[dropcap]F[/dropcap]or the owners of a business it is bad enough if their company goes bankrupt. Unfortunately, in many cases of insolvency, the crisis of the company goes hand in hand with criminal investigations against the owners or directors because of suspected delayed insolvency. In crisis, many business executives try to save the company and hold it over water for as long as possible, meanwhile hoping for new business or fresh money. Not filing for insolvency during this phase can already constitute a crime according to section 15a Insolvency Act, even if the company goes up afterwards and the phase of insolvency was only transitory.

[dropcap]I[/dropcap]n addition, in many cases of bankruptcy, the prosecutors are automatically informed by the competent Insolvency Court (Local County Court, Amtsgericht acting as Insolvenzgericht) about bankruptcies in case the insolvency proceedings are rejected due to the lack of assets. In such cases, prosecutors automatically start investigations because they assume delayed insolvency or other bankruptcy crimes.

[dropcap]W[/dropcap]e are specialized criminal defense attorneys with a focus on bankruptcy crimes such as delayed insolvency. Practical expertise about the conduct of a business during the crisis is paramount. In many cases, a different view brought forward by your defense attorneys can change the prosecutor’s view on a case and reduce the punishment substantially. In addition, we offer legal counseling on the compliance side regarding the necessity of filing for insolvency and the criminal consequences of possible delays.

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Section 15a Insolvency Act: Obligation to Request in the Case of Legal Persons and Associations Without Legal Personality

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(1) Where a legal person becomes illiquid or overindebted, the members of the board of directors or the liquidators shall file a request for the opening of proceedings without culpable delay, at the latest, however, three weeks after the commencement of insolvency or overindebtedness. The same shall apply to the organ representatives of the partners authorized to represent the company or the liquidators in the case of a company without legal personality where none of the general partners is a natural person; this shall not apply if one of the general partners is another company in which a general partner is a natural person.

(2) In the case of a company within the meaning of subsection (1), second sentence, subsection (1) shall apply correspondingly if the organ representatives of the partners authorized to represent the company are, in turn, companies in which none of the general partners is a natural person, or the grouping of companies continues in this way.

(3) Where a private limited company lacks a management, each partner, in the case of lack of management of a public limited company or a cooperative each member of the supervisory board, is also obligated to file a request, unless that person is not aware of the insolvency or overindebtedness or the lack of management.

(4) Whoever, contrary to subsection (1), first sentence, also in conjunction with the second sentence or subsection (2) or subsection (3), does not file a request for the opening of proceedings, does not correctly file a request or does not file a request in good time shall be punished with imprisonment for not more than three years or a fine.

(5) If the perpetrator under subsection (4) acts negligently, the punishment shall be imprisonment for not more than one year or a fine.

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[dropcap]D[/dropcap]elayed insolvency is only one part of insolvency crimes. There are numerous other crimes connected to times of crisis, some of them codified in the Penal Code (Strafgesetzbuch).

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(1) Whosoever due to his liabilities exceeding his assets or current or impending inability to pay his debts

1.  disposes of or hides, or, in a manner contrary to regular business standards, destroys, damages or renders unusable parts of his assets, which in the case of institution of insolvency proceedings would belong to the available assets;

2.  in a manner contrary to regular business standards enters into losing or speculative ventures or futures trading in goods or securities or consumes excessive sums or becomes indebted through uneconomical expenditures, gambling or wagering;

3.  procures goods or securities on credit and sells or otherwise distributes them or things produced from these goods substantially under their value in a manner contrary to regular business standards;

4.  pretends the existence of another’s rights or recognises fictitious rights;

5.  fails to keep books of account which he is statutorily obliged to keep, or keeps or modifies them in such a manner that a survey of his net assets is made more difficult;

6.  disposes of, hides, destroys or damages books of account or other documentation, which a merchant is obliged by commercial law to keep, before expiry of the archiving periods which exist for those obliged to keep books, and thereby makes a survey of his net assets more difficult;

7.  contrary to commercial law

(a)  draws up balance sheets in such a manner that a survey of his net assets is made more difficult; or

(b)  fails to draw up a balance sheet of his assets or the inventory in the prescribed time; or

8.  in another manner which grossly violates regular business standards diminishes his net assets or hides or conceals the actual circumstances of his business,

shall be liable to imprisonment not exceeding five years or a fine.

