Managing Directors in a Corporate Crisis: Duties, Liability and Typical Mistakes

Published on 12.10.2026

Managing Directors in a Corporate Crisis

A managing director (Geschäftsführer) in a corporate crisis is under double pressure. Economically, he or she has to save the company; legally, from a certain point onwards, duties apply that have little to do with day-to-day business and whose breach can affect the managing director personally: with his or her private assets, in criminal proceedings and with a disqualification from acting as managing director for several years. Many liability cases arise not from ignorance of the statutory provisions but from understandable human reactions: hoping for the big order, putting off the unpleasant decision, continuing to pay the most important suppliers or not listening to the tax adviser who utters the word “ground for insolvency” (Insolvenzgrund) for the first time.

This article brings both sides together. It explains which duties the law imposes on the managing director of a GmbH or UG (haftungsbeschränkt) (and, by analogy, on the management board of an AG or the managing director of a GmbH & Co. KG) at the individual stages of a crisis, how liability towards the company, creditors, the tax office and social security institutions is structured, what role tax advisers and D&O insurance play and what legal consequences typical management mistakes in a crisis have. Anyone who has moved their residence abroad and continues to run a German company will find the special features in our article on managing director liability after relocating abroad. The legal position is as at October 2026.

The Crisis in Stages: When Which Duties Begin

In business terms, a corporate crisis usually unfolds in stages: first the business model loses ground (strategic crisis), then sales or margins collapse (earnings crisis), finally money becomes tight (liquidity crisis), and at the end there is insolvency (Insolvenzreife). Legally, this sequence is important because each stage triggers its own duties. Anyone who only starts to deal with the law in the liquidity crisis has often already lost the most favourable options for action.

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The table shows the basic problem: the later the managing director reacts, the less he or she can shape events and the more he or she is driven by statutory duties. Liability risks grow correspondingly.

Early Detection of Crises under Section 1 StaRUG: A Duty Even before the Crisis

Since 1 January 2021, Section 1 of the German Act on the Stabilisation and Restructuring Framework for Businesses (Gesetz über den Stabilisierungs- und Restrukturierungsrahmen für Unternehmen, StaRUG) has regulated, for all legal forms, what for the GmbH was previously only derived from the general duty of care (for the AG, Section 91 (2) of the German Stock Corporation Act, AktG, has contained a duty to establish an early warning system since 1998): the managers of a legal entity must continuously monitor developments that could jeopardise the continued existence of the company. If they identify such developments, they must take suitable countermeasures and report to the supervisory bodies without undue delay. If the measures affect the competences of other corporate bodies, such as the shareholders’ meeting, the managers must work towards having those bodies deal with the matter without undue delay (Section 1 (1) StaRUG). For the GmbH & Co. KG, this applies accordingly to the managers of the general partner GmbH (Section 1 (2) StaRUG).

The law does not prescribe a specific early warning system. How elaborate it must be depends on the size, sector, structure and complexity of the business. For a small business, a carefully maintained rolling liquidity plan with a monthly comparison of target and actual figures may be sufficient. Larger businesses generally need documented risk management with key figures, thresholds and clear reporting lines. Insolvency law provides guidance for the planning horizon: because imminent illiquidity under Section 18 (2) InsO is as a rule assessed over a forecast period of 24 months, corporate planning should be able to cover at least this period. Integrated planning, in which profit and loss, balance sheet and liquidity planning are linked, has proven its worth, so that the effects of a slump in sales or the termination of a loan on solvency can be read off directly. If the company belongs to a group, risks from intra-group links such as cash pooling, letters of comfort or guarantees must also be included. Under Section 101 StaRUG, the Federal Ministry of Justice publishes information on publicly available early warning tools on its website.

The report to the supervisory bodies is not a one-off act. It should cover the identified development, the countermeasures initiated and the status of their implementation, and it should be updated as long as the risk persists. So far, there is hardly any case law specifying the requirements for the early warning system in detail. According to the clearly prevailing view, however, the following applies: if the managing director breaches the duty under Section 1 StaRUG and the company suffers loss as a result, he or she is liable to the company under Section 43 (2) of the German Limited Liability Companies Act (GmbH-Gesetz, GmbHG). Section 1 StaRUG does not, however, establish direct liability towards creditors.

What does early detection involve? Typical warning signs that a managing director should actively monitor:

• Liquidity: exhaustion of credit lines, overdrafts, extension of the company’s own payment terms, forgoing cash discounts, arrears in taxes and social security contributions
• Earnings: several consecutive loss-making months, falling contribution margins, price increases that cannot be passed on
• Assets: equity ratio falls, bad debts rise, inventories grow without sales
• Market: loss of a major customer, dependence on one supplier, new competitors, regulatory changes
• Financing: covenant breaches, bank demands for additional collateral, termination or non-renewal of loans
• Organisation: turnover in key positions, delayed monthly and annual accounts, lack of up-to-date figures

The last point deserves particular attention. Anyone who does not have up-to-date figures in a crisis can neither examine whether the company is insolvent nor act in good time. The duty to keep proper books (Section 41 GmbHG) is therefore not a formality. Breaching it can be a criminal offence under Section 283 (1) nos. 5 to 7 and Section 283b of the German Criminal Code (Strafgesetzbuch, StGB) if payments are later suspended, insolvency proceedings are opened or the application is dismissed for lack of assets (Section 283 (6), Section 283b (3) StGB). In precisely these cases, insolvency administrators and public prosecutors regularly find that the accounts were no longer kept in the last months before the application. The same applies to the annual financial statements: they must be prepared in the first three months of the following year, and for small corporations, insofar as this is consistent with the proper course of business, at the latest within six months (Section 264 (1) of the German Commercial Code, Handelsgesetzbuch, HGB). Anyone who does not prepare the balance sheet on time may be committing a criminal offence under Section 283 (1) no. 7 (b) StGB in a crisis, and otherwise under Section 283b (1) no. 3 (b) StGB, in both cases only if payments are later suspended, proceedings are opened or the application is dismissed for lack of assets.

Loss of Half the Share Capital: Involve the Shareholders

If the annual balance sheet or a balance sheet prepared during the year shows that half of the share capital has been lost, the managing director must convene the shareholders’ meeting without undue delay (Section 49 (3) GmbHG). If he or she fails to report the loss, he or she faces imprisonment of up to three years or a fine under Section 84 GmbHG, and in the case of negligence up to one year. In practice, this provision is often overlooked because the loss of half the share capital does not yet mean insolvency. That is precisely why it is an important early warning signal: the shareholders should be able to decide whether to inject additional capital, change the business model or wind up the company in an orderly manner. The managing director should not wait for the next annual financial statements; if the loss results from a balance sheet prepared during the year, or if he or she must recognise it from his or her figures, that alone triggers the duty.

Capital Maintenance: What May No Longer Be Paid Out in a Crisis

GmbH law sets limits even before insolvency. The assets required to maintain the share capital may not be paid out to the shareholders (Section 30 (1) GmbHG); loans to managing directors, authorised signatories (Prokuristen) or general commercial agents may not be granted from these assets either and must be repaid immediately (Section 43a GmbHG). The managing director is liable for prohibited payments under Section 43 (3) GmbHG, even if the shareholders resolved on them, insofar as compensation is necessary to satisfy the creditors. If contributions are still outstanding, the managing director must collect contributions that are already due and otherwise work towards a resolution of the shareholders calling them in (Section 46 no. 2 GmbHG); failure to do either may also constitute a breach of duty.

The Three Grounds for Insolvency: How Insolvency Is Measured

The point in time at which the special duties under the German Insolvency Code (Insolvenzordnung, InsO) apply depends on three statutorily defined grounds for insolvency. Two of them trigger a duty to file, one only a right to file.

