A company Insolvency is not an easy situation for any entrepreneur, but it can happen at any time. Frequently there are also external influences for which the entrepreneur can do nothing.  This makes it all the more important to recognise in good time when an Insolvency application has to be made.

A company Insolvency is similar to a private Insolvency. However, the whole procedure is much less simple for companies and is officially referred to as a regular Insolvency. Once the Insolvency petition has been filed, the company can either be reorganized, liquidated or dissolved within the framework of the Insolvency proceedings.

When you and your company must file for Insolvency

The InsC (Insolvency Code) precisely defines when a company must report itself as Insolvent. The following three points are reasons for the opening of a company Insolvency:

  • Overindebtedness
  • Insolvency
  • Imminent Insolvency


Over-indebtedness is a reason for legal entities, such as companies, to become Insolvent. Under section 19 (2) InsC, it was stated that over-indebtedness exists if the prevailing liabilities can no longer be covered by the debtor’s assets. An exception to this rule is the probability that the company will continue as a going concern, despite the circumstances.


On the other hand, inability to pay is considered the first general reason for opening an Insolvency application. According to section 17 (2) InsC, an inability to pay exists if the debtor is no longer in a position to meet the due payment obligations such as loan repayments. Insolvency can therefore be assumed if the debtor has completely stopped payments.

Imminent Insolvency

The third reason for opening a company Insolvency lies in the threat of Insolvency. According to § 18 (2) InsC, an impending Insolvency exists if it must be assumed that the debtor can no longer meet his due payment obligations punctually and in full. This often includes company loans taken out for self-employment.

If the company is a partnership without personal liability or a corporation, there is an obligation to file for Insolvency within three weeks of the date of over-indebtedness or illiquidity pursuant to section 15 a (1) InsC. In the event of non-performance or failure to do so, you may be guilty of a so-called delay in filing for Insolvency. Possible consequences could be a fine or even a prison sentence of up to three years.

The planned course of a company Insolvency

Corporate InsolvencyIf you are now wondering how exactly the process of a corporate Insolvency is and how it is regulated, the following phases can give you an insight:

  • The Insolvency application and the opening proceedings
  • The Insolvency proceedings
  • The conclusion of the Insolvency proceedings

For companies, corporate Insolvency begins with the filing of the Insolvency petition. The competent authority for this is the local district court, which also acts as the Insolvency court in this respect. The jurisdiction depends on the location of the company’s registered office. If the Insolvency petition for company Insolvency has been filed, the competent court checks whether all the requirements are met before the Insolvency is opened. At least one of the aforementioned reasons for opening Insolvency proceedings must be present. In addition, there must be sufficient realisable assets to cover the costs of the Insolvency proceedings. The costs include the remuneration of the Insolvency administrator and the court costs incurred. If there are not sufficient assets, the Insolvency application will be rejected due to insufficient assets.

The actual procedure of company Insolvency

During the actual corporate Insolvency proceedings, a specially appointed Insolvency administrator takes over the management of the company. The company’s assets, which can also be seized, are confiscated so that the debtor no longer has any disposal over them. The authority to dispose of them is transferred solely to the Insolvency administrator responsible. As an alternative, you can also apply for a company Insolvency, which will be administered by yourself. The defined procedure of a company Insolvency provides for either restructuring or liquidation of the company. The exact procedure is explained below.

The duration of a company Insolvency

It is hardly possible to give a general answer to the question of the duration of a corporate Insolvency, because too many different factors influence the time frame. Thus both

  • the number of creditors and
  • the size of the undertaking

an important role. A differentiated procedure, however, is provided for natural persons, such as self-employed persons. After the actual Insolvency proceedings, they go through the so-called “good conduct phase”. This ends with the discharge of residual debt. As a rule, this phase lasts for a period of six years, although it can be shortened to five or even three years.

Reorganization or liquidation – the question of whether a company can still be saved

Several different factors are responsible for the course of the Insolvency proceedings and the decision whether the company should or can be saved or whether it will be dissolved is of great importance. The Insolvency proceedings may have the objective of selling the assets in the company in order to then pass on the proceeds to the creditors. All necessary steps for this are taken by the Insolvency administrator. All currently valid contracts are terminated by the Insolvency administrator and at the end of the company Insolvency the company is deleted from the commercial register. Furthermore, the Insolvency administrator also has the possibility to attempt to reorganize the company in various ways. One possibility in this case would be to sell the Insolvent company, for example. There is also the option to draw up an Insolvency plan. This plan should include measures that could save the company.

A company Insolvency in self-administration or with Insolvency administrator

If you do not wish to appoint an Insolvency administrator to handle the Insolvency proceedings, you can also carry out the corporate Insolvency in self-administration, as in the case of protective shield proceedings, for example. Particularly in the case of somewhat larger companies, an Insolvency administrator should be appointed in any case in order to ensure legal security.

This is how you prevent a delay in filing for Insolvency

If you are over-indebted, Insolvent or threatened with Insolvency, you must file an application for Insolvency with the competent authority. If you do not do so, you may be liable to a large fine or even imprisonment.  You should also get help from your financial accountant or tax advisor. Even if it is not easy, you should file for bankruptcy in good time. After that, you still have the opportunity to look for investors or buyers to keep the company going.