Possible consequences for companies | Bankruptcy rejected due to lack of assets - what you can do now!

Definition: What does “rejection due to lack of mass” mean?


An applied for insolvency procedure is rejected before it starts due to a lack of assets and is therefore not opened. “Missing assets” refers to the assets of the respective indebted company that has filed for bankruptcy.

*Disclaimer: This article is not legal advice, but merely provides an initial overview of the topic.


>> Everything about the process and possible consequences on this page.

Summary - Rejection due to lack of mass

    Basics & Overview - This is what you should knowInsolvency proceedings rejected due to lack of assets: Procedure of the courtHow long is the blocking period if the application is rejected due to lack of assets?Possible legal violations of a rejection of the insolvency application due to lack of assetsWhat are the legal steps for a company in the event of rejection due to lack of assets?Final settlement (with the creditors)What can a company do to avoid dismissal of the proceedings?

Basics & Overview – This is what you should know.

How is the insolvency application rejected due to lack of assets?


In Germany, an application for insolvency can be rejected due to insufficient assets. This happens if the company is insolvent and at the same time there are no usable assets to fully cover the costs of insolvency proceedings. (Section 17 Paragraph 2 InsO).

Such a “rejection of the insolvency application” can occur if, for example, the legal entity or partnership in question applies for regular insolvency and the “asset” is not sufficient (see above).

Natural persons (e.g. freelancers and the self-employed) are not affected by possible legal consequences due to delaying insolvency. For these “natural persons” the same options for residual debt relief apply as for private individuals.


Difference to personal insolvency when company insolvency is rejected


In contrast to personal insolvency, where the procedural costs can be deferred, this is not possible in the business sector. If an application for insolvency is rejected, this means that the company can no longer be saved according to the normal rules of insolvency.


Instead, the company must be closed. To do this, it is first noted in the official commercial register that the company is being dissolved. After all the necessary steps have been completed, the entry in the commercial register will be deleted. In addition, the company is included in the list of debtors, which means that it is officially considered insolvent.


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Insolvency proceedings dismissed due to lack of assets: action taken by the court

If the insolvency proceedings are rejected due to a lack of assets, the registration of the GmbH dissolution in the commercial register will be dissolved by the court of its own motion. If there is sufficient information about assets, the commercial register entry will not be deleted immediately upon dissolution.


If the GmbH has no assets (Section 394 Paragraph 1 Sentence 1 FamFG), the shareholders of the GmbH can initiate deletion from the commercial register. The remaining assets must be utilized as part of a liquidation.

What is the process if insolvency is terminated due to a 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 longer higher than €3,000, the insolvency can be rejected by the court and the company (GmbH) will be entered in a public register of debtors as a result of the insolvency.


What is the creditor application?


Creditors can file a motion to force bankruptcy proceedings. A creditor's application is a formal application by a creditor to the relevant bankruptcy court to declare the bankruptcy of an insolvent debtor. The creditor's application can be submitted if the debtor is insolvent and this is proven by outstanding invoices or missing payments.


If the creditor's application is accepted by the insolvency court, regular insolvency proceedings are usually initiated. Under this procedure, the debtor's assets are liquidated and the proceeds are used to satisfy creditors according to their order of 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 lock-in period comes into effect if a person who is in insolvency proceedings:


- Filed for bankruptcy yourself

- Despite a warning from the court, he did not submit the application for discharge of residual debt on time.


Why? The Federal Court of Justice (BGH) wants to avoid costly procedures being repeated unnecessarily.

If someone, despite being informed, does not submit the application for discharge of residual debt on time or withdraws it and thereby delays the procedure, that person should bear the consequences.


What does on time mean?

If insolvency occurs, it must be reported immediately. It doesn't matter when those responsible realized that there were reasons for the bankruptcy. When they should have noticed is the crucial point in time.


Important to know – possibility of residual debt relief:

As a rule, an application for discharge of residual debt can only be submitted after the three-year blocking period has expired.


According to a decision by the Cologne District Court in 2013, the rule was that if a creditor's application was rejected due to a lack of assets, the blocking period of three years did NOT apply to the submission of new self-applications for the opening of insolvency proceedings and discharge of residual debts. >> Nevertheless, this ruling should not prevent companies from submitting applications on time. Because in the end it is the decision of the respective district court.

Below are possible legal violations if the insolvency application is rejected due to a 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 there is a threat of insolvency.


