particularly serious cases (section 283a StGB), imprisonment from six months to ten years.
• Violation of accounting duties (section 283b StGB): imprisonment for up to two years or a fine; in cases of negligent commission, imprisonment for up to one year or a fine.
• Preferential treatment of creditors (section 283c StGB): imprisonment for up to two years or a fine.
• Preferential treatment of debtors (section 283d StGB): imprisonment for up to five years or a fine; in particularly serious cases, imprisonment from six months to ten years.

In addition to the main penalty, there may be collateral consequences such as confiscation measures, professional bans under section 70 StGB or disqualification from office under section 6 (2) GmbHG or section 76 (3) AktG. Companies themselves may face fines under the Administrative Offences Act (OWiG). Civil liability risks are also common.

How Galen Rechtsanwälte support you in insolvency criminal matters

Insolvency-related criminal proceedings require a strategic and technically sound defense. We begin by thoroughly reviewing the case file and analysing both the insolvency-law background and the prosecution’s investigative approach.

We support you during searches and interrogations, advise you on whether and how to exercise your right to remain silent or testify, and on how to deal with investigating authorities. Our aim is a legally robust defense that gives equal weight to evidentiary issues, procedural safeguards and economic consequences.

We offer personal, individual consultations. Please feel free to contact us to arrange an appointment.