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Illiquidity: The 10 Percent Rule and the Three-Week Limit

A company is illiquid if it can no longer meet its payment obligations that are due (Section 17 (2) sentence 1 InsO). If it has suspended its payments, illiquidity is as a rule presumed (sentence 2). The Federal Court of Justice has developed fixed guidelines for distinguishing illiquidity from a mere temporary payment stoppage (Bundesgerichtshof, BGH, judgment of 24 May 2005, IX ZR 123/04): if the company can obtain the funds to pay its due liabilities within three weeks, there is only a temporary payment stoppage. If the liquidity gap remaining after three weeks is less than 10 percent of the total liabilities due, illiquidity is as a rule not yet to be assumed, unless it is already foreseeable that the gap will soon exceed 10 percent. If the gap is 10 percent or more, illiquidity is as a rule to be assumed, unless, exceptionally, it can be expected with a probability bordering on certainty that it will soon be closed completely or almost completely.

In practice, this means that the managing director needs a liquidity status (all available funds and credit lines available at short notice compared with all liabilities due) and a liquidity forecast for the next three weeks. This forecast must include not only the expected receipts but also the liabilities that newly fall due within the three weeks, the so-called liabilities II (Passiva II) (BGH, judgment of 19 December 2017, II ZR 88/16). Anyone who only compares the invoices outstanding today with future incoming payments is painting too rosy a picture.

A second common calculation error concerns the due date. Within the meaning of Section 17 InsO, a claim is as a rule already due when the creditor demands payment; sending an invoice is in principle sufficient for this, and a reminder is not required. Only claims that have been deferred or whose creditor has actually agreed to later or subordinated satisfaction are disregarded. Anyone who excludes unpaid invoices for which no reminder has been sent from their liquidity status risks missing the start of the filing period. In addition, only credit balances and firmly committed credit lines count as available funds; an overdraft facility that has not been committed does not. Anyone who can only pay their invoices from an overdraft tolerated by the bank provides a clear indication that payments have been suspended.

Irrespective of the calculation, illiquidity can also follow from external circumstances. According to case law, typical indications of a suspension of payments are: non-payment of even a single, not insignificant claim over a longer period, sluggish wage payments, arrears in taxes and social security contributions, returned direct debits, requests for payment by instalments with reference to a lack of funds, or enforcement measures. The cause does not matter as far as outward appearances are concerned: if a managing director declares to creditors that he or she will not pay, this too can be regarded as a suspension of payments, even if he or she believes they are in the right. Anyone who sees these signs in their company should update the liquidity status at least weekly and, as matters come to a head, daily.

Over-Indebtedness: The Balance Sheet Alone Is Not Enough

Over-indebtedness exists if the company’s assets no longer cover its existing liabilities, unless the continuation of the business over the next twelve months is predominantly likely in the circumstances (Section 19 (2) sentence 1 InsO). The test is carried out in two stages. First, a going concern forecast is prepared, which must be based on plausible, documented earnings and financial planning. If it is positive, there is no over-indebtedness, even if the statutory balance sheet shows negative equity. If it is negative, an over-indebtedness statement is drawn up using liquidation values; hidden reserves are disclosed, and shareholder loans with a qualified subordination are disregarded on the liabilities side (Section 19 (2) sentence 2 InsO).

“Predominantly likely” means that there must be more in favour of continuation than against it, i.e. a probability of more than 50 percent. In essence, what matters is whether the company can meet its payment obligations during the forecast period; the basis is comprehensible corporate planning and realistic assumptions. In practice, advisers are guided by the standards of the Institute of Public Auditors in Germany (Institut der Wirtschaftsprüfer) on the assessment of grounds for opening insolvency proceedings (IDW S 11) and on restructuring concepts (IDW S 6). In liability proceedings, the managing director bears the burden of presentation and proof for a positive going concern forecast and for hidden reserves that he or she wants to set against the over-indebtedness. Without a promptly prepared, documented forecast, he or she will hardly be able to provide this proof.

A frequently used means of countering over-indebtedness is a qualified subordination (qualifizierter Rangrücktritt) by a shareholder or third party for its loan. It must be structured in such a way that the claim may not be serviced from the assets needed to satisfy creditors until the crisis has been averted, and according to case law it operates as a contract for the benefit of the creditors, which, once insolvency has occurred, can no longer be cancelled by mere agreement between the company and the creditor; payments made in breach of it can be reclaimed (BGH, judgment of 5 March 2015, IX ZR 133/14). The wording is demanding, also with regard to the tax consequences for the shareholder and the company; model clauses from the internet are often unsuitable.

Negative equity on the balance sheet (the “deficit not covered by equity”) is not in itself a ground for insolvency, but it is a clear signal to carry out and document the over-indebtedness test. Note on legal developments: from 9 November 2022 to 31 December 2023, under the German Act to Mitigate the Consequences of the Crisis in Restructuring and Insolvency Law (Sanierungs- und insolvenzrechtliches Krisenfolgenabmilderungsgesetz, SanInsKG), a shortened forecast period of four months and a filing period of eight weeks for over-indebtedness temporarily applied. These relaxations have expired. Since 1 January 2024, the forecast period of twelve months and the maximum period of six weeks have applied again. Older guides that still work with the coronavirus or SanInsKG special rules do not reflect the current position.

Imminent Illiquidity: The Gateway to Early Restructuring

Imminent illiquidity exists if the company is likely to be unable to meet its existing payment obligations when they fall due; as a rule, a forecast period of 24 months must be applied (Section 18 (2) InsO). It does not oblige the company to file for insolvency, but it opens up two important instruments: the stabilisation and restructuring framework under the StaRUG and protective shield proceedings (Schutzschirmverfahren) under Section 270d InsO. Anyone who recognises imminent illiquidity early can therefore still shape events themselves. Anyone who waits until illiquidity has occurred largely loses access to both routes.

The Duty to File for Insolvency under Section 15a InsO

If a legal entity becomes illiquid or over-indebted, the members of the representative body must file an application to open proceedings without culpable delay, at the latest three weeks after illiquidity occurs and six weeks after over-indebtedness occurs (Section 15a (1) sentences 1 and 2 InsO). The same duty applies to the managing directors of the general partner GmbH in a GmbH & Co. KG in which no natural person is personally liable (Section 15a (1) sentence 3 InsO).

Maximum Period, Not Standard Period

The most common misconception concerns the periods. Three and six weeks are maximum periods. They may only be used up as long as serious restructuring efforts with a prospect of success are under way, such as negotiations on a loan, a capital increase or a waiver of claims. If it is clear from the outset that insolvency cannot be eliminated within this time, the application must be filed immediately. The periods begin when the ground for insolvency objectively occurs, not only when the managing director notices it. Anyone who does not know their figures can therefore, as a rule, not rely on their lack of knowledge, because they have not fulfilled their duty of ongoing self-examination.

Company without Management: Then the Duty Falls on the Shareholders

If a GmbH no longer has a managing director, for example because he or she has resigned from office or been removed, every shareholder is also obliged to file the application for insolvency, unless the shareholder has no knowledge of the illiquidity and over-indebtedness or of the lack of management (Führungslosigkeit) (Section 15a (3) InsO). Resigning from office in a crisis therefore only shifts the duty; it does not eliminate it. Moreover, for the departing managing director, liability for failures that have already occurred does not end with his or her departure (see below).

Criminal Liability for Delaying Insolvency

Anyone who does not file the application, does not file it in time or does not file it correctly is liable under Section 15a (4) InsO to imprisonment of up to three years or a fine; in the case of negligence, imprisonment of up to one year or a fine (Section 15a (5) InsO). An application that has “not been filed correctly” is only punishable if it has been finally rejected as inadmissible (Section 15a (6) InsO). An application for insolvency must therefore be complete and contain the information required by law; a mere letter to the court is not sufficient.