Delaying bankruptcy:

If the managing director knowingly delays or conceals the company's insolvency, this can be considered as delaying insolvency. This is a criminal offense in many countries and can result in fines or even prison sentences of up to three years.


Fraud:

If the director commits fraudulent acts to deceive creditors or hide 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 obligations:

Managing directors have certain duties of supervision and care towards the company and creditors. If these obligations are breached and damage is caused, legal consequences could follow.


Legal information: https://dejure.org/gesetze/InsO/26.html

The public prosecutor's office is examining: Is there a delay in insolvency here?


According to Section 15a Paragraph 1 InsO, companies & Co must file for insolvency. At the latest after three weeks after you became insolvent or became over-indebted.


    The managing director is threatened with a prison sentence if he delays filing for bankruptcy and intentionally fails to file for bankruptcy or files for bankruptcy too late. The so-called delay in insolvency occurs in the event of failure and this is a criminal offense that can be punished with a maximum of three years in prison or, alternatively, a fine. Prison sentences are probably only threatened if others have been harmed as a result of delay in insolvency. Precisely because experience shows that many companies are (consciously or unconsciously) guilty of delaying insolvency, the public prosecutor's office is investigating. This is always the case as soon as insolvency proceedings are rejected due to a lack of assets. If the public prosecutor's office detects delay in insolvency, the actions and decisions of the management are therefore closely examined. 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 delay in insolvency is found, the aforementioned legal action could be taken against those responsible.


What are the legal steps if a company is rejected due to lack of assets?

Dissolution of the company (liquidation) according to the legal basis of Section 26 InsO


Companies and companies as legal entities (GmbH, AG, etc.) and partnerships (OHG / KG) are dissolved according to the law.


Process and procedure for the liquidation of a GmbH in the event of rejection due to lack of assets


After the insolvency application has been rejected due to a lack of assets, it is usually not the insolvency administrator, but often the management or an expert who takes over the winding up of the company. This means that ongoing operations are stopped, outstanding debts are collected, and the company's assets are converted into cash.


In certain cases, the dissolution and deletion of the company can also be considered without a waiting period.


The crucial difference is that in this case it is not usually the insolvency administrator who is responsible for winding up the company, but often the management itself or, if necessary, an external specialist such as a lawyer or other expert.


As a result, the insolvency court takes the following steps:


    Arrange for the entry of the note for the subsequent dissolution of the company, deletion in the commercial register and in publicly accessible directories. (*Available with legitimate reasons)


Entry in the debtor register

    As a result of the rejection, the company will be compulsorily entered into the list of debtors. This register is publicly viewable (approval only with appropriate authorization).

Implementation of compulsory enforcement after the insolvency proceedings have been terminated due to a lack of assets


The provisional insolvency administrator ends his official duties first.

All types of measures to secure assets will be lifted. In this case, those who are still owed money (creditors) can again take legal action to get their money back.


This is because once dismissed, all restrictions on assets and other assets are lifted. This gives creditors the opportunity to enforce their claims elsewhere in order to get their money back. This makes enforcement possible again.


The prospects of compulsory enforcement as a result of a rejection due to a lack of assets must be reassessed in each individual case.

Final settlement (with creditors)

In order not to put this off even further, we are aiming for a liquidation settlement in order to have the opportunity to satisfy creditors later. All fixed assets and all other values will be liquidated and reported to the creditors.


The agreement, with proof that the fixed assets or the remaining assets were sold at the best prices (according to the market), is to be reached as part of a settlement, a “proportional agreement” (ie in accordance with their share of the total liabilities).

This is necessary so that the company can “actually” be ended and finally concluded and serves to ensure a certain level of transparency and fairness towards creditors.

What can a company do to avoid “dismissal of proceedings for lack of assets”?

The dismissal of insolvency “due to lack of assets” can be avoided. To do this, the following must be guaranteed by the owner of the company.

    The debtor is a natural person and the deferral of the costs of the insolvency proceedings was applied for in a timely manner and approved accordingly. If the debtor or a creditor wishes to prevent the rejection, he can make an advance on the costs of the insolvency proceedings."The insolvency proceedings that have already been opened cannot be stopped despite the insolvency of the insolvency proceedings if a sufficient amount of money is advanced for the continuation, Section 207 Paragraph 1 Sentence 2."



You should definitely have a personal conversation with a lawyer or insolvency advisor to obtain sufficient information.

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