The Act on the Further Development of Restructuring and Insolvency Law (SanInsFoG) came into force on January 1, 2021. For the first time, insolvency law has standardized the management’s obligation to pay compensation for payments that are detrimental to the mass of the company after grounds for insolvency exist. Accordingly, the regulations governing the liability of company management, which were distributed among numerous laws, were merged in Section 15 b InsO and modified independently of the company’s legal form and with updated wording.
Although the new paragraph still states that the management may no longer make payments from the company’s assets after the occurrence of over-indebtedness or insolvency, the legally governed specification of the standard for a prudent and conscientious manager after the onset of grounds for insolvency is new. The consequent obligation to pay compensation for prohibited payments remains unchanged. However, privilege is given to payments made
- in the ordinary course of business, in particular to maintain business operations,
- within the application period as per § 15 a InsO and
- for the long-term elimination of grounds for insolvency or preparation of an insolvency filing with the due care and diligence of a prudent and conscientious business manager.
Furthermore, payments made between the filing for insolvency and initiating insolvency proceedings with the consent of the preliminary insolvency administrator are also privileged. Payments made after the expiry of the deadline for filing for insolvency do not reflect the due care and diligence of a prudent and conscientious business manager.
This new legal provision relaxes the liability situation for managing directors.
Privileged payments for maintaining business operations
The new regulation initially privileges payments that serve to maintain business operations. This applies until the management implements measures to permanently eliminate the grounds for insolvency or to prepare to file for insolvency. Payments of this nature are regarded as fulfilling the due care and diligence of a prudent and conscientious business manager. Consequently, Section 15 b InsO deviates significantly from the previously strict case law of the Federal Court of Justice (BGH).
According to the previous opinion of the BGH, payments were only regarded as fulfilling the due care and diligence of a prudent and conscientious business manager if the payment corresponded to a direct financial consideration. Creditors then had to be able to use this effectively, i.e. it had to represent compensation for the reduction in the assets of the estate by an inflow of assets. However, according to previous BGH case law, labor and services, energy supply or telecommunication services could not be recovered by creditors. Therefore, payments for services of this nature were not privileged up until now. If the managing director affected payments of this type in the event of existing grounds for insolvency, for example, they were obligated to compensate the limited liability company as per Section 64 GmbHG. Up until now, payments that would otherwise destroy a real chance of restructuring or continuing the company during the insolvency proceedings were the only exception.
However, this case law also effectively prevented the management from continuing the company after grounds for insolvency existed. There was extensive uncertainty regarding which payments were permissible and which incurred an obligation to pay compensation. This also frequently arose due to the fact that resolving the question as to whether a realistic chance of restructuring exists requires an extensive and time-consuming legal assessment.
The new section 15 b (2) InsO has now largely eliminated these uncertainties. Contrary to the BGH case law, this clearly states that a business manager may make payments to maintain the business, and is permitted to do so as long as they fulfill their obligations under insolvency law. This also applies specifically to payments for services.
It is important to note that this privilege in Section 15 b (3) InsO applies exclusively to the period up to the end of the insolvency application period as per Section 15 a InsO. This section stipulates that filing to open insolvency proceedings must take place “without culpable delay”, i.e. immediately. However, within three weeks at the latest in the event of insolvency. In the case of over-indebtedness, the six-week time limit applies – as long as measures are initiated with the purpose of reorganizing the company.
No liability in the event of tax or social security liabilities subject to penalty
In addition, the legislator now takes account of the fact that business managers face a predicament during the period between filing for insolvency and the insolvency court’s decision to open insolvency proceedings. On the one hand, extensive payment obligations subject to penalties (e.g. payment of taxes or social security contributions) exist. On the other hand, the business manager is prohibited from fulfilling these obligations in order to prevent their own liability (e.g. as per Section 69 (1) AO). Pursuant to Section 15 b (8) InsO, the business manager can now avoid these conflicting obligations by filing for insolvency in good time.
Only liability to the amount of the damage actually incurred and D&O insurance
The SanInsFoG implements another new aspect with regard to the scope of liability. The management now has the option of disputing the presumption of overall creditor damage to the amount of the prohibited payments. Consequently, the management is only liable to the extent of the damage actually incurred. However, in accordance with Section 15 b (4) InsO, the management must provide proof that the actual loss is less than the total amount of the payments made. Furthermore, it is partially argued that the new wording of Section 15 b (4) InsO, which speaks of damage to creditors, implies that the obligation to pay compensation is structured as a claim for damages and is also covered by D&O insurance.
IX Civil Senate of the Federal Court of Justice (BGH) now has jurisdiction
The fact that a change in jurisdiction is taking place as a result of the central standardization of company director liability due to late filing of insolvency applications in the InsO results in a relief for company management. In future, the new cases relating to Section 15 b InsO will be decided by the IX Civil Senate of the BGH. Whether this will result in leniency beyond the legal privilege remains to be seen.
The privileges granted by Section 15 b InsO noticeably increase the legal certainty while reducing the liability for the company management. Nevertheless, companies have to initiate measures without delay and as soon as grounds for insolvency occur. These measures must serve the reorganization or the preparation of an insolvency filing. All of these measures must be implemented within three weeks, in the case of insolvency, or within six weeks, in the case of over-indebtedness. Only then does the manager have a chance of not having to assume liability.