A Creditor’s Application Does Not Replace the Company’s Own Application

Creditors, in particular the tax office and health insurance funds, can also apply for the opening of insolvency proceedings if they have a legal interest and furnish prima facie evidence of their claim and of the ground for opening proceedings (Section 14 (1) InsO). For the managing director, such a third-party application is a serious warning signal, but it does not relieve him or her. His or her own duty to file and criminal liability for delaying insolvency in principle remain, and a creditor’s application does not become inadmissible merely because the applicant’s claim is subsequently paid (Section 14 (1) sentence 2 InsO). Anyone who “buys off” a creditor’s application by paying it without clarifying the rest of the situation often only aggravates the problem under Section 15b InsO.

Duty to File and the StaRUG

If a restructuring matter is notified to the restructuring court, the duty to file under Section 15a InsO is suspended for the duration of the proceedings (Section 42 (1) sentence 1 StaRUG). This is not a free pass: if illiquidity or over-indebtedness occurs in the meantime, the managers must notify the restructuring court without culpable delay (Section 42 (1) sentence 2 StaRUG). Anyone who fails to do so commits a criminal offence under Section 42 (3) StaRUG, with the same range of penalties as for delaying insolvency. If the notification of the restructuring matter loses its effect, the duty to file revives (Section 42 (4) StaRUG).

At the same time, the notification shifts the standard of duty. The managers must ensure that the company conducts the restructuring matter with the care of a prudent and conscientious manager and safeguards the interests of the creditors as a whole (Section 43 (1) sentence 1 StaRUG). If they culpably breach this duty, they are liable to the company in the amount of the loss suffered by the creditors; a waiver or settlement is largely ineffective, and the claims become time-barred after five years (Section 43 (1) sentence 2, (2) and (3) StaRUG). Anyone who uses the StaRUG to gain time while favouring individual creditors or the shareholders therefore exposes himself or herself to a separate liability.

The Prohibition of Payments under Section 15b InsO: The Central Liability Trap

Since 1 January 2021, the prohibition of payments has no longer been governed by Section 64 GmbHG but, for all legal forms, by Section 15b InsO. In practice, it is one of the most important bases for liability claims against managing directors, because insolvency administrators examine it systematically and the amounts quickly reach six or seven figures.

The Principle

Once illiquidity or over-indebtedness has occurred, the managers obliged to file may no longer make any payments on behalf of the company (Section 15b (1) sentence 1 InsO). Payments that are compatible with the care of a prudent and conscientious manager are exempt (sentence 2). “Payment” is to be understood broadly: it covers not only bank transfers but any outflow from the company’s assets, including direct debits, cash payments, set-offs and incoming payments into a bank account in debit, because they benefit the bank and are lost to the other creditors. The last point is overlooked particularly often in practice: if customer payments received after insolvency has occurred go into an account that is overdrawn, they reduce the bank’s loan, and the managing director can be liable for each of these incoming payments. He or she must therefore ensure that incoming payments are redirected without delay to an account in credit and inform customers accordingly.

The Privilege during the Filing Period

Payments made in the ordinary course of business, in particular those that serve to maintain business operations, are deemed to be compatible with the required care (Section 15b (2) sentence 1 InsO). Within the three- or six-week filing period, however, this only applies as long as the manager is pursuing measures to permanently eliminate the insolvency or to prepare an application for insolvency with the necessary care (Section 15b (2) sentence 2 InsO). Payments made during periods in which no such measures are being pursued are not privileged, even if the maximum period is still running. After the application has been filed and until proceedings are opened, payments made with the consent of a preliminary insolvency administrator are deemed to be compatible with the required care (Section 15b (2) sentence 3 InsO). In practice, this also means that the managing director may as a rule pay the reasonable fee of a tax adviser or lawyer for examining whether the company is insolvent and preparing the application within the filing period, because these are precisely the measures the law requires of him or her.

After the Period Has Expired: Almost Every Payment Is a Breach of Duty

Once the time for filing an application in good time has passed without an application being filed, payments are as a rule no longer compatible with the care of a prudent manager (Section 15b (3) InsO). From this moment on, the managing director bears the full risk for every payment: rent, wages, energy, suppliers.

Extent of the Reimbursement and the Overall Loss Defence

The managing director is liable to the company for reimbursement of prohibited payments (Section 15b (4) sentence 1 InsO), in practice to the insolvency administrator. New since 2021 is the overall loss defence (Gesamtschadens-Einwand): if the creditors as a whole have suffered a smaller loss, the obligation to pay compensation is limited to this loss (Section 15b (4) sentence 2 InsO). The burden of proof lies with the managing director. He or she must therefore show that the assets available to creditors were reduced less overall by the payments, for example because consideration flowed into the insolvency estate and was still there.

The case law is strict on the question of when consideration offsets the payment. According to the Federal Court of Justice, performance rendered in advance by the payee before the payment was made does not in principle offset the later payment. The position may be different for goods that were delivered subject to retention of title and only pass into the company’s assets through the payment (BGH, judgment of 27 October 2020, II ZR 355/18). Only if a direct consideration of equal value reaches the insolvency estate and remains available there to the creditors (exchange of assets, Aktivtausch) is liability excluded or reduced.

Shareholder Instructions, Waiver and Settlement Do Not Help

Insofar as reimbursement is necessary to satisfy the creditors, the obligation is not excluded by the fact that the managing director acted on a resolution of the shareholders’ meeting (Section 15b (4) sentence 3 InsO). A waiver of the claims by the company or a settlement of them is in principle ineffective (Section 15b (4) sentence 4 InsO), except in an insolvency plan, by the insolvency administrator, or where the managing director is himself or herself illiquid and enters into a settlement with his or her creditors to avert his or her own insolvency (sentence 5). The widespread idea that a discharge (Entlastung) by the shareholders protects against later claims is wrong in this area.

Payments to Shareholders

Under Section 15b (5) InsO, payments to shareholders must also be reimbursed insofar as they were bound to lead to illiquidity, unless this was not recognisable even with due care. This concerns above all the repayment of shareholder loans, distributions and excessive remuneration paid to shareholder-managing directors shortly before the crisis. This liability already applies before insolvency occurs, namely to the payment that brings it about. Irrespective of this, the insolvency administrator can challenge the repayment of a shareholder loan in the last year before the application to open proceedings under Section 135 (1) no. 2 InsO.

One’s Own Salary in a Crisis

The managing director’s remuneration is not taboo in a crisis either. Whether a managing director is obliged to agree to a reduction of his or her salary if the company’s situation deteriorates significantly is disputed for the GmbH, by analogy with Section 87 (2) AktG, and has not been answered consistently in the case law of the higher courts. What is clear, however, is that salary paid after insolvency has occurred is subject to the prohibition of payments like any other payment, and the insolvency administrator can challenge remuneration paid shortly before the application under the conditions of Sections 129 et seq. InsO. Outstanding salary claims from the period before the opening of proceedings are in principle only ordinary insolvency claims in the proceedings. Shareholder-managing directors who voluntarily waive salary in order to preserve liquidity should have the tax consequences clarified beforehand; a waiver of claims that have already arisen may be treated differently from a reduction agreed for the future.

Limitation Period

Claims under Section 15b InsO become time-barred after five years; if the company was listed on a stock exchange at the time of the breach of duty, after ten years (Section 15b (7) InsO). For many managing directors, claims are therefore brought years after the actual events, when documents are hardly available any more. Anyone who acts in a crisis should therefore document the basis for their decisions and keep a private copy.

Taxes and Social Security: The Second Liability Front

In addition to the insolvency administrator, two further creditors regularly appear in a crisis who can take direct recourse against the managing director: the tax office and the social security institutions.

