Continuing self-employment and starting a company out of insolvency
Continuing self-employment despite insolvency proceedings?
In insolvency proceedings, there is generally a legal right to self-employment or commercial activity.
As a rule, however, this must first be approved by the insolvency administrator. Insolvency administrators are often also interested in continuing or even starting a new self-employed activity. If higher income is likely as a result of self-employment, this will speed up the repayment of debts to creditors.
Content summary
However, a few things must be adhered to for this to happen. In this article you will learn how you can remain successfully self-employed despite bankruptcy or even start a new business.
- There are some advantages for debtors if self-employment can be continued
- Who bears the risk in the event of self-employment and insolvency
- The crisis as an opportunity and possibility to avoid future mistakes
- Possible obstacles to starting a new business
- The managing director's ban on founding a company
- You now know about founding a company out of insolvency...
- Permanent relationships and asset components
- Conclusion on self-employment, founding a new business or starting a startup out of insolvency
There are also some advantages for debtors if they can continue to be self-employed:
The debtor's home is then protected from seizure and the company's inventory is usually also protected. A car or vehicles required to carry out the activity that are usually required to continue the professional or commercial activity are also exempt from seizure.
The supply of cash is guaranteed if the bank account is managed as a seizure protection account (P account). The debtor's health insurance may also continue to exist and may not withhold benefits due to arrears.
If a debtor continues to be self-employed during ongoing insolvency proceedings, the insolvency administrator is responsible for all new liabilities that arise. This is particularly relevant for catering companies and other businesses where services are provided directly for cash. If a company has few employees, this also applies, so it includes small companies.
If the insolvency administrator is unable to permanently monitor the debtor, continuing to operate the business in insolvency is associated with a high risk for him. In such cases, he will therefore opt for release.
The commercial or self-employed activity will therefore continue outside of the insolvency proceedings. Due to previous liabilities, enforcement measures are not possible. In principle, entrepreneurial profits belong to the debtor.
Who bears the risk of self-employment and insolvency?
Since the debtor bears the financial risk of continuation, the legislature has decided that all profits from the approved commercial or independent activity remain with the debtor and do not have to be paid to the insolvency administrator. However, after a release, the debtor bears the financial risks and is liable for new debts. Therefore, the insolvency administrator will very likely agree to a release.
However, despite the financial freedom to make investments, the entrepreneur or self-employed person is obliged to regularly transfer the agreed amount to the insolvency administrator. This is distributed by the insolvency administrator to the creditor or creditors.
There is the option of remaining self-employed or giving up self-employment and looking for a job. Alternatively, you can also start a new self-employment. Regardless of the option chosen, the creditors cannot take action against the debtor, which means that the ongoing insolvency proceedings do not burden the existing self-employment.
In practice, this means that traders or self-employed people who remain self-employed or continue their business as part of the insolvency proceedings that have been opened can remain free of old debts. This gives you an entrepreneurial “new start” and you can continue to do business without any burden.
Can a business license required for self-employment simply be revoked and business activity thus prohibited?
First of all, the importance of the business license and the business prohibition procedure:
The business license is crucial for self-employment, but can be revoked under certain circumstances. This happens if the trade office considers the trader to be too unreliable and has to protect the general public or the company's employees from his actions. A business ban procedure can lead to a partial or complete revocation of the business license.
Possible causes for the revocation of the business license:
Various factors, such as tax unreliability, failure to comply with social security obligations or financial difficulties, can lead to a business ban. Financial problems and disorganized financial circumstances are often reasons for withdrawal.
The options for averting a business ban:
There are various ways to prevent a business ban. This includes out-of-court settlement negotiations with creditors and the initiation of insolvency proceedings. Once insolvency proceedings have been opened, regulations prohibiting trade due to disorderly financial circumstances do not apply for the time being.
The legal basis is the “blocking effect of Section 12 GewO”.
Conclusion on the trade ban:
There are ways to prevent a trade ban, such as settlement negotiations or the initiation of insolvency proceedings. The best course of action depends on the individual situation and should be clarified through professional legal advice.
Under no circumstances should a business simply be registered without consulting the responsible insolvency administrator.
The garnishment table for self-employed people:
100 percent of every euro that is above 3,840.08 euros can be seized. For these very special seizures of self-employment, it is highly recommended to contact a state-recognized and certified debt and insolvency advisor.
The following seizure limits are currently valid (rounded).
Seizures may only be seized if these limits are exceeded.
>> WITHOUT maintenance obligations, this is currently € 1,409.99 garnishment limit since 1.July 2023. You can find the entire table on the garnishment allowance here.
If there are special circumstances or evidence of greater need, these limits may even be increased. If the debtor requests this. Further details can be found on our garnishment exemption page.
Is it possible to found a GmbH or UG despite insolvency if you are self-employed?
In principle, the state does not want to stand in the way of any founder. Therefore, some framework conditions have been set to enable a new company to start before, during or after insolvency.
For now, however, you can try to reach an agreement with the creditors that leads to an out-of-court solution. This minimizes the risk of enforcement action, which would result in the accumulation of new debts.
Let's move on to the possibility of (regular) insolvency.
An alternative to an out-of-court settlement is judicial insolvency proceedings.
