Insolvency rejected due to lack of assets

Basics & Overview – What you should know.

How does the insolvency application come to be rejected due to lack of assets?

In Germany, an application for insolvency can be rejected due to insufficient assets. This happens if the company is insolvent and at the same time there are no assets available to fully cover the costs of insolvency proceedings ( Section 17, Paragraph 2 of the Insolvency Code ).

Such a "rejection of the insolvency application" can occur if, for example, the legal entity or partnership in question applies for standard insolvency and the "assets" are not sufficient (see above).

Natural persons ( e.g. freelancers and self-employed persons ) are not affected by any possible legal consequences due to delaying the filing of insolvency proceedings . For these "natural persons", the same options for discharge of residual debt apply in the further proceedings as for private individuals .

Difference to private insolvency when rejecting corporate insolvency

Unlike in private insolvency , where the procedural costs can be deferred, this is not possible in the business sector. If an insolvency application is rejected, this means that the company can no longer be saved according to the normal rules of insolvency.

Instead, the company must be closed. To do this, a note is first made in the official commercial register that the company is being dissolved. Once all the necessary steps have been completed, the entry in the commercial register is deleted. The company is also included in the debtors' register, which means that it is officially considered insolvent.

 

Two hands show rejection with NO!

Insolvency proceedings dismissed due to lack of assets: Court's approach

If insolvency proceedings are rejected due to insufficient assets, the court will cancel the entry for the GmbH's dissolution in the commercial register ex officio. If there is sufficient evidence of assets, the commercial register entry will not be deleted immediately upon dissolution.

If the GmbH has no assets ( Section 394, Paragraph 1, Sentence 1 of the Family Law Act ), the shareholders of the GmbH can initiate deletion from the commercial register. The remaining assets must be utilized in the context of liquidation.

What happens if insolvency proceedings are brought to an end due to lack of assets?

The application to start insolvency proceedings for a GmbH can be rejected if the assets are insufficient to cover the costs of the proceedings. If the amount is no more than €3,000, the court can reject the insolvency and the company (GmbH) will be entered into a public debtor register as a result of the insolvency.

What is the creditor's proposal?

Creditors can file a petition to force bankruptcy proceedings. A creditor petition is a formal request from a creditor to the competent bankruptcy court to declare bankruptcy of an insolvent debtor. The creditor petition can be filed if the debtor is insolvent and this is proven by outstanding invoices or missed payments.

If the creditor's application is accepted by the bankruptcy court, a regular bankruptcy procedure is usually initiated. In this procedure, the debtor's assets are liquidated and the proceeds are used to satisfy the creditors according to their ranking. The insolvency administrator oversees this process and ensures that the available funds are distributed in accordance with the law.

How long is the blocking period if the application is rejected due to lack of assets?

A three-year blocking period comes into effect if a person who is in insolvency proceedings:

  • Has filed for insolvency himself
  • Despite a warning from the court, the application for discharge of residual debt was not submitted on time.

Why? The Federal Court of Justice (BGH) wants to avoid costly proceedings being repeated unnecessarily.

If someone fails to submit the application for discharge of residual debt on time or withdraws it despite being advised, thereby delaying the procedure, that person should bear the consequences.

What does timely mean?

If insolvency occurs, it must be reported immediately. It does not matter when those responsible realized that there were reasons for insolvency. The decisive point in time is when they should have realized it.

Important to know – Possibility of discharge of residual debt:

As a rule, an application for discharge of residual debt can only be made after the three-year blocking period has expired.

According to a decision of the Cologne District Court in 2013, the rule was that the three-year blocking period did NOT apply to the filing of new self-applications for the opening of insolvency proceedings and discharge of residual debt if a creditor's application was rejected due to lack of assets.
>> Nevertheless, this ruling should not prevent companies from submitting applications on time. Ultimately, it is the decision of the respective local court.

Below are possible legal violations in the event of a rejection of the insolvency application due to lack of assets according to Section 26 InsO:

Personal liability:

In the case of limited liability companies (GmbH) or stock corporations (AG), managing directors or board members can be held personally liable if they do not file for insolvency in a timely manner when insolvency is imminent.

Delaying insolvency:

If the managing director knowingly delays or conceals the company's insolvency, this may be considered bankruptcy procrastination. This is a criminal offense in many countries and can result in fines or even prison sentences of up to three years.

Fraud:

If the director commits fraudulent acts to deceive creditors or hide assets, this may be considered fraud. Fraud is also a criminal offense and can result in severe penalties.

