Meaning
A statutory provision in German insolvency law limits the types of payments a director can make after a company has become legally insolvent. Rules under section 15b inso prohibit all payments that are not compatible with the diligence of a prudent business manager. This essentially freezes the cash flow of a failing business to ensure that the remaining assets are preserved for equal distribution among all creditors.
Payment Limit
Maintaining essential operations represents the only broad exception to the spending freeze. Under section 15b inso, a manager might be permitted to pay for power or raw materials necessary to keep production functional for a possible sale. Every transaction made after the point of insolvency is subject to scrutiny by a later liquidator.
Recovery Action
Liability is personal and often involves the directors having to pay back sums out of their own bank accounts. If a payment is found to have violated section 15b inso, the director is ordered to compensate the company for the full amount lost. This risk makes many managers resign or file immediately once liquidity drops.
Management Conduct
Proving reasonable behavior becomes difficult during a restructuring exercise. Documentation must show that every expenditure during the three week filing window was aimed at protecting the assets for the creditors rather than shareholders. Missing proof of this strategy often results in automatic liability.