GERMANY | WHITE COLLAR CRIMES | No Duty to File for Insolvency but Risk of Fraud!
With the German Act to Mitigate the Consequences of the COVID-19 Pandemic in Civil, Insolvency and Criminal Proceedings Law and the COVID-19 Insolvency Suspension Act (COVInsAG) contained therein (COVInsAG) of 27 March 2020, the obligation to file an insolvency petition (section 15a InsO) was temporarily suspended in the cases described in more detail below (see no. 1) and thus at the same time a possible criminal liability due to the allegation of delay in filing insolvency (see under 2). However, this does not eliminate all risks of criminal liability in the event of insolvency, as the following comments show (see under 3).
1. The prerequisites for the temporary suspension of the obligation to file for insolvency
Section 1 sentence 1 COVInsAG suspends the obligation to file for insolvency pursuant to section 15a German Insolvency Code (InsO) until 30 September 2020. In addition, the Federal Ministry of Justice and Consumer Protection (BMJV) is authorised to extend the suspension by statutory order until 31 March 2021 at the latest (see section 4 COVInsAG).
Nevertheless, the obligation to file for insolvency during this period is only waived if the insolvency is based on the consequences of the spread of the SARS-CoV-2 virus, i.e. the COVID-19 pandemic, and at the same time there are prospects of eliminating an existing insolvency (section 1 sentence 2 COVInsAG). A legal presumption for the existence of these requirements is stipulated by section 1 sentence 3 COVInsAG in the event that the debtor was not insolvent on 31 December 2019.
Insofar as the reasons for insolvency, in particular an inability to pay, are not based on the COVID-19 pandemic, the obligation to file an insolvency petition and a possible criminal liability in case of a breach of this obligation continue to exist. The same applies if, despite being based on the COVID-19 pandemic, there is no prospect that the insolvency can be eliminated, i.e. it is not merely temporary. In this respect, a prognosis must be made which should urgently be documented in writing because of the criminal consequences. This also applies, of course, to the reason why the (temporary) insolvency is based on the COVID-19 pandemic.
2. No criminal liability for delay in filing for insolvency
If the prerequisites for the temporary suspension of the obligation to file an insolvency petition are fulfilled, a criminal liability for failure to file an insolvency petition (section 15a (4) and (5) InsO) ceases to exist during this period. It is precisely the person who violates his duty to file an insolvency petition who is punishable. However, this duty is temporarily suspended so that it cannot be violated.
It should be kept in mind, though, that after the suspension period has expired, the obligation to file an application is revived. If by then a reason for insolvency due to the COVID-19 pandemic has not been eliminated, an application for insolvency must be filed. Since section 1 sentence 1 COVInsAG only suspends the obligation to file an application, it is obvious that an application for insolvency must be filed immediately after expiry of the suspension period if the reason for insolvency has already existed for three weeks by then (see section 15a (1) sentence 1 InsO). In this respect, the time limits and the continued existence of the reason for insolvency must be continuously monitored and assessed, at any rate at the end of the suspension period, and any necessary steps must be taken to counteract the risk of criminal liability for delay in filing for insolvency.
3. No “get out of jail free” card
Even if the temporary suspension of the obligation to file for insolvency already takes away great pressure and a risk of criminal liability which should not be underestimated, this does not eliminate all risks of criminal liability. The provisions of the COVInsAG do not constitute a “get out of jail free” card. In addition to the risk of criminal liability for delay in filing for insolvency, a company in crisis is exposed to a large number of other criminal liability risks for the persons involved, in particular the managing directors and executive board members. But they are not suspended by COVInsAG.
