Insolvency rejected due to lack of assets

Basics & Overview – What you should know.

What does "insolvency rejected due to lack of assets" mean for companies?

Dismissal due to lack of assets means that the insolvency court refuses to open insolvency proceedings because the debtor's assets are insufficient to cover the costs of the proceedings (Section 26 of the Insolvency Code). In this case, insolvency cannot be carried out normally. The debtor is left with his or her debts.

In order to remain able to act, you should know the right alternatives and recommendations for action and react quickly .

What happens if insolvency is rejected due to lack of assets?

If an insolvency application is rejected due to insufficient assets, the company cannot continue to operate. In this case, liquidation occurs. The company's remaining assets are converted into cash.

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

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

Such a "rejection of the insolvency application" can occur if the "legal entity" or "partnership" in question, for example, applies for standard insolvency and the "assets" are insufficient (see above).

"Natural persons" (such as freelancers and self-employed individuals ) are not affected by the potential legal consequences of delaying insolvency . These "natural persons" are entitled to the same options for discharge from residual debt as private individuals .

Difference to private insolvency when company insolvency is rejected

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

Instead, the company must be closed .
To do this, the company is first registered in the official commercial register that it is being dissolved. Once all necessary steps have been completed, the entry in the commercial register is deleted. The company is also included in the debtors' register . This 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 dismissed due to insufficient assets, the court will automatically cancel the entry in the commercial register for the GmbH's dissolution . If there is sufficient evidence of assets, the commercial register entry will not be immediately deleted upon dissolution.

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

What happens if insolvency is discontinued due to lack of assets?

The application to start insolvency proceedings for a GmbH can be rejected if the assets are not sufficient to cover the costs of the proceedings.

If the amount is no more than €3,000, the court may reject the insolvency. The company (GmbH) will then be entered into a public debtors' register as a result of the insolvency.

What is the creditor’s proposal?

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

If the creditor's petition is accepted by the insolvency court, regular insolvency proceedings are usually initiated. During this process, the debtor's assets are liquidated. The proceeds are used to satisfy the creditors according to their priority.

The insolvency administrator monitors this process and ensures that the available funds are distributed in accordance with legal requirements.

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.

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

If someone fails to submit or withdraws the application for discharge of residual debt in a timely manner despite being advised, thereby delaying the procedure, that person shall bear the consequences.

What does timely mean?

When insolvency occurs, it must be reported immediately. It doesn't matter when those responsible realized that there were grounds for insolvency. The decisive factor is when the debtor(s) 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 own applications for the opening of insolvency proceedings and discharge of residual debt if a creditor's application was rejected due to insufficient assets.
>> Nevertheless, this ruling should not deter companies from submitting applications on time. Ultimately, it is the decision of the respective district court whether the three-year blocking period applies.

Erstberatung für Unternehmen

Ihr Unternehmen ist in finanzielle Not geraten? Wir helfen Ihnen bei Restrukturierung, Insolvenzanmeldung und bei allen weiteren Schritten zur Schuldenreduktion.

Erstberatung anfragen

Possible legal violations and consequences if the insolvency application is rejected 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 insolvency delay. This is a criminal offense in many countries and can result in fines or even imprisonment of up to three years.

Fraud:

If the director commits fraudulent acts to deceive creditors or conceal 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 duties:

Managing directors have certain supervisory and due diligence duties toward the company and its creditors. If these duties 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 constitutes insolvency delay.

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

  • A managing director who delays filing for insolvency and intentionally fails to file for insolvency or files too late faces a prison sentence. Failure to file for insolvency is considered a criminal offense punishable by a maximum prison sentence of three years or, alternatively, a fine.
  • Prison sentences are likely only imposed if others have suffered harm as a result of delaying insolvency . However, this depends on the perpetrator's history and the individual judicial decision.
  • Precisely because experience shows that many companies are guilty of (consciously or unconsciously) delaying insolvency , the public prosecutor's office investigates the case whenever insolvency proceedings are rejected due to insufficient assets.
  • If the public prosecutor's office identifies a delay in filing for insolvency , it will closely examine the actions and decisions of the management . 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 aforementioned legal measures could be taken 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.

Procedure and process for the liquidation of a GmbH in the event of dismissal due to lack of assets

After the insolvency application is rejected due to insufficient assets, the insolvency administrator usually does not take over. Often, the management or an expert takes the lead in winding up the company. This means stopping ongoing operations, collecting outstanding debts, and converting the company's assets into cash. 

