To exclude risks you have to know them, because..

By Willhelm Dahm / Equity Partner Restructuring measures under financial difficulties have always involved high risks for the managing director. He vouches for every decision with his private assets and even risks criminal prosecution. The suspension of the obligation to file for insolvency due to the Corona pandemic has not eased the situation. On the contrary, many managers are not aware that if the company is unsuccessfully rescued and an application for insolvency proceedings is then necessary, it will be closely scrutinised whether the insolvency

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

In both cases, the insolvency administrator will hold the manager accountable for dragging out insolvency proceedings according to § 15 InsO and thus make him liable for damages. The managing director does not want to imagine such a scenario and he is very well advised to seek legal assistance at an early stage.

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

The following laws are excerpts, but they show the minefield in which the managing director finds himself 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 apply: When the reason for insolvency arises, the managing director has a maximum of 3 weeks to file for insolvency. Violation of this rule can result in fines or even imprisonment of up to 3 years in the best case. The danger of falling into this trap is particularly high if the company has not established any early warning systems (e.g. rolling liquidity planning) or if the bookkeeping is not maintained in a timely manner. (Incidentally, this is additionally sanctioned (§283 StGB)).
  • The Criminal Code Various paragraphs are used here as examples, depending on the situation.
    • 263 StGB. Fraud is punishable by up to 5 years’ imprisonment. The pretence of false facts is already considered fraud. For example, ordering goods although you know you cannot pay for them is fraud (even ignorance does not protect you here).
    • 266a StGB Withholding and embezzlement of remuneration. Particular focus is placed on the fiduciary administration of employees’ social contributions. If these are not paid, this can also lead to imprisonment of up to 5 years.
    • 283b StGB Breach of the duty to keep records Breach of the duty to keep accounts can lead to imprisonment of up to 2 years. Particularly in view of the new laws on early reorganisation (SanInsFoG), in which the legislator provides entrepreneurs with further instruments to reorganise their business under certain legal requirements, it also demands more precise planning, such as a 2-year liquidation plan. The entrepreneur is therefore urgently advised to obtain the appropriate tools and to keep his bookkeeping up to date so that he can free himself from debt.
  • The Civil Code
    • 823 BGB 823 BGB defines the obligation to pay damages if the act has caused damage. In this case, it is not the company that is held liable, but the responsible managing director.
  • The GmbH – Law
    • First and foremost is 43 GmbHG. It states that the managing director is fundamentally liable and may not follow the instructions of the shareholders if his actions reduce the assets of the company and thus the claims of the creditors.As an example, it should be mentioned that the shareholders demand the distribution of dividends and this leads to liquidity bottlenecks. The managing director is then required not to comply with this instruction, otherwise he is liable for it. Here, too, careful advance planning is necessary.
    • 64 GmbHG Another paragraph that the managing director must observe, especially in the area of insolvency. The managing director is liable for payments made after insolvency or over-indebtedness has occurred, unless they are “consistent with the duty of care of a prudent businessman”. A stretching term! Here, too, planning is the key to keeping oneself free from possible claims for damages.
  • Fiscal Code
    • SECTION 370 AO Finally, this paragraph on “tax evasion” should be cited. It must be said that the focus is particularly on the failure to declare tax correctly, as this is tax-reducing. Failure to pay the correctly declared tax is not relevant under criminal law, but can lead to enforcement. Depending on the offence, up to 10 years’ imprisonment may be imposed.

The laws listed above are not exhaustive, but they show the high-risk environment in which the managing director and also the managing interim manager operate. It is irrelevant whether he is a managing director by mandate or only acts as such (de facto managing director). The managing directors are advised to commission experts at an early stage who are familiar with the following

  • legislation
  • Strategy development
  • tax matters
  • insolvency law
  • labour law

to achieve a sustainable turnaround and reduce the 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 also come from the entrepreneurial side, because first and foremost it is about the continued existence of the company and not about breaking it up. Basically, the managing director is called upon to pay attention to the appropriate monitoring tools, to maintain clean bookkeeping and to build up reliable liquidity planning. In this way, he can already compensate for some risks. Especially with regard to the new legislation (StaRuG), which comes into force on 01.01.21, the requirements for the managing directors have been tightened, which one must now adjust to. F&P Executive Solutions AG specialises in these topics and is always available for further questions.

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