I. Introduction

In the event of insolvency or overindebtedness of a legal entity, the members of the representative body or the liquidators are obliged to file an application for commencement of insolvency proceedings without undue delay in accordance with § 15a para. 1 German Insolvency Code (Insolvenzordnung – InsO). The application must be filed no later than three weeks after the occurrence of insolvency and six weeks after the occurrence of overindebtedness. Failure to file an application for commencement of insolvency proceedings or to do so in good time is punishable under § 15a para. 4 InsO by imprisonment of up to three years or a fine. The purpose of the obligation to file an application is to preserve assets for existing creditors and to protect business traffic from starting new contractual relationships with a company that is potentially insolvent. If the member of the administrative body of an insolvent company violates the obligation to file an application, he or she is personally liable for damages to the creditors of the insolvent company according to the established case law of the BGH.
§ 15a para. 4 InsO is a so-called protective law within the meaning of § 823 German Civil Code (Bürgerliches Gesetzbuch – BGB), so that the injured party can claim damages from the “perpetrator” of § 15a para. 4 InsO, i.e. the managing director of the insolvent company. Delaying an imminent insolvency that can be assumed to be certain may at the same time constitute detrimental immoral damage to the current or future creditors of the insolvent company pursuant to § 826 BGB. Unlike liability under § 15a para. 1 InsO in conjunction with § 823 para. 2 BGB, this general immoral damage under civil law can be committed not only by members of the executive bodies of the insolvent company but also by third parties. Therefore, in addition to the board members of the insolvent company, banks and other lenders who grant credit to the insolvent company or omit to claim credit previously granted may also be held responsible. Such third parties also keep the company “artificially alive” and can thus drag other, previously uninvolved creditors into the “downward spiral”. In this respect, the scope of protection of tortious liability is more comprehensive in personal terms, but also – as will be explained below – in material terms.

II. The ruling of the BGH

In a new ruling, the BGH has specified the requirements and scope of liability for intentional delay in filing for insolvency. The ruling deals in particular with the attributable linkage between the delay in insolvency and the occurrence of damage to creditors of the undetected insolvent company which is required for such liability.

1. Facts of the case

In the case decided by the BGH, the claimant had commissioned a GmbH (limited liability company) to carry out facade work. The managing director of this GmbH was the defendant. Despite the advance payments made by the claimant for the work commissioned, only a small part of the work was completed. In August 2016, the claimant applied for independent evidence proceedings to be conducted on the status of performance, the remuneration for work due thereon and the defectiveness of work already performed. The Regional Court ordered an expert report. At the beginning of December 2016, a penalty order was issued against the defendant in parallel criminal proceedings for intentional delay in filing for insolvency. The defendant then filed for insolvency, whereupon insolvency proceedings were opened against the GmbH’s assets in mid-December 2016.
In May 2017, the expert issued an expert opinion in the independent evidence proceedings, in which he determined a service provision of approximately five percent and significant defects. In the proceedings that have now been brought before the BGH, the claimant demanded reimbursement from the defendant of the court costs for the independent evidence proceedings, the costs of the court-ordered expert opinion, and his own legal fees.

2. Decision

The BGH ruled that the claimant can demand reimbursement of all costs incurred in conducting the independent evidence proceedings. In doing so, the BGH again clarified that the intentional immoral delay of filing for insolvency can at the same time constitute immoral damage under § 826 BGB. By not filing for insolvency despite being aware of the GmbH’s insolvency, the defendant had accepted that the claimant would file a lawsuit that would incur costs. The defendant’s deliberate delay in filing for insolvency caused the claimant to suffer causal damage, since in the opinion of the court the timely filing of the insolvency petition would have led to the claimant refraining from conducting the independent evidence proceedings.
The appeal objected to the fact that the Court of Appeal had left open whether the claimant’s warranty claim against the GmbH was justified on the merits. The BGH ruled that the prospects of success of the warranty claim were irrelevant. The connection between the defendant’s delay in filing for insolvency and the costs incurred by the claimant as a result of the independent evidence proceedings did not cease to exist even if the claimant’s warranty claim was not justified on the merits. The manager of a limited liability company who is liable under § 826 BGB for intentional, immoral delay in filing for insolvency is liable for such legal costs as there was a justifiable reason for causing or which were demanded by the delay in filing for insolvency and which are neither unusual nor wholly unreasonable.
These requirements were all fulfilled. In particular, the claimant had felt challenged to initiate the proceedings by the continued existence of the insolvent GmbH for which the defendant was responsible. Against the background of the defendant’s delay in performance, the preservation of evidence in independent evidence proceedings had been a comprehensible measure. It was also not evident that the claims asserted in the case did not exist from the claimant’s point of view.
The BGH further comments on the different scope of the protective purpose of § 15a para. 1 InsO and the tortious claim under § 826 BGB. The protective purpose of § 15a para. 1 InsO covers the reimbursement of such (legal) costs incurred by the creditor, who concluded a contract with the GmbH after the GmbH became insolvent, due to the pursuit of his payment claims against the company. The protective purpose of § 826 BGB also covers (legal or natural) persons who entered into contractual relations with a GmbH before the GmbH became insolvent and who are burdened with costs as a result of a legal dispute initiated against the GmbH, which is now unrecognized as being insolvent, or independent evidence proceedings initiated against the GmbH, for which they cannot obtain compensation from the GmbH. The damage to the contractual partners of the company through further expenses which are rooted in the contractual relationship but which are economically nonsensical and remain without an enforceable claim for reimbursement against the company is the inevitable consequence of the delay in filing for insolvency and also lies directly in the objective of the immoral conduct, because the damaging party can only delay the insolvency by accepting these damages.

III. Assessment and consequences for the partice

Under general German indemnity law, damages are only to be compensated if the act of infringement has caused the damage in an attributable manner (so-called attribution linkage). The costs of legal action against the insolvent company are ultimately caused directly by the claimant himself. This in fact raises the question of whether and under what conditions the creditor of an insolvent company may feel challenged to incur (further) costs in order to pursue its claims and whether it can subsequently claim compensation for these from the damaging party, in this case the representative body. In this respect, the ruling creates desirable legal clarity and strengthens the position of creditors of unrecognized insolvent companies. Thus, not only the creditor who enters into contractual relations with the company after the occurrence of insolvency may claim damages, but also existing creditors who suffer damages after the company has become insolvent due to measures which subsequently prove to be economically pointless against the background of the company’s situation of being ready for insolvency may claim compensation for such damages.
The ruling is of considerable relevance for the practice, because not only the representative body of the insolvent company, but also its creditors, in particular banks can be held responsible for immoral delay in filing for insolvency (see I.). When granting credit, deferring existing claims and similar measures vis-à-vis companies in crisis, it is therefore necessary to examine carefully in each individual case whether there is a threat of liability vis-à-vis new and old creditors of the company in crisis.