Meaning
Bankruptcy regulation requiring a prompt court filing when a company becomes illiquid or over-indebted. Under insolvency code paragraph 15a, the management must file for insolvency without delay, and at the latest within three weeks of the onset of the crisis. This rule is designed to protect creditors from the further depletion of company assets.
Filing Deadline
Strict timelines govern the manager’s response to financial distress. The three-week period is a maximum limit, not a grace period, and the manager must act as soon as it is clear the firm cannot recover. Delaying the filing is a criminal offence that can lead to imprisonment or fines.
Asset Preservation
Creditors have a right to the remaining value of the company before it is wasted on hopeless recovery attempts. When a production yield falls so low that it cannot cover costs, the readiness question changes from growth to survival. Compliance with this statute ensures an orderly liquidation or restructuring process, preventing the manager from burning through cash that belongs to others.
This protection is a fundamental requirement for maintaining trust in the industrial lending market.
Criminal Penalty
Personal consequences for directors who ignore this duty are severe. Beyond the criminal charges, the individual becomes personally liable for all payments made after the company should have filed. This prevents managers from favoring certain suppliers or employees while the firm is insolvent.
