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Extended obligation to detect crises at an early stage

The Business Stabilisation and Restructuring Act (Unternehmensstabilisierungs- und -restrukturierungsgesetz, StaRUG) came into force on 1.1.2021. With this the German legislator has created a new instrument for companies that get into payment difficulties and the use of which can prevent insolvency proceedings and, instead, makes it possible to reorganise or restructure a business earlier on.

New responsibilities for the management

The content of this Act, however, includes not just rules on reorganising and restructuring. In particular, in Section 1 of the StaRUG, management responsibilities with respect to continuously monitoring the development of the business have been standardised. According to this, the bodbyies authorised to represent the company are required to continuously inform themselves about the development of their own business in order to be able to detect possible crises at an early stage.

Should a potential crisis be detected then the management is required to take appropriate measures. Furthermore, the management is required to notify the supervisory body, if there is one, without undue delay.

In order to comply with these requirements, the developments, opportunities and risks will inevitably have to be analysed and written down at regular intervals.

Please note: If a crisis or the potential for a crisis is identified then appropriate measures will have to be taken in order to avert or resolve such a crisis. This should likewise be explicitly written down.

Extended management liability

If the management does not adequately comply with the obligation to detect crises at an early stage and to manage crises then it can expect to be held liable. In this connection, the German legislator makes reference to the already existing liability rules under Section 43(1) of the German Limited Liability Companies Act and Section 93(2) of the German Stock Corporation Act. Here, managing directors or board members are held liable if they have not exercised the due care of a prudent business person or manager. According to the intention of the legislator this can now be deemed to be so if no early detection of crises was carried out or if there was no crisis management.

Please note: In such a case, it would then frequently be assumed that the right to claim damages will be asserted against the representative body if there is a causal connection between the lack of an early crisis detection system and the losses that have arisen.

Payments in the ordinary course of business after factual insolvency

Besides tightening the requirements with respect to the early detection of crises and crisis management, the German legislator also opted to reduce the liability of the management with the newly introduced Section 15b of the German Insolvency Code. Here, the German legislator has now clarified that if payments were made in the ordinary course of business for the purpose of maintaining business operations then this will not result in managing directors being held personally liable. This will apply at most to the period that the management needs to prepare for insolvency proceedings or for measures that are conducive to the long-term elimination of factual insolvency. In the case of illiquidity, the maximum applicable period here is still three weeks and in the case of over-indebtedness a period of up to six weeks.

Recommendations: The new legal situation means that the management is obliged to detect potential crises at an early stage and to take appropriate measures. In order to avoid personal liability here it is vital to carefully document all the measures.

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