In certain cases, the dissolution and deletion of the company without a 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. If necessary, an external specialist such as a lawyer or other expert is appointed.

The insolvency court then takes the following steps:

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

Entry in the debtors' register

  • As a result of the rejection, the company will be forcibly entered into the debtors' register.
  • This register is publicly accessible. The promise is only valid if you have the appropriate authorization.

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

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

All asset-protection measures are lifted. In this case, those who are still owed money (creditors) can once again take legal action to recoup their money.

This is because, after dismissal, all restrictions on assets and other valuables are lifted. Creditors are then able to pursue their claims elsewhere to recoup their money. Enforcement is thus possible again.

The prospects of enforcement following dismissal due to lack of assets must be reassessed in each individual case.

Final settlement (with creditors)

To avoid further delays, we are seeking a liquidation settlement to ensure the possibility of satisfying creditors' claims at a later date. All fixed assets and all other assets will be liquidated and disclosed to the creditors.

The agreement is based on proof that the assets were sold at the best possible market price. Creditors then receive a pro rata settlement —meaning they receive a payout proportional to their share of the total liabilities.

This is necessary so that the company can actually be 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 insolvency proceedings due to lack of assets"?

In order to avoid dismissal of the insolvency proceedings due to lack of assets, the company must ensure that sufficient funds (usually at least 2,500 to 3,000 euros) are available to cover the costs of the proceedings.

The following measures can be taken:

  1. Secure remaining assets and reduce financial burdens :
    1. Sale of realizable assets (e.g. machinery, vehicles, inventory, patents, trademark rights).
    2. Assertion of outstanding claims (e.g. outstanding invoices).
    3. Reducing ongoing costs to secure remaining capital.
  2. Timely insolvency application :
    1. Don't wait until you're completely insolvent – ​​the sooner you file, the higher the chance that you'll still have sufficient assets.
  3. Apply for a deferral of procedural costs (only for natural persons) :
    1. If the debtor is a natural person (e.g. sole proprietor, freelancer), a deferral of the costs of the insolvency proceedings can be applied for in accordance with Section 4a InsO.
  4. Pay advance payment for costs :
    1. If the debtor or a creditor wishes to prevent rejection, he or she may make an advance payment.
    2. Section 207 paragraph 1 sentence 2 InsO: “Insolvency proceedings that have already been opened will not be discontinued despite the insolvency being insolvent if a sufficient amount of money is advanced for their continuation.”
    3. According to Section 26 (1) InsO, the court may reject the application in advance if the assets are not sufficient to cover the costs of the proceedings.
  5. Third-party support :
    1. Creditors, business partners or investors may be willing to contribute to the costs of the proceedings if they hope this will improve their chances of repayment.
  6. Check alternative routes :
    1. If sufficient funds are not available, out-of-court settlements with creditors or restructuring measures should be considered.

You should definitely schedule a personal consultation with a lawyer or insolvency advisor. Find out more today!

Get to know us - Wolfgang Seelig and his team are personally there for you!

Competent debt and insolvency advice in the greater Stuttgart area

Welcome to the website of the SIC Debtor Insolvency Center e. V. in Stuttgart. We are your contact for all questions about debt and insolvency. Regardless of whether you are facing insolvency proceedings privately or professionally - we will help you professionally. Discover our advisory services and initial information about your options. We are here to help you!"

our advice

About Us

Find out more about me and my team at SIC Debtor Insolvency Center e. V. Our expertise is based on personal experience and professional qualifications.

Get to know us

Contact us

Do you have questions about insolvency advice or do you need support? Contact us conveniently via WhatsApp, telephone or email. Our team is ready to help you. Don't hesitate to contact us!

Contact us now

Our partners and awards

  • Known from Focus Online

    Our expertise in debt counseling and insolvency administration has been recognized by Focus Online.

    To the article 

  • BS Inso

    Partner of BS Inso – Together with BS Inso, we are committed to effective solutions in insolvency consulting.

  • GoldWert assessment

    GoldWert Rating – Our debt settlement and insolvency services are awarded and recommended by GoldWert.

  • Good Morning Germany

    Partner of Guten Morgen Deutschland – We are proud to be mentioned in the well-known program for our expertise in insolvency consulting."

  • German Lawyers' Association for Restructuring

    Member of the German Lawyers Association for Restructuring – We work closely with the association to offer you the best solutions in insolvency advice

1 5