Liability for Taxes under Sections 34 and 69 AO

The managing director must fulfil the company’s tax obligations, in particular pay the taxes out of the funds he or she manages (Section 34 (1) of the German Fiscal Code, Abgabenordnung, AO). If taxes are not assessed or paid, or not on time, as a result of an intentional or grossly negligent breach of duty, he or she is personally liable, including for late payment surcharges (Section 69 AO). The tax office asserts the liability by way of a liability notice (Haftungsbescheid) without first having to go to court.

The case law is particularly strict with regard to wage tax. If the funds are not sufficient to pay the full wages and the wage tax due on them, the managing director must reduce the wages so that the wage tax on the reduced amount can be paid in full. For other taxes, such as VAT, the principle of proportional payment applies in principle: the managing director is liable to the extent that he or she has placed the tax office in a worse position than the other creditors.

In a crisis, three practical points often decide whether a liability risk turns into criminal proceedings:

• File returns even if payment is not possible. The mere non-payment of a tax that is due is not tax evasion. However, anyone who does not file VAT or wage tax returns, or files them incorrectly, fulfils the elements of the offence under Section 370 (1) AO. Returns must therefore be filed punctually and completely even in a liquidity crisis.
• Record the allocation of responsibilities in writing. According to the case law of the Federal Fiscal Court (Bundesfinanzhof), an internal allocation of tasks among several managing directors can only limit the tax liability of the managing director who is not responsible if it was made clearly in advance, as a rule in writing (stricter in this respect than under civil law, see below); in a crisis, his or her overall responsibility revives in any event.
• Examine tax claims in the insolvency proceedings. If a tax has been assessed against the company with final effect, the managing director must in principle also accept this against himself or herself if he or she could have challenged the notice as representative (Section 166 AO). Anyone who has objections to the amount of the tax should therefore assert them in good time against the company and, where applicable, in the insolvency proceedings, not only against the later liability notice.

The Conflict with the Prohibition of Payments and Its Solution in Section 15b (8) InsO

In the past, the managing director was caught in a dilemma: if he or she paid taxes after insolvency had occurred, he or she was liable to the insolvency administrator; if he or she did not pay them, he or she was liable to the tax office. Section 15b (8) InsO partially resolves this conflict for taxes: there is no breach of tax payment obligations if taxes are not paid, or not paid on time, between the occurrence of insolvency and the decision of the insolvency court, provided that the managing director fulfils his or her duty to file under Section 15a InsO. If the application is filed late, the protection only applies to taxes that fall due after the appointment of a preliminary insolvency administrator or the order for preliminary self-administration. And if the proceedings are not opened because of a breach of duty by the managing director, the protection is lost entirely.

The message is clear: filing for insolvency in time also protects against tax liability. Anyone who delays loses this protection.

Social Security Contributions and Section 266a StGB

An employer who does not pay over the employees’ share of social security contributions commits a criminal offence under Section 266a (1) StGB, irrespective of whether any wages were paid at all. The penalty is imprisonment of up to five years or a fine, and in particularly serious cases up to ten years (Section 266a (4) StGB). Via Section 823 (2) of the German Civil Code (Bürgerliches Gesetzbuch, BGB) in conjunction with Section 266a StGB, the managing director is also personally liable under civil law to the collecting agency (Einzugsstelle). The court can refrain from imposing a penalty if the employer, at the latest on the due date or without undue delay thereafter, notifies the collecting agency in writing of the amount of the contributions withheld and explains why timely payment is not possible despite serious efforts (Section 266a (6) StGB). This notification belongs on the checklist in every liquidity crisis.

Unlike for taxes, Section 15b InsO does not contain an express special rule for social security contributions. The Federal Court of Justice therefore distinguishes: paying over the employees’ shares even after insolvency has occurred is compatible with the care of a prudent manager, because the managing director cannot be required to commit a criminal offence under Section 266a StGB (BGH, judgment of 14 May 2007, II ZR 48/06). This privilege does not apply to the employer’s shares; paying them after insolvency has occurred can trigger an obligation to reimburse (BGH, judgment of 8 June 2009, II ZR 147/08). Under criminal law, however, the employer’s shares are covered by Section 266a (2) StGB if the employer provides the collecting agency with incorrect or incomplete information or, in breach of duty, leaves it uninformed. Correct and complete contribution statements must therefore be submitted even if payment is not possible.

Two details are important in practice. Under Section 23 (1) sentence 2 of Book IV of the German Social Code (SGB IV), contributions are due at the latest on the third-last bank working day of the month in which the work was performed; what matters is receipt of payment by the collecting agency, not the payment of wages. And anyone who can only pay part of the contributions should expressly stipulate when paying that the employees’ shares are to be settled first (Section 4 of the German Contribution Procedure Ordinance, Beitragsverfahrensverordnung) and apply for a deferral of the employer’s shares. Without such a stipulation, the payment is allocated according to the statutory order, and the risk of criminal liability remains. Civil liability under Section 823 (2) BGB in conjunction with Section 266a StGB requires intent; however, conditional intent (bedingter Vorsatz) is sufficient, i.e. accepting that the contributions will not be paid when due.

Internal Liability towards the Company under Section 43 GmbHG

Irrespective of the special provisions of insolvency law, the managing director is liable to the company for any culpable breach of his or her duties. He or she must exercise the care of a prudent businessman (Section 43 (1) GmbHG) and, in the event of breaches of duty, is jointly and severally liable with his or her fellow managing directors for the resulting loss (Section 43 (2) GmbHG). In insolvency, these claims are asserted by the insolvency administrator.

Entrepreneurial Discretion and the Business Judgment Rule

Not every wrong decision gives rise to liability. According to the prevailing view, the standard of Section 93 (1) sentence 2 AktG also applies accordingly to the GmbH for entrepreneurial decisions: there is no breach of duty if the managing director could reasonably assume that he or she was acting for the benefit of the company on the basis of appropriate information. A further requirement is that he or she decides free of special interests and extraneous influences; anyone who, for example, concludes a transaction with a company related to him or her in a crisis can as a rule not rely on entrepreneurial discretion. In a crisis, however, this latitude narrows. The greater the threat to the company’s existence, the higher the requirements for the information base. Anyone who decides in a crisis without up-to-date figures, without liquidity planning or against the express advice of their advisers can hardly rely on entrepreneurial discretion. Decisions that are legally bound, such as whether to file for insolvency, do not fall under the business judgment rule in any case; there is no discretion there.

Relief through Expert Advice

How is a managing director without training in insolvency law supposed to judge whether his or her company is over-indebted? The Federal Court of Justice does not leave him or her alone with this question but sets clear requirements. The managing director does not act culpably if, with a comprehensive presentation of the company’s circumstances and disclosure of all necessary documents, he or she obtains advice from an independent professional who is qualified for the question to be clarified, and subjects the advice received to a careful plausibility check (BGH, judgment of 20 September 2011, II ZR 234/09). For practice, this means:

• The adviser must actually be qualified in insolvency matters; the long-standing company lawyer for tenancy law or a management consultant without knowledge of insolvency law is generally not sufficient.
• The mandate must be specifically directed at examining whether the company is insolvent; a casual conversation is not enough.
• The managing director must disclose all information, including the unpleasant facts.
• He or she must follow the result himself or herself and must not adopt it without examination.
• He or she must obtain the advice without undue delay; the examination does not release him or her from the maximum periods under Section 15a InsO.

An expert opinion that meets all these requirements is an effective means of limiting one’s own liability. It also offers protection in later proceedings, in which the managing director must prove that he or she acted in accordance with his or her duties.

Added to this is the burden of proof: in proceedings, the company only has to show that it has suffered loss as a result of possibly wrongful conduct by the managing director. The managing director must then prove that he or she acted in accordance with his or her duties or was not at fault. Without documentation, this proof can hardly be provided years later.

