Vol 19 (2022) - Issue 3

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Start-ups in a Crisis: What to Watch out For? Evaluation of Recent German Court Decisions

Synopsis
With recent statistics suggesting that between 80% and 90% of start-ups fail within the first five years, creating a new business is inherently a risky venture. However, while the risk of the founders should ideally be limited to the invested equity and the work expended, strict legal obligations in Germany constitute an additional hurdle making managing directors personally liable for failing to file for insolvency within the appropriate timeframe. Since over-indebtedness is an important mandatory reason for insolvency, companies in financial difficulties must generally forecast whether they will be 'financed through' for the next 12 months, although such predictions are naturally more difficult for newly formed businesses. Therefore, there have been some calls for the concept of over-indebtedness to be interpreted more mildly for start-ups. The following article gives an overview about recent court decisions of the Higher Regional Court of Düsseldorf and the Federal Court of Justice (BGH), which have directly and indirectly dealt with this matter.