Understanding insolvency proceedings: The process and the most important steps for companies

Insolvency as an opportunity – not the end

Insolvency does not necessarily mean the end of a company. Handled correctly, it can be the starting point for a successful fresh start. The key is to understand the process and take the right measures in good time. In this article, you will learn what insolvency means, how the proceedings work and what options are available to you as an entrepreneur to protect your interests.

What does insolvency mean?

Insolvency describes the financial situation of a company when it is no longer able to meet its payment obligations. The reasons for this are usually:

• Acute illiquidity
• Over-indebtedness

The aim of insolvency proceedings is twofold: on the one hand, the creditors are to be satisfied equally; on the other, the proceedings give the entrepreneur the opportunity to restructure or wind down the business in an orderly manner.

The course of insolvency proceedings

Insolvency proceedings consist of several clearly defined steps:

1. Filing the petition

• The petition can be filed either by the company itself (debtor’s petition) or by creditors.
• Important: Managing directors are legally obliged to file an insolvency petition within three weeks in the event of illiquidity or over-indebtedness. A violation can have criminal consequences.

2. Review of the petition

• The competent insolvency court examines whether there is a ground for insolvency and whether the procedural costs can be covered.
• If the review is positive, the court issues an  order opening the proceedings.

3. Opening of the insolvency proceedings

• A insolvency administrator takes control of the company's assets.
• The administrator creates a list of assets and determines whether the company should be restructured or liquidated.

4. Restructuring or liquidation

• restructuring measures: The goal is to preserve the company, e.g., through an insolvency plan or protective shield proceedings.
• Liquidation: If restructuring is not possible, the assets are sold and the proceeds are distributed to the creditors.

5. Termination of the proceedings

• As soon as the goal – restructuring or orderly winding-up – has been achieved, the proceedings are closed. The entrepreneur can then make a fresh start.

Legal aspects for entrepreneurs

Duties of the Managing Director

• Timely submission of the application, to avoid liability risks and criminal consequences.
• Documentation of the financial situation, to counter allegations such as delayed filing for insolvency.

Protective shield proceedings

Companies capable of restructuring can remain operational under the supervision of a custodian and actively participate in the restructuring.

Debtor-in-possession proceedings (self-administration)

With good preparation, entrepreneurs retain control over their company and can act independently.

Rights of the creditors

• Creditors can file their claims and vote on the insolvency plan.
• Open and transparent communication with creditors helps avoid conflicts.

Practical tips for dealing with insolvency

• Act early: Identify warning signs early, such as liquidity problems or rising debt, and initiate countermeasures.
• Seek professional advice: An experienced insolvency law attorney supports you in making informed decisions and protects your rights.
• Transparent communication: Open discussions with employees, creditors and customers build trust and promote collaboration.

FAQ

Conclusion: Insolvency as a new beginning

Insolvency proceedings are undoubtedly a challenge, but they can also be a turning point. With the right knowledge, clear processes and professional support, entrepreneurs can overcome this crisis, realign the company and create a solid foundation for the future.

Act now!  Contact us to discuss your options in insolvency proceedings. Together we will find a solution that strengthens you and your company.

Contact us now!