Unauthorized withdrawal of assets:

If the director unlawfully takes company assets or uses them for personal purposes, this could be considered a criminal offense.

Violation of supervisory and due diligence obligations:

Managing directors have certain supervisory and care obligations towards the company and its creditors. If these obligations are violated and damage is caused, legal consequences could follow.

Legal Notice:
https://dejure.org/gesetze/InsO/26.html

The public prosecutor's office is investigating whether this is a case of delaying insolvency proceedings.

According to Section 15a Paragraph 1 of the Insolvency Code, companies and the like must file for insolvency no later than three weeks after they become insolvent or over-indebted.

  • The managing director faces a prison sentence if he delays filing for insolvency and intentionally fails to file for insolvency or files too late. The so-called delay in filing for insolvency occurs when the company fails to file and is a criminal offence punishable by a maximum prison sentence of three years or, alternatively, a fine.
  • Prison sentences are likely only to be threatened if others have suffered harm as a result of delaying the filing of insolvency proceedings.
  • Precisely because experience shows that many companies are guilty of delaying insolvency (either knowingly or unknowingly), the public prosecutor's office investigates the matter. This always happens as soon as insolvency proceedings are rejected due to insufficient assets.
  • If the public prosecutor's office detects a delay in filing for insolvency, the actions and decisions of the management will be closely examined. In particular, it will examine whether the management was aware of the company's insolvency and yet failed to file for insolvency in a timely manner.
  • If evidence of insolvency delay is found, the legal steps mentioned above could be initiated against those responsible.

What are the legal steps for a company if the application is rejected due to lack of assets?

Dissolution of the company (liquidation) according to the legal basis of Section 26 InsO

Companies and firms as legal entities (GmbH, AG, etc.) and partnerships (OHG / KG) are dissolved according to the law.

Process and procedure for the liquidation of a GmbH in case of rejection due to lack of assets

After the bankruptcy application has been rejected due to insufficient assets, it is usually not the insolvency administrator who takes over the winding up of the company, but often the management or an expert. This means that ongoing business is stopped, outstanding debts are collected and the company's assets are converted into cash.

 

In certain cases, dissolution and deletion of the company without waiting period may also be considered.

 

The crucial difference is that in this case it is not normally the insolvency administrator who is responsible for winding up the company, but often the management itself or, if necessary, an external specialist such as a lawyer or other expert.

 

The insolvency court then takes the following steps:

 

  • Entry of the note for the subsequent dissolution of the company
  • Arrange for deletion from the commercial register and from publicly accessible directories. (*Visible with legitimate reasons)

 

entry in the debtor register

  • As a result of the rejection, the company will be forcibly entered into the debtors' register.
  • This register is publicly accessible (access only with appropriate authorization).


Implementation of compulsory enforcement after termination of insolvency proceedings due to lack of assets

 

The provisional insolvency administrator shall first terminate his or her term of office.

All measures to secure assets are lifted. In this case, those who are still owed money (creditors) can once again take legal action to get their money back.

 

This is because after the rejection, all restrictions on assets and other values ​​are lifted. This gives creditors the opportunity to enforce their claims in other ways in order to get their money back. This makes enforcement possible again.

 

The prospects of enforcement following a rejection due to lack of assets must be reassessed on a case-by-case basis.

final settlement (with the creditors)

In order not to put them off any longer, a liquidation agreement is being sought in order to have the opportunity to satisfy creditors later. All fixed assets and all other values ​​will be liquidated and communicated to the creditors.

 

The agreement, with proof that the fixed assets or the remaining assets were sold at the best (market) prices, is to be reached as part of a settlement, a "pro rata agreement" (ie in proportion to their share of the total liabilities).

This is necessary so that the company can be “actually” terminated and finally closed and serves to ensure a certain degree of transparency and fairness towards the creditors.

What can a company do to avoid a "dismissal of the case due to lack of assets"?

The rejection of insolvency "due to lack of assets" can be avoided. To do this, the owner of the company must ensure the following.

  1. The debtor is a natural person and the deferral of the costs of the insolvency proceedings was applied for in a timely manner and approved accordingly.
  2. If the debtor or a creditor wishes to prevent dismissal, he or she can make an advance payment on the costs of the insolvency proceedings .
  3. "Insolvency proceedings that have already been opened will not be discontinued despite the insolvency of the insolvency estate if a sufficient amount of money is advanced for their continuation, Section 207, Paragraph 1, Sentence 2. "



You should definitely arrange a personal meeting with a lawyer or insolvency advisor to obtain sufficient information.

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