Allocation of Responsibilities Provides Only Limited Relief in a Crisis

If a GmbH has several managing directors, they often allocate responsibilities: one for sales, one for technology, one for finance. For day-to-day business, this is permissible and can reduce the responsibility of the managing directors who are not responsible to a duty of supervision. According to the Federal Court of Justice, the requirement is a clear and unambiguous delimitation of responsibilities that is supported by all managing directors; recording it in writing is not mandatory but is strongly recommended for evidentiary reasons. In addition, each managing director must be organised in such a way that he or she can obtain an overview of the economic and financial situation of the company at any time (BGH, judgment of 6 November 2018, II ZR 11/17). In a crisis, the relief largely ends. The duty to file under Section 15a InsO and the prohibition of payments under Section 15b InsO apply to each managing director personally. The sales director cannot claim that finances were his or her colleague’s responsibility if signs of crisis were recognisable to him or her. He or she must then form his or her own picture and, if necessary, act alone.

Instructions from the Shareholders

The GmbH managing director is in principle bound by instructions from the shareholders’ meeting (Section 37 (1) GmbHG). An instruction that he or she follows as a rule relieves him or her of liability in relation to the company. However, this relief ends where mandatory creditor protection provisions are affected: in the case of payments from the assets required to maintain the share capital contrary to Section 30 GmbHG (Section 43 (3) sentence 3 GmbHG) and in the case of prohibited payments after insolvency has occurred (Section 15b (4) sentence 3 InsO). An instruction not to file for insolvency is irrelevant. The managing director must ignore it, even if this means risking conflict with the shareholders.

Discharge, Mitigation of Liability and Assertion of Claims

The shareholders’ meeting resolves on the discharge (Entlastung) of the managing directors (Section 46 no. 5 GmbHG) and on the assertion of claims for damages against them (Section 46 no. 8 GmbHG). A discharge in principle operates like a waiver of claims that were recognisable to the shareholders on careful examination. However, it does not cover the creditor protection claims: neither liability for prohibited payments under Section 43 (3) GmbHG, insofar as compensation is necessary to satisfy the creditors, nor the obligation to reimburse under Section 15b InsO. The same applies to limitations of liability in the service agreement. For general liability for breach of the duty of care under Section 43 (2) GmbHG, the shareholders can to a certain extent relax the standard or limit liability; for the creditor protection provisions, this is excluded. Even an undertaking by the shareholders to indemnify the managing director in the event of a claim usually does not protect him or her in insolvency: it is only worth as much as the shareholders’ solvency, and it has no effect vis-à-vis the insolvency administrator, the tax office or the social security institutions.

Limitation Period

Claims under Section 43 GmbHG become time-barred after five years (Section 43 (4) GmbHG).

External Liability towards Creditors

In principle, managing directors are not personally liable to the company’s creditors; that is the point of limited liability. In a crisis, there are important exceptions to this.

Liability for Delaying Insolvency: Existing Creditors and New Creditors

Section 15a InsO is a protective law within the meaning of Section 823 (2) BGB. Anyone who culpably files the application for insolvency late is therefore personally liable to the creditors for damages. The case law distinguishes:

• Existing creditors (Altgläubiger), whose claims already existed before insolvency occurred, receive the so-called quota damage (Quotenschaden): the difference between the insolvency dividend they would have received if the application had been filed in time and the dividend actually achieved. In the insolvency proceedings, this claim is asserted collectively by the insolvency administrator. A simplified example: if the existing creditors with claims totalling EUR 500,000 would have received a dividend of 20 percent if the application had been filed in time but, because of the delay, received only 8 percent, the quota damage amounts to EUR 60,000.
• New creditors (Neugläubiger), who only contracted with the company after insolvency occurred, must, according to established case law, be put in the position they would have been in had they never concluded a contract with the company (negative interest). They can assert their loss themselves against the managing director. What is compensated is the reliance loss, for example the value of the goods delivered or the advance performance rendered, but not a profit included in the price. No insolvency dividend is deducted; instead, the managing director owes the compensation concurrently with the assignment of the creditor’s insolvency claim (BGH, judgment of 5 February 2007, II ZR 234/05).

Liability towards new creditors in particular is underestimated. According to the same decision, even the company’s main bank can become a new creditor insofar as it continues to allow the current account credit to be drawn during the period of delay and the balance rises. Every supplier who still delivers goods on account after insolvency has occurred, every customer who makes a down payment and every landlord who concludes a new contract potentially becomes a claimant against the managing director personally.

Liability Even after Leaving Office

A managing director who leaves office while the company is insolvent without having filed the application is not automatically released from liability. The Federal Court of Justice has ruled that a former managing director can also be liable to creditors who only entered into business relations with the company after his or her departure if the dangerous situation created by his or her breach of duty persists (BGH, judgment of 23 July 2024, II ZR 206/22). Anyone who resigns from office in a crisis without ensuring clarity about the company’s insolvency therefore does not protect himself or herself in doing so.

Fraud in Contracting and Intentional Damage Contrary to Public Policy

If a managing director, knowing that the company is insolvent, orders goods or services although he or she knows that he or she cannot pay for them, criminal liability for fraud (Section 263 StGB) and personal liability under Section 823 (2) BGB in conjunction with Section 263 StGB or under Section 826 BGB may also come into consideration. These claims are generally not covered by D&O insurance because there is intent.

Personal Security: The Liability Signed Even before the Crisis

In many insolvencies of small and medium-sized businesses, the economically greatest personal burden arises not from the law but from contract. Banks, leasing companies and landlords frequently require shareholder-managing directors to provide guarantees, collateral assumptions of debt (Schuldbeitritte) or land charges on private real estate. In a crisis or insolvency, the bank regularly terminates the loans and enforces this security, irrespective of whether the managing director is at fault. Anyone who negotiates with the bank in a crisis should therefore also keep an eye on their own security, for example when concluding a standstill agreement, and have it examined whether individual items of security can be challenged. Principles for protecting private assets are explained in our article on asset protection for entrepreneurs; however, arrangements made only in a crisis can often be challenged.

The De Facto Managing Director: Liability without Appointment

The duties in a crisis do not only apply to the managing director entered in the commercial register. Anyone who, without being formally appointed, actually determines the fortunes of the company can, as de facto managing director (faktischer Geschäftsführer), be obliged to file the application for insolvency and be liable for failing to do so. According to the Federal Court of Justice, this requires that the person concerned, based on the overall picture of his or her conduct, has taken the fortunes of the company decisively into his or her own hands through his or her own external actions that have a lasting influence on the activities of the legal management body. Merely exerting internal influence on the appointed managing director is not sufficient (BGH, judgment of 11 July 2005, II ZR 235/03). In the case decided, the defendant controlled the company through regular visits, gave instructions to the appointed managing director and reserved larger expenditure for himself, while the registered managing director in fact only worked as a sales employee.

Typical constellations in a crisis are:

• the majority shareholder who appoints a “straw man” as managing director but takes all the key decisions himself or herself and acts externally,
• the former managing director who continues to run the business after his or her removal, for example because of disqualification (Inhabilität),
• the restructuring adviser or interim manager who releases payments, negotiates with creditors and in fact displaces the appointed managing director,
• representatives of a parent company who steer the subsidiary while bypassing its corporate bodies.

Advisers and lenders should therefore take care in a crisis to act in an advisory and not in a decision-making capacity. For shareholders: anyone who actually takes on responsibility also takes on liability. Under criminal law, too, the de facto managing director is treated like an appointed one.

Conversely, de facto management by someone else does not relieve the registered managing director. Anyone who allows himself or herself to be appointed as a “straw man” bears all the duties of the office, even if he or she does not in fact decide anything. He or she is liable alongside the person behind the scenes for delaying insolvency, prohibited payments, taxes and social security contributions and may be committing a criminal offence. Anyone who has no control over the company should not take on the office or should resign from it in good time.