After being released into standard insolvency proceedings, it is quite possible to set up a company. From the point of view of many lawyers, it is worthwhile and, from a purely formal point of view, it is no different from the situation of regularly founding a UG or GmbH from a debt-free situation.
The foundation should not be burdened by debts or enforcement measures from previous self-employment. That's why debt settlement is important, either without or ideally with insolvency proceedings.
Good preparation is essential for this. This applies both financially and mentally. In order to avoid legacy issues, the old company should already be closed through standard insolvency.
The good behavior phase in insolvency is also crucial.
In the good behavior phase of standard insolvency, it is mandatory not to accumulate any new debts and to accept reasonable activities that have been arranged. This continues to apply despite the decision to set up a company (GmbH / UG) and continue to be self-employed. In the event of violations, the discharge of remaining debts will be prohibited and the old debts will be revived. The interest is calculated and credited retroactively. Even the company's assets can be seized if the bankruptcy fails.
As long as the guidelines are adhered to and there is a good chance of success in reducing debts through a promising activity due to the business model and behavior of the managing director, the chances of approval to set up a company are good. However, there are other things that should be considered...
The crisis as an opportunity and possibility to avoid future mistakes:
A lot of entrepreneurial experience can be gained from a crisis. The person in charge has learned a lot about communication, finances and stress management after this tough time. The mistakes that led to the corporate crisis strengthen entrepreneurial know-how and teach you what you did wrong.
Studies also show that companies that were founded on the second attempt after the first failure and run stably achieved higher income and were built up to be more resilient to crises. From accounting to security and financing... Many things go better in the second step of setting up a business.
Possible obstacles to starting a new business?
The managing director's incorporation ban
Under certain circumstances, a court can prohibit the managing director from managing a corporation again for a specified period of time. This is particularly true in the case of insolvency crimes. Such as infidelity, loan fraud, or withholding of wages. This ban can be a measure to prevent further crimes from being committed.
Furthermore, the trade office can prohibit the business license for self-employed people if there are indications that they are unreliable in financial matters. This can be the case, for example, if social security contributions or taxes have not been paid in the past. In other professional fields such as auditors, tax consultants or lawyers, insolvency or insolvency can also lead to the revocation of the license.
You now know about founding companies out of insolvency...
It is therefore possible to start a new business during the insolvency proceedings. However, this also requires the consent of the insolvency administrator and should be confirmed in writing.
Establishing a company in standard insolvency proceedings is therefore the same as founding a company WITHOUT debts (a person without debts is treated the same way). A person in a regular insolvency cannot be seized, which means that protection against seizure applies.
Therefore, there should be great interest in not allowing any new debts to arise in self-employment from the “new” business activity. Because these new additional debts would be counted as “private debts” that are not included in the standard insolvency that has already been initiated. This means that you would “lose” all debts through standard insolvency (residual debt relief), but you would accumulate debts generated from your activity again as a private person.
A possible solution: Continuing the approved self-employed activity in a UG or GmbH from the start.
The insolvency proceedings are initiated and the appraiser should be addressed in the plan so that he can later approve the foundation. If regular insolvency has already started and the decision has been made, the expert should also be contacted, as this is also possible while insolvency proceedings are already underway.
Of course, as with any start-up, there can be financial challenges. Therefore, it is advisable to look for financing options with little capital outlay and avoiding new debt. Professional insolvency advice is therefore essential.
Note: Permanent relationships and asset components
The residual debt relief applicable in a standard insolvency only applies to the debts for which this standard insolvency was applied for.
If you had rental agreements or something similar for your self-employment, these should be run through the GmbH or UG.
Conclusion on self-employment, starting a new business or startup from insolvency
It is a complex topic, but there is a fundamental chance that an entrepreneurial activity (independently, as a UG or GmbH) can be continued. To do this, however, you should contact a professional debtor advice center and coordinate well with creditors and insolvency administrators.
Communication, transparency and entrepreneurial skills are essential to have a fresh and, above all, successful start despite insolvency.
Here are some success stories on the topic of “reasons for insolvency”
- https://www.abs-global-factoring.de/referenzen/unisynk/https://www.wiwo.de/erfolg/gruender/gruenderszene-wie-sich-scheitern-wirklich-anfuehlt/25558176.htmlhttps://tomstalktime.com/542-stefan-merath-der-weg-zum-erfolgreichen-unternehmer-von-der-grundung-in-die-insolvenz-und-zuruck-zum-erfolg/
This is how we support you in the event of insolvency - for self-employed people and founders
The SIC Debtor Insolvency Center e. V. is there for you. With us you will receive a certified contact person with a lot of experience and the necessary qualifications who will support you on the way through personal bankruptcy. With no waiting times and easy access by telephone, you benefit from extensive support that goes beyond pure bureaucracy. You also no longer have to open your letters. Simply send your mail directly to us. Our advisors will sort the mail for you and help you get an overview of the situation again. You will receive an organized review from us by post or other means.
ALL necessary downloads & forms on the subject of insolvency can be found here:
Seizure table, insolvency checklist, intake form, budget
Call us and find out in a free initial consultation whether personal bankruptcy is worth it for you.
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