Insolvency warning signs and legal duties: liquidity ratios, the Zahlungsunfähigkeit and Überschuldung tests, filing deadlines and restructuring options (general orientation)
Recognise the early warning signs of a liquidity crisis, apply the German tests for Zahlungsunfähigkeit and Überschuldung on paper, know the filing deadlines and manager liability, and see which restructuring routes exist before and inside insolvency.
What you will learn
- Liquidity ratios and behavioural warning signs that precede a crisis.
- How the German tests for Zahlungsunfähigkeit (illiquidity) and Überschuldung (over-indebtedness) work.
- Who must file, by when, and the consequences of filing late.
- The main restructuring routes: out-of-court, StaRUG, Schutzschirm and Eigenverwaltung, regular insolvency.
Explanation
General orientation on German law as of 2026, not legal advice; in a real crisis consult a Steuerberater and an insolvency lawyer immediately.
Early warning signs. Liquidität 1. Grades = cash ÷ short-term liabilities; 2. Grades = (cash + receivables) ÷ short-term liabilities; 3. Grades = current assets ÷ short-term liabilities. Rules of thumb: first-degree below about 0.2, second-degree below 1, or a falling three-month trend. Behavioural signs: late VAT or social security payments, supplier credit beyond terms, choosing which invoices to pay, an overdraft that never returns to zero, rising "over 60 days" receivables. Withholding employees' social security contributions is a criminal offence (§ 266a StGB) regardless of insolvency.
Zahlungsunfähigkeit (§ 17 InsO) exists when the debtor cannot meet its due payment obligations. The Bundesgerichtshof (Federal Court of Justice) applies a practical test: a Liquiditätsstatus on a cut-off date compares liquid funds (cash, undrawn committed lines) with liabilities due and demanded. A gap of 10 percent or more that cannot be closed within three weeks means illiquidity rather than a temporary squeeze (Zahlungsstockung). Drohende Zahlungsunfähigkeit (§ 18 InsO), probable illiquidity within 24 months, allows but does not require a filing and opens the StaRUG route.
Überschuldung (§ 19 InsO) applies to limited-liability companies (GmbH, UG, AG, GmbH & Co. KG): liabilities exceed assets at liquidation values and there is no positive Fortführungsprognose, meaning it is not more likely than not that the company can finance itself for twelve months. A documented, funded twelve-month plan therefore cancels balance-sheet over-indebtedness (the temporary four-month horizon expired at the end of 2023). A subordination (Rangrücktritt) on shareholder loans removes them from the test.
Filing duty (§ 15a InsO): managers of limited-liability companies must file without culpable delay, at the latest three weeks after Zahlungsunfähigkeit and six weeks after Überschuldung. These are maximums for a realistic rescue attempt, not waiting time. Late filing (Insolvenzverschleppung) is a criminal offence, and § 15b InsO makes managers personally liable for payments made after insolvency maturity. Sole traders and partnerships with a personally liable natural person have no criminal filing duty but are liable with private assets; their route is Regelinsolvenz with Restschuldbefreiung (discharge) after normally three years.
Options, from earliest to latest. Out-of-court: fresh equity, subordinated shareholder loans, bank standstills, instalment agreements with tax office and health insurers, asset sales. StaRUG (since 2021): a court-supported restructuring plan binding dissenting creditors by 75 percent majority per group, available only while illiquidity is merely threatening. Schutzschirmverfahren (§ 270d InsO) and Eigenverwaltung: proceedings in which management stays in charge under a supervisor, the Schutzschirm only while not yet illiquid. Regelinsolvenz: an administrator takes over. Employees receive Insolvenzgeld from the Agentur für Arbeit for up to three months of unpaid wages.
Worked example
Hypothetical example: on 1 October a GmbH has cash of €45,000 and an undrawn committed overdraft of €15,000, so liquid funds of €60,000. Due and demanded liabilities are €80,000. In the next three weeks it expects receipts of €12,000 and €5,000 of new liabilities falling due.
Cut-off gap: (€80,000 − €60,000) ÷ €80,000 = 25 percent, above 10 percent.
Three-week view: funds €60,000 + €12,000 = €72,000; liabilities €80,000 + €5,000 = €85,000; gap (€85,000 − €72,000) ÷ €85,000 = 15.3 percent. The gap stays above 10 percent after three weeks, so the test indicates Zahlungsunfähigkeit, not a temporary squeeze. The three-week filing clock started on 1 October unless the managers can realistically secure at least €13,000 of additional committed funds in that period (a shareholder loan, or an agreed deferral that removes a liability from "demanded"). Liquidität 1. Grades is €45,000 ÷ €80,000 = 0.56 and looks acceptable, which shows why the legal test, not the ratio, decides.
Common mistake
Practice activity
On paper: a UG has a balance sheet with assets of €120,000 at book value, liabilities of €150,000 of which €40,000 is a shareholder loan. At liquidation values the assets are worth €90,000. The managers have a written twelve-month plan showing positive liquidity in every month, funded by a signed, committed credit line. (a) Is the company balance-sheet over-indebted at liquidation values? (b) Does the company have to file for Überschuldung? (c) What changes if the plan shows an unfunded cash gap in month 8?
Show solution
(a) Liabilities €150,000 versus assets €90,000 at liquidation values: shortfall €60,000, so yes, balance-sheet over-indebted.
(b) No. Überschuldung under § 19 InsO requires both the balance-sheet shortfall and the absence of a positive Fortführungsprognose. A documented, funded twelve-month plan is a positive prognosis, so the test is not met. A qualified subordination (Rangrücktritt) on the €40,000 shareholder loan would additionally reduce the shortfall to €20,000.
(c) The prognosis turns negative; the company is over-indebted and the managers must file without culpable delay, at the latest six weeks after this became recognisable, unless the gap is closed (new equity, subordination, financing) within that time.
Limitations: real prognoses need detailed documentation and professional review; an administrator will later test the assumptions with hindsight.
Key takeaways
- Liquidity ratios and behaviour (late VAT, social security, selective paying) warn months before the legal tests fire.
- Illiquidity test: a gap of 10 percent or more of due liabilities that cannot be closed within three weeks.
- Over-indebtedness: liquidation-value shortfall and no positive twelve-month prognosis; limited-liability companies must file within three weeks (illiquidity) or six weeks (over-indebtedness).
- Act early: StaRUG and Schutzschirm need a company that is not yet illiquid.
Next step
Lesson 12 pulls everything together into a twelve-month financing plan with a cash-flow forecast, a financing mix and an early-warning dashboard.
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