Overview of Criminal Law Risks

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The insolvency offences under Sections 283 to 283c StGB additionally require that the company has suspended its payments, that insolvency proceedings have been opened or that the application has been dismissed for lack of assets (objective condition of criminal liability, Section 283 (6) StGB). The mere payment of a claim that is due is not preferential treatment of a creditor; however, it can give rise to an obligation to reimburse under Section 15b InsO and be challenged by the insolvency administrator.

In addition to the penalty, there is a professional consequence that many managing directors only notice in the criminal proceedings: anyone who has been convicted of intentionally delaying insolvency or of an insolvency offence under Sections 283 to 283d StGB cannot be managing director of a GmbH for five years from the conviction becoming final (Section 6 (2) sentence 2 no. 3 GmbHG). For fraud, breach of trust, Section 266a StGB and other offences, this applies in the case of a sentence of at least one year’s imprisonment. The disqualification applies by operation of law; an appointment made nevertheless is invalid.

Many managing directors underestimate how quickly an insolvency turns into criminal proceedings. Insolvency courts regularly notify the public prosecutor’s office of proceedings concerning corporations, and the insolvency administrator’s reports and expert opinions, which also comment on the date on which insolvency occurred and on possible liability claims, often serve as the investigators’ starting point. The managing director must fulfil his or her duties to provide information and cooperate vis-à-vis the administrator and the court. Information provided in accordance with these duties may only be used in criminal proceedings against him or her with his or her consent (Section 97 (1) sentence 3 in conjunction with Section 101 (1) InsO). However, this protection does not apply to voluntary statements or to existing business records such as the accounts, which the public prosecutor’s office can seize.

The Role of the Tax Adviser: Duty to Warn under Section 102 StaRUG

The tax adviser is often the first to see the crisis in the figures. The Federal Court of Justice has ruled that a tax adviser who is engaged to prepare the annual financial statements must alert the client to a possible ground for insolvency and the resulting duty to examine it if there are obvious indications to that effect and the adviser must assume that the client is not aware of the possible insolvency (BGH, judgment of 26 January 2017, IX ZR 285/14). Since 2021, this duty has been enshrined in statute in Section 102 StaRUG, namely for tax advisers, tax agents, public auditors, sworn auditors and lawyers who prepare annual financial statements.

For the managing director, this has two sides:

1. The warning is an alarm signal that he or she must not ignore. From the warning at the latest, he or she can hardly claim that insolvency was not recognisable. Anyone who then continues to wait is as a rule acting at least with gross negligence, with consequences for liability under Sections 15a and 15b InsO, tax liability under Section 69 AO and insurance cover.
2. If the warning is not given, the adviser may be liable. If the tax adviser overlooked or concealed obvious insolvency and the application for insolvency was filed late as a result, there may be a claim for damages against the adviser. In insolvency, it is asserted by the insolvency administrator and can mitigate the economic impact of the claim against the managing director. When such a claim exists and how it is enforced is explained in our article on tax adviser liability; an overview of typical constellations is given in our article Can you sue your tax adviser if …?.

Another point concerns the preparation of the accounts. Annual financial statements may only be prepared on a going concern basis if this is not precluded by actual or legal circumstances (Section 252 (1) no. 2 HGB). If there are considerable doubts about the continuation of the business, the tax adviser must clarify this before preparing the financial statements on a going concern basis. If the tax adviser asks for an up-to-date going concern forecast in this situation, the managing director should see this not as distrust but as part of fulfilling his or her own duties.

In trade publications, tax advisers are sometimes advised to resign from the mandate if management does not respond to warnings of a crisis, so as not to expose themselves to the accusation of aiding and abetting the delay of insolvency. For the managing director, such a resignation is a serious alarm signal. It means that an expert with insight into the figures considers the risk of delayed insolvency to be so high that he or she no longer wants to be involved.

D&O Insurance in a Crisis: Protection with Gaps

Many managing directors rely on the company’s directors and officers (D&O) insurance. A crisis shows whether this protection holds.

What Is Covered

The Federal Court of Justice has ruled that the claim for reimbursement of prohibited payments after insolvency has occurred (at the time Section 64 GmbHG, former version, today Section 15b InsO) is in principle a liability claim for damages covered by D&O insurance (BGH, judgment of 18 November 2020, IV ZR 217/19). The view previously taken by insurers that such claims are not insured from the outset is therefore outdated. However, the specific insurance conditions are always decisive; some policies now contain express provisions on Section 15b InsO.

The Exclusion for Knowing Breaches

D&O policies generally exclude losses caused by a knowing breach of duty (wissentliche Pflichtverletzung). In the past, insurers argued that anyone who files the application for insolvency late also knowingly breaches the prohibition of payments. The Federal Court of Justice has rejected this: a breach of the duty to file for insolvency does not automatically indicate a knowing breach of the prohibition of payments. The insurer must show and prove, for the respective payments, that the managing director had positive knowledge of the specific duty (BGH, judgment of 19 November 2025, IV ZR 66/25). The decision still concerned payments under Section 64 GmbHG, former version; as Section 15b InsO essentially continues the prohibition of payments, the principles are likely to be transferable. This significantly strengthens the position of managing directors in coverage proceedings. However, it does not mean that every case is covered: anyone who demonstrably knew that the company was insolvent and that payments were prohibited, and paid nevertheless, loses the protection.

Strategic Claims Handling

Experience shows that in insolvency, D&O insurers tend to delay claims handling, initially refuse cover or push for settlements. The specialist literature refers to this as strategic claims handling. This is dangerous for the managing director, because the insolvency administrator sues him or her in the meantime, and the sum insured can also be eaten up by defence costs. How the policyholder, the insured person and the insured risk are defined helps determine who controls claims handling. This can only be arranged before the crisis. In addition, there are typical pitfalls:

• Claims-made principle: As a rule, what is insured is what is first asserted during the term of the contract. If the contract ends with the insolvency and no sufficient extended reporting period has been agreed, cover for later claims may be lost.
• Insolvency clauses: Some policies contain special rules for the event of insolvency, such as automatic termination or restrictions.
• Notification obligations: Circumstances that may lead to a claim must be reported in good time. Late notification can jeopardise insurance cover.
• Sum insured: Where there are several insured persons and high defence costs, the sum can quickly be used up.

Our articles Manager liability insurance: mostly worthless for managers and companies? and Manager liability insurance, D&O and professional liability insurance without protective effect take a critical view of the protection offered by many policies. Managing directors who rely on D&O cover should have the conditions checked before the crisis, not afterwards.

Typical Management Mistakes in a Crisis and Their Legal Consequences

The practice of insolvency administration and restructuring advice has documented well where management teams fail in a crisis. It is striking that a lack of specialist knowledge is rarely the problem. More often it is denial, time pressure, conflicts of loyalty and the hope of a turnaround. The following overview assigns the most common mistakes to their legal consequences.

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Behind many of these mistakes lies a common pattern: the managing director treats the crisis as an economic problem that he or she wants to solve alone and overlooks the fact that from a certain point onwards the legal question takes precedence. It is then not the question “How do we save the company?” that decides personal liability, but the question “Since when has the company been insolvent, and what have I done since then?”.

Restructuring Routes: What the Managing Director Should Examine in Good Time

A corporate crisis does not have to end in liquidation. German law offers several restructuring routes, but access to them depends on the stage of the crisis.

Immediate Measures outside Formal Proceedings

Before formal proceedings come into consideration, the managing director has a range of measures available with which imminent or already existing insolvency can be eliminated within the filing periods. Each of them acts on a particular ground for insolvency:

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The following applies to each of these measures: it only relieves the managing director if it is actually implemented within the maximum periods of Section 15a InsO and permanently eliminates the insolvency. A measure that is only being negotiated but has not been signed does not postpone the application. In larger restructurings, banks and investors generally require a restructuring opinion in accordance with the principles of IDW S 6 that demonstrates the company’s ability to be restructured; such an opinion can at the same time safeguard the managing director’s decisions.

