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When people think of insolvency offenses, they usually think of delaying insolvency proceedings or bankruptcy offenses, such as preferential treatment of creditors, preferential treatment of debtors, and breach of accounting obligations. In fact, during a company's crisis, other offenses are also common, such as the misappropriation of social security contributions and the evasion of payroll tax or value-added tax.

The ten most common offenses in insolvency criminal law are:

1. Delaying Insolvency Proceedings

Delaying insolvency proceedings under Section 15a of the German Insolvency Code (InsO) in conjunction with Sections 17, 18, and 19 InsO carries a penalty of a fine or imprisonment for up to three years.

Delaying insolvency proceedings is committed by the managing director of a limited liability company (GmbH) who fails to file for insolvency, files for insolvency incorrectly, or files too late when the company is insolvent or over-indebted.

2. Bankruptcy

The crime of bankruptcy is regulated in Section 283 of the German Criminal Code (StGB) and is punishable by a fine or imprisonment of up to five years (in serious cases, imprisonment of six months to ten years).

The offense requires that the company be in crisis and criminalizes the following actions:

• Concealing, destroying, damaging, or removing assets belonging to the insolvency estate,

• Uneconomical expenditures,

• Purchasing goods on credit and selling them at a loss,

• Falsely asserting rights to or acknowledging rights to the insolvency estate,

• False or missing accounting records,

• Concealing, destroying, damaging, or removing accounting documents,

• Preparing a false, missing, or untimely balance sheet.

3. Violation of Accounting Obligations

Violation of accounting obligations is punishable under Section 283b of the German Criminal Code (StGB) by a fine or imprisonment of up to two years (up to one year in cases of negligence).

However, a breach of accounting obligations is only punishable in a company crisis, specifically when insolvency proceedings have been initiated.

4. Preferential Treatment of Creditors

Preferential treatment of creditors is a bankruptcy offense under Section 283c of the German Criminal Code (StGB), punishable by a fine or imprisonment for up to two years.

The risk of prosecution for preferential treatment of creditors exists if, after the cessation of payments, the commencement of insolvency proceedings, or the dismissal of claims for lack of assets, a creditor is favored through payment, transfer of possession, provision of collateral, or the granting of a right of retention, and this is intended to disadvantage other creditors.

5. Withholding Social Security Contributions

Withholding and misappropriating social security contributions is a criminal offense under Section 266a of the German Criminal Code (StGB) and is punishable by military service or imprisonment for up to five years (in serious cases, imprisonment for six months to ten years).

Only the employer can be the perpetrator if they fail to transfer the employee contributions by the third-to-last banking day of the month of employment. The transfer must be made in the anticipated amount. Any remaining balances are due on the third-to-last banking day of the following month. A deferral agreement before the due date can preclude criminal liability under Section 266a of the German Criminal Code. The same applies if payment of the contributions is actually impossible. However, actual impossibility due to a lack of financial resources is to be interpreted more narrowly than insolvency under Section 17 of the German Insolvency Code (InsO). Whether social security contributions are still payable during the company's crisis in the run-up to insolvency and during the phase of insolvency or whether there is an insolvency-related payment prohibition must be examined on a case-by-case basis.

6. Tax Evasion

Anyone who intentionally provides incomplete or incorrect information to the tax authorities or fails to file tax returns on time commits tax evasion under Section 370 of the German Fiscal Code (AO), which is punishable by a fine or imprisonment for up to five years (in serious cases, imprisonment for six months to ten years).

Tax evasion frequently occurs during a company's crisis, for example, when the employer fails to remit the wage tax withheld from the employee's payroll to the tax office or when preliminary VAT returns are not submitted on time.

7. Fraud

The criminal offense of fraud under Section 263 of the German Criminal Code (StGB) provides for a penalty of a fine or imprisonment for up to five years (up to ten years in serious cases).

In a company crisis, the risk of prosecution for fraud arises when, at the time of entering into a debt obligation, a promise to perform cannot foreseeably be fulfilled. This risk therefore exists when insolvency is imminent.

8. Breach of Trust

The criminal offense of breach of trust under Section 266 of the German Criminal Code (StGB) provides for a penalty of a fine or imprisonment for up to five years (up to ten years in serious cases).

In a company crisis, the managing director or board member of a corporation commits breach of trust to the detriment of the company if they distribute the share capital or equity capital to the shareholders. Typical examples of breach of trust include disguised profit distributions, repayment of shareholder loans or capital repayments, or the misappropriation of assets from accounts unrelated to the company.

9. Loan Fraud

Loan fraud is punishable under Section 265b of the German Criminal Code (StGB) with a fine or imprisonment of up to three years.

It is a criminal offense to fail to provide information or submit incorrect documents regarding one's own financial circumstances when applying for a loan, if the false information is advantageous to the borrower. Anyone who provides false information to obtain guarantees or sureties is also liable to prosecution. In a crisis situation, a deterioration in financial circumstances must be disclosed when submitting documents if it is significant for the lender's decision regarding the loan application.

10. Violation of the Duty to Inform Shareholders

According to Section 84 of the German Limited Liability Companies Act (GmbHG) and Section 401 of the German Stock Corporation Act (AktG), a violation of the duty to inform shareholders is punishable by a fine or imprisonment of up to three years (up to one year in cases of negligence).

A managing director or board member is liable to prosecution if they fail to notify the shareholders of a loss of at least half of the share capital or equity capital.