Our partner and restructuring expert Dr Michael Schaumann gave an interview to Venture Capital Magazine in which he sheds light on the latest developments in insolvency figures in Germany. He explains which points start-up managers and venture capital investors should pay attention to in order to recognise and avoid impending insolvencies at an early stage.

‘The managing director of a GmbH, whether they are the managing director of a start-up or not, has a duty to recognise a crisis in good time and initiate countermeasures,’ says Schaumann. A managing director must file for insolvency without ‘culpable hesitation’ in the event of insolvency or over-indebtedness. It should be noted: ‘The deadline of three weeks in the event of insolvency or six weeks in the event of over-indebtedness for filing for insolvency only applies as a maximum period - contrary to what is often mistakenly assumed. Civil and criminal liability can begin from day one.‘ 

He continues: ‘The investor or venture capital investor is usually a shareholder. Their main interest is to maintain and increase their investment.‘ In the event of insolvency, there is a regular risk that his investment will become worthless. If there is still enough time, the investor can also initiate alternative reorganisation paths together with the management.

According to Schaumann, experience shows that the greatest danger is that the reorganisation of a company fails due to the timeline: ‘If insolvency or over-indebtedness is imminent or has already occurred, further financing may fail because the funds cannot be made available in time.’

Schaumann advises clarifying financing commitments and valuation issues in good time so that uncertainties regarding liquidity can be eliminated. ‘If the shortfall is already apparent in the short-term liquidity planning, it is usually already too late.’ 

Read the full article here (only available in German language).