Liability risks of the managing directorfor restructuring measures in the vicinity of insolvency

F&P BlogTo rule out risks, you have to know them, because…

Restructuring measures in financial difficulties have always entailed high risks for the managing director. He is responsible for every decision with his private assets and even risks criminal prosecution.

The suspension of the obligation to file for insolvency due to the coronavirus pandemic has not made the situation any easier. On the contrary, many managers are not aware that if the company is unsuccessfully rescued and it is then necessary to apply for insolvency proceedings, it will be closely examined whether the insolvency

• is caused by the pandemic
• the insolvency may have occurred after 30.09.20 and before 31.12.20.

In both cases, the insolvency administrator will hold the managing director accountable for delay in filing for insolvency pursuant to Section 15 InsO and thus make him liable for damages.

The managing director does not want to imagine such a scenario and is well advised to seek legal advice at an early stage.

What are the liability risksthat a managing director has to deal with?

The following laws are excerpts, but show the minefield in which the managing director moves and what he must pay attention to in order not to risk his well-being and that of his family:

• Insolvency law § 15 a InsO, obligation to file for insolvency:
  The managing director has a maximum of 3 weeks to file for insolvency when the reason for insolvency occurs. Violation of this rule can result in fines or even imprisonment for up to 3 years in the best case scenario.
  The risk of falling into this trap is particularly high if the company has not established any early warning systems (e.g. rolling liquidity planning) or the accounts are not maintained in a timely manner. (Incidentally, this is additionally sanctioned (§283 StGB)).
• The Criminal Code
  Various sections are used here as examples, depending on the situation.

• The Civil Code
• The limited liability company law
• Tax code

The laws listed above are not exhaustive, but show the high-risk environment in which the managing director, but also the managing interim manager, operates. It is irrelevant whether he is a managing director by mandate or only acts as such (de facto managing director).

Managing directors are advised to appoint experts at an early stage who are familiar with

• the legislation
• Strategy development
• tax matters
• insolvency law
• labor law

to achieve a sustainable turnaround and reduce risks to a minimum.

The bottom line

In the vicinity of insolvency, the managing director is advised to get the appropriate experts on board who are familiar with the procedures, but who also come from the entrepreneurial side, because it is primarily about the continued existence of the company and not about breaking it up.

In principle, the managing director is required to pay attention to the appropriate monitoring tools, maintain clean bookkeeping and establish reliable liquidity planning. This can already compensate for some risks.

Particularly in view of the new legislation (StaRuG), which comes into force on 01.01.21, the requirements for managing directors have been tightened and must now be adapted to.

F&P Executive Solutions AG specializes in these topics and is always available to answer further questions.

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