Companies must file for bankruptcy within 3 weeks in the event of bankruptcy and within 6 weeks in the event of over-indebtedness. This is the case when liabilities cannot be settled with company assets and there is a negative going concern forecast. Bankruptcy can be averted with various measures, where bankruptcy attorney plays a major role.
THE ESSENTIALS IN BRIEF:
- Insolvent companies must file for bankruptcy within 3 weeks.
- Over-indebted companies must file for insolvency within 6 weeks.
- Various measures can help to avert imminent insolvency.
- Sales of receivables, credit optimization & share sales improve liquidity.
- A company audit is necessary to identify suitable measures.
- A lawyer can develop target-oriented measures and monitor their implementation.
Avoid bankruptcy: Here’s how it works
If a debtor or company can no longer meet payment obligations or can no longer cover ongoing costs, it is bankrupt according to the Bankruptcy Code and is therefore obliged to file for bankruptcy.
Case law has established that bankruptcy is to be assumed if 10% of the debts due cannot be met for a period of more than 3 weeks. Amounts below this are only regarded as a “payment hold” and do not fall under the obligation to file for bankruptcy.
As a result, the management must file an application for company bankruptcy with the responsible insolvency court within 3 weeks at the latest. In the event of over-indebtedness, there is also an obligation to file for insolvency – since this is difficult to determine, insolvency must be registered within 6 weeks at the latest.
If the management does not comply with this obligation, criminal proceedings for delaying insolvency can threaten and the management can be held liable.
However, this also means that the management has 3 or 6 weeks to take measures to restructure the company and avert bankruptcy. Here are some of the possible solutions:
- Optimize receivables and dunning
- sell receivables
- Take out or optimize loans, credit lines, guarantees and sureties
- take out shareholder loans
- sell company shares
- Agree with creditors & arrange longer maturities
- Register protective shield proceedings
- Avoid bankruptcy during regular bankruptcy proceedings
In crisis situations, a lot is at stake, often “the whole thing”. That’s why it’s reassuring to have a partner who can provide you with the information you need to maneuver safely, even when times get tough.
Open & transparent communication
Open and transparent communication with employees and business partners can help to avert bankruptcy. In this way, the management can show creditors and partners that they are seriously interested in solving the economic problems – and, under certain circumstances, achieve a deferral of due claims.
Within the company, unrest among employees can be prevented in this way. It can also increase employees’ willingness to accept or support necessary cuts so the company can avoid impending bankruptcy.
Optimize receivables and dunning
In order to avoid bankruptcy, it can be helpful to collect outstanding debts. In this way, defaulting customers can be put in default after the payment deadline specified in the invoice or the statutory payment deadline of 30 days and reminded to pay an invoice.
If defaulting customers do not react within a set period, managing directors can send a reminder to the customer or have the outstanding invoices collected. In addition, they can initiate legal dunning proceedings or claim damages for unpaid invoices from the customer.
Avert bankruptcy by selling receivables
It can also be worth hiring a collection agency if a customer doesn’t pay. As a rule, the outstanding claim is sold to this service provider, who then collects the money from the defaulting customer.
Although a collection agency retains part of the amount owed as commission, the remaining portion is immediately available through the sale – and can be used to avert bankruptcy.
In addition, internal expenses and costs for debtor management are lower due to the sale of receivables, which could free up additional financial resources.
Loans, Lines of Credit, Guarantees & Sureties
Debtors and companies can achieve further financial leeway through financial optimization. The options to avoid bankruptcy include:
- Debt rescheduling on more favorable terms.
- Increase loans or lines of credit – possibly on more favorable terms.
- Revoke loans & benefit from lower interest rates.
- Take out additional loans or lines of credit.
- Obtain sureties or guarantees from business partners, banks or similar institutions.
Avert insolvency with shareholder loans
A shareholder loan can also help to prevent insolvency through short-term liquid funds. With this special loan, a partner provides the company with fresh capital. The shareholder can demand interest and a profit share for this.
Such a loan can take several forms:
- Classic money loan
- Temporary waiver of profit-sharing payments
- Deferral of a claim for compensation
The disadvantage: A loan from a shareholder is always given priority in the event of insolvency – i.e. it is the last to be satisfied.
Sell company shares
Insolvency can sometimes be avoided if shareholders sell all or part of their shares. In the case of partnerships, the shareholders must agree if, for example, company shares are to be sold.
Company shares can also be offered to investors or business partners. Fresh money can be obtained through the following forms of participation in order to prevent insolvency:
- Participation or participation loan
- Atypical silent or silent participation
In addition to individual shares, the shareholders can also sell the GmbH and continue to work there as managing director after the takeover by an investor.
Avoid bankruptcy by reaching agreement with creditors
Insolvency proceedings can also be associated with uncertainties for the creditors. You never know in advance whether the business will continue or be liquidated – and whether you can enforce your open claim.
It is therefore not unlikely that creditors are interested in avoiding the risks of bankruptcy in order not to lose their money. Therefore, it can be helpful if the company approaches its creditors and tries to convince them to waive payment, partially waive the debt, or defer payment.
The attempt to reach an out-of-court settlement with the creditors is also a formal requirement in order to be able to file for insolvency in the event of insolvency (which also includes private debts) – and thus be able to benefit from the discharge of residual debt.
Another option is to agree with the creditors that their claims will not be due until a later date.
If companies also openly deal with their payment difficulties in front of creditors and propose solutions that take the interests of creditors into account, they can possibly prevent creditors from filing for insolvency.