3.1 Non-payment of social security contributions (section 266 German Criminal Code (StGB)
In the event of insolvency, it regularly happens that the business operator no longer pays the social security contributions for its employees or does not pay them on time. In this case there is a considerable risk of criminal liability according to section 266a StGB which is not suspended by the COVInsAG. Rather, the obligation to pay social security contributions in good time continues to apply regardless of the suspension of the obligation to file for insolvency. Although it is basically possible to apply for a contribution deferral, the National Association of Statutory Health Insurance Funds (GKV-Spitzenverband) has stated that such a deferral should only be granted “when all other measures from the various aid packages and support measures of the Federal Government have been exhausted”. Although the Federal Court of Justice (FCJ) assumes that criminal liability pursuant to section 266a StGB is excluded for the duration of the insolvency application period (see FCJ, decision of 30 July 2003 – 5 StR 221/03, NStZ 2004, 283), whether this results in a further suspension of criminal liability pursuant to section 266a StGB on account of section 1 COVInsAG is, however, questionable and not certain, even if the meaning and purpose of section 1 COVInsAG speak in favour of this. It is therefore urgently recommended that in the case of temporary insolvency, the business operator contacts the collection agency, works towards an extension of the deadline and explains to the agency why it is not possible to pay on time, although it has made a serious effort to do so, stating the amount of the contributions to be paid (see section 261 (6) sentence 1 StGB). This should be thoroughly documented by the business Operator.
3.2 Commitment of fraud* in the conclusion of new transactions (section 263 StGB) *(Eingehungsbetrug – entering into an agreement with the intention to deceive the other party)
There is also a particular risk with regard this respective type of fraud, the so-called “Einge-hungsbetrug” (section 263 StGB). The temporary suspension of the obligation to file for insolvency is intended precisely to help the companies concerned to continue their business activities (BT Printed Matter 19/18110, p. 3). If, however, new business is conducted in a state of insolvency, in particular business where the insolvent does not have to pay in advance with regard to his payment obligation, there is a risk of fraud (section 263 StGB) if he does not inform his contractual partner of this fact. The case law of the FCJ assumes in principle “that the suppliers would no longer have delivered the ordered goods if they had been aware that they would no longer receive payment for them” (FCJ, judgement of 11 December 1997 – 4 StR 323/97, BeckRS 1997, 30004704). Hence, also in this respect attention must be paid to a careful documentation of the forecast for the expected recovery of solvency as a result of the use of aid packages and the expected recovery of the profitability of the business activity of the company, whereby solvency must be recovered before the maturity of the contractual partner’s claim.
3.3. Further risks
Despite the suspension of the obligation to file for insolvency, the bankruptcy offences (sections 283 et seq. StGB) are still of relevance which, among other things, concern the removal of assets (section 283 (1) no. 1 StGB). But also risks from a violation of the book-keeping duties (section 283b StGB), fraudulent preference of creditors (section 283c StGB) and fraudulent preference of debtors (section 283d StGB) must be kept in focus. In particular, it must be carefully reviewed whether the consequences of the suspension of the obligation to file an insolvency petition, as provided for in section 2 COVInsAG, may permit certain actions.
The temporary suspension of the obligation to file for insolvency has brought relief to many companies whose sales collapsed overnight as a result of the corona pandemic. Even if this eliminates criminal liability for delaying the filing of insolvency, those affected must not feel safe as a large number of criminal law risks remain. For this reason, even in the event of only temporary insolvency as a result of the corona crisis, all business activities must be subjected to critical analysis and review. This applies in particular to the conclusion of new transactions. If a notification of temporary insolvency is not sent to the business partners, it must be ensured that at least the expected resumption of solvency at the time of the maturity of the claim is documented in a valid and comprehensible manner.
In view of the prerequisites for suspending the obligation to file for insolvency (section 1 COVInsAG), it is also advisable to carefully review and document in writing the circumstances leading to the existence of the prerequisites in order to avoid unpleasant surprises later on. With regard to the suspension of the obligation to file for insolvency expiring on 30 September 2020 and, in the event of an extension, no later than 31 March 2021, the deadlines for a possible revival of the obligation to file for insolvency must also be closely monitored.