(2) Whosoever causes his liabilities to exceed his assets or the inability to pay by one of the acts indicated in subsection (1) above shall incur the same penalty.

(3) The attempt shall be punishable.

(4) Whosoever in cases

1.  under subsection (1) above negligently fails to be aware of the excess of liabilities or the impending or current inability to pay or

2.  under subsection (2) above causes the excess of liabilities or inability to pay by gross negligence

shall be liable to imprisonment not exceeding two years or a fine.

(5) Whosoever in cases

1.  under subsection (2) Nos 2, 5 or 7 above acts negligently and at least negligently fails to be aware of the excess of liabilities or the impending or current inability to pay; or

2.  under subsection (2) in conjunction with subsection (1) Nos 2, 5 or 7 above acts negligently and at least by gross negligence causes the excess of liabilities or inability to pay,

shall be liable to imprisonment not exceeding two years or a fine.

(6) The offence shall only entail liability if the offender has suspended payments or if insolvency proceedings have been instituted in relation to his assets or the application to institute proceedings has been rejected due to lack of available assets.
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In especially serious cases under section 283(1) to (3) the offender shall be liable to imprisonment from six months to ten years. An especially serious case typically occurs if the offender

1.  acts out of profit-seeking; or

2.  knowingly places many persons in danger of losing their assets that were entrusted to him, or in financial hardship.

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(1) Whosoever

1.  fails to keep books of account which he is statutorily obliged to keep, or keeps or modifies them in such a manner that a survey of his net assets is made more difficult;

2.  disposes of, hides, destroys or damages books of account or other documentation, which a merchant is obliged by commercial law to keep, before expiry of the archiving periods which exist for those obliged to keep books, and thereby makes a survey of his net assets more difficult;

3.  contrary to commercial law

(a)  draws up balance sheets in such a manner that a survey of his net assets is made more difficult; or

(b)  fails to draw up a balance sheet of his assets or the inventory in the prescribed time

shall be liable to imprisonment not exceeding two years or a fine.

(2) Whosoever acts negligently in cases under subsection (1) Nos 1 or 3 above shall be liable to imprisonment not exceeding one year or a fine.

(3) Section 283(6) shall apply mutatis mutandis.

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(1) Whosoever with knowledge of his own inability to pay grants a creditor a security or satisfaction to which he is not entitled at all or not in such a manner or at the time, and thereby intentionally or knowingly accords him preferential treatment over the other creditors shall be liable to imprisonment not exceeding two years or a fine.

(2) The attempt shall be punishable.

(3) Section 283(6) shall apply mutatis mutandis.
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(1) Whosoever

1.  with knowledge of another’s impending inability to pay; or

2.  after the suspension of payments, in an insolvency proceeding or in a proceeding about the institution of insolvency proceedings of another, with his consent or on his behalf disposes of or hides, or, in a manner contrary to regular business standards, destroys, damages or renders unusable parts of the other’s assets, which in the case of institution of insolvency proceedings would belong to the available assets,

shall be liable to imprisonment not exceeding five years or a fine.

(2) The attempt shall be punishable.

(3) In especially serious cases the penalty shall be imprisonment from six months to ten years. An especially serious case typically occurs if the offender

1.  acts out of profit-seeking; or

2.  knowingly places many persons in danger of losing their assets that were entrusted to him, or in financial hardship.

(4) The offence shall only entail liability if the other person has suspended payments or if insolvency proceedings have been instituted in relation to his assets or the application to institute proceedings has been rejected due to lack of available assets.
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