Statutory Restructuring Procedures Compared

If out-of-court measures are not sufficient, the following procedures are available:

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Two points are often overlooked in practice. First, the StaRUG requires that neither illiquidity nor over-indebtedness has occurred; if either occurs, the court in principle terminates the restructuring matter (Section 33 (2) sentence 1 no. 1 StaRUG). Restructuring proceedings are therefore not a lifeline for an insolvency that has already been delayed. Second, an application for insolvency is not a defeat either but can be a restructuring instrument: for the last three months before the insolvency event, employees receive insolvency benefit (Insolvenzgeld) from the Federal Employment Agency (Sections 165, 167 of Book III of the German Social Code, SGB III, limited to the contribution assessment ceiling); pre-financing of insolvency benefit (Section 170 (4) SGB III) can considerably ease liquidity in the application phase. Onerous contracts can be terminated in the proceedings, and an insolvency plan can reorganise the debts. A managing director who files the application in good time and well prepared often retains more influence over the future of the business than one who waits until the very end.

If the crisis is triggered or aggravated by the conduct of credit institutions, for example by the termination of credit lines, it should also be examined whether the bank terminated at an inopportune time; see our articles Destruction of existence through loan termination? and Company restructuring through credit and account verification.

The New Managing Director in a Crisis

It is not uncommon for a new managing director to be appointed precisely during a crisis, whether as a successor, as an additional finance director or as an interim manager. The duties under Sections 15a and 15b InsO apply to him or her from day one. If the company is already insolvent when he or she takes office, according to the prevailing view no new three- or six-week period begins to run for him or her; he or she must examine the situation and act without undue delay. However, when assessing his or her fault, account is taken of whether he or she could recognise the insolvency in the short time since taking office. Anyone taking up office in a struggling company should therefore, before or immediately after the appointment:

• request an up-to-date liquidity status and a liquidity forecast,
• review the last annual financial statements and current management accounts,
• enquire about arrears in taxes, social security contributions and with key creditors,
• inspect the company’s D&O policy, in particular retroactive cover, extended reporting period and insolvency clauses,
• obtain information about ongoing negotiations with banks and shareholders,
• document his or her own review of the situation.

The law does not provide for an induction period during which the duties are suspended. If there are signs of crisis, the new managing director must work in parallel from day one: he or she commissions the examination of whether the company is insolvent in writing and in specific terms (not merely an interim balance sheet or management accounts), actively follows up on the result, sets up a controlled approval process for payments until the matter has been clarified, and redirects incoming payments from an account in debit to an account in credit. A record of when he or she received which information and took which measure is later often the decisive piece of evidence. If the shareholders or the previous managing director refuse to provide the necessary documents, this does not relieve him or her; if he or she cannot form a picture in any other way, the last resort is to file the application for insolvency himself or herself if a ground for opening proceedings appears credible to him or her (where there are several managing directors, he or she must furnish prima facie evidence of it under Section 15 (2) InsO), or to resign from office.

If he or she establishes that the company is insolvent, only an application filed without undue delay or a restructuring with a realistic prospect of success within the maximum periods will protect him or her.

Action Plan: What the Managing Director Should Do in Concrete Terms

When signs of crisis become visible, a clear sequence helps. The following list does not replace advice in the individual case, but it shows what matters:

1. Produce the figures: Liquidity status as of today, liquidity forecast for three weeks and twelve months, current interim balance sheet.
2. Examine the grounds for insolvency: Illiquidity according to the 10 percent rule, over-indebtedness with a going concern forecast, imminent illiquidity with 24-month planning. Record and date the result in writing.
3. Inform the shareholders: Report under Section 1 StaRUG; if half of the share capital is lost, convene the meeting under Section 49 (3) GmbHG.
4. Arrange an external review: If there are serious doubts, specifically instruct an adviser experienced in insolvency matters to examine whether the company is insolvent, disclose all documents and check the result for plausibility (see above on relief through expert advice).
5. Note the deadlines: Record the date on which a ground for insolvency occurred and calculate when the three- or six-week period expires.
6. Control payments: Once insolvency has occurred, only make payments that serve to maintain operations and go hand in hand with serious restructuring efforts or preparations for an application; justify and document every payment.
7. Social security contributions and taxes: Pay over the employees’ shares or make the notification under Section 266a (6) StGB; for wage tax, reduce wages accordingly.
8. No new liabilities without cover: No orders, down payments or new contracts whose performance is not secured.
9. Choose the restructuring route: Out-of-court, StaRUG, protective shield, self-administration or standard insolvency, depending on the stage of the crisis.
10. File the application in time: If the insolvency cannot be eliminated within the period, file the application completely and without further delay.
11. Inform the D&O insurer: Report circumstances that may lead to a claim to the insurer in good time.
12. Secure documents: Keep private copies of the basis for decisions, expert opinions, emails and minutes. Internal liability claims under Section 15b InsO and Section 43 GmbHG only become time-barred after five years, and for listed companies, under Section 15b (7) InsO, even after ten; claims by creditors under Section 823 (2) BGB are subject to the standard limitation period of three years, beginning at the end of the year in which the creditor obtained or should have obtained knowledge (Sections 195, 199 BGB), and a separate assessment period applies to liability notices issued by the tax office (Section 191 (3) AO).

When the Managing Director Is Held Liable

Months or years often pass between the application for insolvency and the first claim. Then a letter arrives from the insolvency administrator with a list of payments, a liability notice from the tax office or a lawsuit from a supplier. In this situation, a few basic rules help:

• Do not acknowledge anything hastily. Neither payment demands from the administrator nor instalment agreements should be signed without examination. An acknowledgement can cut off later objections, and even a part payment causes the limitation period to start again (Section 212 (1) no. 1 BGB).
• Examine the date on which insolvency occurred. In the proceedings, the insolvency administrator must show from when the company was illiquid or over-indebted. In many proceedings, this date is the main point of dispute; every week by which it shifts can significantly reduce the amount of liability. The managing director can counter this with a positive going concern forecast or hidden reserves, but must set these out and prove them specifically himself or herself.
• Assert consideration received and exceptions. For each payment objected to, it must be examined whether it was privileged or whether consideration of equal value reached the insolvency estate (Section 15b (2) and (4) sentence 2 InsO).
• Inform the D&O insurer immediately. The claim must be reported to the insurer within the contractual deadlines; failures can jeopardise insurance cover.
• Observe deadlines against notices. An objection (Einspruch) to a liability notice from the tax office must be lodged within one month of notification (Section 355 (1) AO); otherwise it becomes final.
• Conduct your own defence. Where there are several managing directors, each must set out his or her own grounds for relief. He or she cannot rely on the submissions of a fellow managing director also applying to him or her.
• Examine recourse options. If a tax adviser, public auditor or lawyer misjudged the crisis or failed to give a required warning, recourse may come into consideration; the special features of advisers in corporate mandates are explained in our article on attorney liability in complex business cases.

Outlook: European Harmonisation of Insolvency Law

At European level, Directive (EU) 2026/799 on harmonising certain aspects of insolvency law entered into force on 21 April 2026; Member States must transpose it by 22 January 2029. Among other things, it concerns avoidance actions in insolvency, pre-negotiated sales of businesses and creditors’ committees, but it also contains requirements on directors’ liability: directors must file for insolvency at the latest three months after becoming aware of the insolvency (Art. 40), and they are to be liable to creditors for losses resulting from a breach of this duty (Art. 42); Art. 41 permits equivalent alternative protective mechanisms.

