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Changes relating to assessing the grounds for opening insolvency proceedings according to the IDW draft standard 11 (IDW ES 11)

On 8.1.2021, the Institute of Public Auditors in Germany (Institut der Wirtschaftsprüfer, IDW) published a revised version of its draft for standard 11 (IDW S 11) where the changes to the Insolvency Code (Insolvenzordnung, InsO) had been incorporated into the opinion statement. The changes in ES 11 relate, in particular, to the specification of the forecast period as well as stricter definitions of the three grounds for opening insolvency proceedings.

Grounds for opening insolvency proceedings

In view of the particular economic situation triggered by the COVID-19 pandemic, German lawmakers felt it necessary to repeatedly suspend mandatory filing for insolvency over the last few months and to reframe it. The aim of this was to facilitate access to restructuring assistance for companies. The InsO basically provides three separate reasons for mandatory filing for insolvency:

  • imminent illiquidity (Section 18 InsO),
  • illiquidity (Section 17 InsO) and
  • over-indebtedness (Section 19 InsO).

Imminent illiquidity 

In contrast to the other two reasons for opening insolvency proceedings, imminent illiquidity merely constitutes a right and not a requirement to file for insolvency. For companies in crisis situations that are not yet over-in-debted, this right facilitates access to restructuring measures (such as, e.g., the newly created stabilisation and restructuring framework, which came into effect in 2021).


As soon as a company establishes – on the basis of a reference date-related statement of assets – that it will not be possible to meet all the payment obligations that are due, a financial plan then has to be prepared. When it becomes apparent from this financial plan that at least 90% of the liabilities that are due to be paid could be settled within three weeks, this is then referred to as a payment delay and not illiquidity. If a payment delay is identified then a liquidity plan has to be drawn up next. If it is not possible to demonstrate here how the liquidity gap could be closed within three months, at the very latest, then illiquidity should be assumed once again. This would then lead to a mandatory requirement to file for 

Please note: To avoid a delay in filing for insolvency, following the expiry of the suspension provisions on 31.5.2021, where illiquidity is the reason for opening insolvency proceedings you still have to file for insolvency within three weeks.


Section 19(2) InsO defines over-indebtedness as a situation where a company’s assets no longer cover its existing liabilities. The basis for ascertaining whether or not there is over-indebtedness is a two-step over-indebtedness test.

In a first step, a projection of continued operations is prepared where the viability of the company for the next 12 months is extrapolated (up to now this was for the current year and the next financial year). For the projection, starting with the liquidity on the reference date of the statement of assets, a financial plan has to be drawn up on the basis of a business concept and the integrated planning derived from this. If this initial projection of continued operations is positive then there will be no over-indebtedness under insolvency law.

If the projection of continued operations for a 12-month period is negative then there is a requirement to prepare an over-indebtedness status report. In this connection, the liquidation values of the net assets that have been valued are reviewed to see if they are negative, which, in turn, would constitute over-indebtedness and result in a mandatory requirement to file for insolvency. The insolvency petition has to be submitted within six weeks.

If the liquidation values of the net assets that have been valued are positive, or if the projection of continued operations for the period from the 13th to the 24th month is negative then there is a right to file for insolvency in view of the imminent illiquidity. Thus, for imminent illiquidity a longer projection period of 24 months applies.

Conclusion: The IDW’s draft statement specifies that the projection period for imminent illiquidity is normally 24 months and for over-indebtedness normally 12 months. Furthermore, a sharper distinction is made between over-indebtedness and imminent illiquidity as grounds for opening insolvency proceedings. In view of the fact that the changes to the InsO came into force already on 1.1.2021, it is recommended that the amended version of IDW S 11 be applied early despite the current draft status accorded to it by the IDW.

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