This is likely to change little for German managing directors, because German law, with three or six weeks from the objective occurrence of insolvency, is considerably stricter; a directive setting a minimum standard does not require any relaxation. It is significant above all for groups of companies with subsidiaries in other Member States: there, duties to file and directors’ liability, which have so far in some cases not been regulated at all or regulated very differently, will converge. How the German legislature will implement it remains open.

Example

Example: Holzbau GmbH employs 25 people. The managing director is Markus, and the sole shareholder is his sister Anna. Since the autumn, losses have been mounting because a major customer has been lost. In January, while preparing the annual financial statements, the tax adviser states in writing that, in his view, continuation of the business is no longer predominantly likely and over-indebtedness is probable. Markus considers this exaggerated because he is expecting a new major order, for which, however, there is only a non-binding enquiry.

On Monday, 16 February 2026, liabilities of EUR 400,000 that are due are outstanding, including several supplier invoices for which no reminders have yet been sent; EUR 300,000 is available. The gap of 25 percent cannot be closed within three weeks. The company is therefore illiquid. Because Markus has no specific prospect of restructuring apart from the non-binding enquiry, he may not use up the three-week period but would have to file the application without undue delay; at the latest, the period ends on 9 March. The company may even have been over-indebted in January following the tax adviser’s warning; in that case, the six-week period already began at that point.

Anna instructs Markus not to file an application and first to repay her shareholder loan of EUR 50,000. Markus repays the loan, continues to pay suppliers and wages totalling EUR 380,000 until the end of May, orders new timber for EUR 60,000 on account and leaves wage tax of EUR 30,000 and employees’ social security contributions of EUR 25,000 unpaid. On 2 June, he files the application for insolvency.

The consequences for Markus are considerable:

• Prohibition of payments: Under Section 15b InsO, the insolvency administrator demands reimbursement of the payments made since insolvency occurred. As Markus did not pursue any restructuring or application measures, even the payments from 16 February onwards are not privileged, not just those made after the period expired. From the EUR 380,000, Markus can only deduct payments for which consideration of equal value demonstrably reached the insolvency estate and is still there. Wage payments and payments for services already consumed do not, as a rule, qualify.
• Shareholder loan: The repayment to Anna was made after illiquidity occurred and is therefore a prohibited payment under Section 15b (1) InsO, for which Markus is obliged to reimburse. At the same time, the administrator can challenge the payment against Anna under Section 135 InsO. The shareholder’s instruction does not relieve Markus.
• New creditors: The timber supplier can hold Markus personally liable for its reliance loss, if in doubt up to EUR 60,000, without deduction of the insolvency dividend and concurrently with the assignment of its insolvency claim.
• Taxes: The tax office can hold Markus liable for the wage tax of EUR 30,000. The protection of Section 15b (8) InsO does not apply because Markus filed the application late.
• Social security: Markus is personally liable to the health insurance fund for the employees’ contributions of EUR 25,000 and risks criminal proceedings under Section 266a StGB.
• Criminal law: In addition, there are investigation proceedings for delaying insolvency. A conviction for intentionally delaying insolvency would disqualify Markus from acting as managing director for five years.
• D&O: Whether the D&O insurance covers the reimbursement claims depends on the conditions and on whether the insurer can prove a knowing breach of duty for each payment. The tax adviser’s written warning will play an important role in this.

Had Markus had a going concern forecast prepared after the tax adviser’s warning in January, he might still have been able to use StaRUG proceedings or protective shield proceedings. With a complete application filed without undue delay after illiquidity occurred, he would have avoided personal liability for most of these items.

Conclusion

The duties of a managing director in a corporate crisis do not only begin with insolvency, but with the ongoing early detection of crises under Section 1 StaRUG. Anyone who knows their figures, takes warning signs seriously and involves the shareholders at an early stage has the greatest room for manoeuvre and can use restructuring routes such as the StaRUG or protective shield proceedings. Once illiquidity or over-indebtedness has occurred, the rules of the game change fundamentally: the filing periods of three and six weeks are maximum periods, the prohibition of payments turns almost every payment after the period has expired into a personal liability risk, and neither shareholder instructions nor the allocation of responsibilities offer protection. In addition, there is liability for taxes and social security contributions, liability towards new creditors and criminal law risks up to disqualification from acting as managing director for several years. Most liability cases arise from waiting. Filing for insolvency in good time and well prepared is therefore often not the end, but an effective way of limiting one’s own liability.

Frequently Asked Questions

What is delaying insolvency, and is it also punishable if committed negligently?

Delaying insolvency means that the managing director does not file the application for insolvency, does not file it in time or does not file it correctly despite illiquidity or over-indebtedness. If committed intentionally, it carries a penalty of imprisonment of up to three years or a fine, but it is also punishable if committed negligently, in which case the penalty is imprisonment of up to one year or a fine (Section 15a (4) and (5) InsO). A managing director acts negligently, for example, if he or she does not know the figures although he or she should know them.

When must a managing director file for insolvency?

Without culpable delay after illiquidity or over-indebtedness has occurred, at the latest three weeks after illiquidity occurs and six weeks after over-indebtedness occurs (Section 15a (1) InsO). The periods may only be used for serious restructuring efforts with a prospect of success. In the case of imminent illiquidity, there is no duty to file, but there is a right to file.

Is the managing director of a GmbH liable with his or her private assets?

In principle, not towards the company’s creditors. In a crisis, however, there are important exceptions: the obligation to reimburse payments made after insolvency has occurred (Section 15b InsO), liability towards existing and new creditors for delaying insolvency, liability for taxes (Section 69 AO) and for social security contributions not paid over, and internal liability towards the company under Section 43 GmbHG.

Does an instruction from the shareholders protect me?

In relation to the company, an instruction that has been followed provides relief in many cases. This does not apply to prohibited payments after insolvency has occurred or to payments in breach of capital maintenance, insofar as compensation is necessary to satisfy the creditors (Section 15b (4) sentence 3 InsO, Section 43 (3) sentence 3 GmbHG). An instruction not to file for insolvency is irrelevant.

May I continue to draw my managing director’s salary in a crisis?

Before insolvency occurs, in principle yes, but for shareholder-managing directors only in an appropriate amount (Section 30 GmbHG) and not insofar as the payment was bound to lead to illiquidity (Section 15b (5) InsO). It is disputed whether the managing director must agree to a reduction if the situation deteriorates significantly. Once insolvency has occurred, one’s own salary is also subject to the prohibition of payments under Section 15b InsO, and remuneration paid shortly before the application can be challenged. Outstanding salary claims are as a rule only insolvency claims in the insolvency proceedings.

Can I avoid liability by resigning from office?

No. Liability for breaches of duty during the term of office remains, and according to case law a former managing director can even be liable to creditors who only come along after his or her departure if the dangerous situation he or she created continues to have an effect. In addition, if the company has no management, the duty to file passes to the shareholders.

Will the D&O insurance pay if I have delayed insolvency?

That depends on the conditions. The Federal Court of Justice has ruled that reimbursement claims for prohibited payments are in principle insured and that filing an application late does not automatically prove a knowing breach of duty. The insurer must prove knowledge for the specific payments. Extended reporting periods, insolvency clauses and notification obligations should be checked before the crisis.

Does my tax adviser have to warn me of possible insolvency?

Yes, if he or she prepares the annual financial statements, indications of a ground for insolvency are obvious and he or she must assume that you are not aware of the possible insolvency (Section 102 StaRUG). If a required warning is not given and loss results, the tax adviser may be liable. If you receive such a warning, you should have the question of insolvency examined without undue delay.

Attorney Dr. Johannes Fiala and the firm have published extensively on the liability of managing directors and corporate officers, the liability of tax advisers and D&O insurance and advise managing directors, shareholders and companies in a crisis, from classifying their own duties and examining liability and recourse claims to protection through insurance. Please get in touch with the firm without obligation to discuss your individual situation in an initial consultation.