Employment, restructuring & insolvency – What happens when something happens

Published on 02.02.2024

The recent years have been turbulent and marked by great uncertainty, severely impacting the liquidity and profitability of businesses in many industries. Forecasts for the year 2024 are only cautiously optimistic. Despite various state aid measures (such as energy cost grants), many businesses are in serious distress.

In difficult situations, taking the right steps as soon as possible is essential. Especially in the early stages of a crisis, businesses still have a lot of options. They can consider financial restructuring, operational changes in the business, closing down or selling off unprofitable divisions, or adjusting internal processes. Staff reductions are often an essential part of such actions.

Expert employment law advice on questions of operational changes, collective dismissals, and transfers of businesses is generally crucial for the timely and legally secure implementation of planned actions. In some cases, employers and workers’ representatives will have to collaborate and work out a redundancy programme.

If the restructuring actions taken are not sufficient to avert a crisis, businesses will have to consider insolvency. In fact, if a statutory reason for insolvency exists (illiquidity or overindebtedness), there is an obligation to file an insolvency petition without undue delay and no later than 60 days after the reason has materialised.

The period just before insolvency proceedings are opened is especially critical for management in particular due to the risk of personal liability. There are many liability risks to watch out for, from potential liability for preferential treatment of creditors or delayed filing of insolvency, to claims by the tax and revenue office and by social insurance institutions, and even a risk of criminal liability (e.g. for bankruptcy fraud).

If insolvency proceedings are opened, that does not automatically mean that the business will be wound up. In the course of insolvency proceedings, businesses will often be restructured or sold. In both cases, the goal is continuation (or at least partial continuation) of the business. For workers, insolvency proceedings naturally always raise a lot of questions. To bolster workplace morale and motivation for the business’s continuation, uncertainties should be quickly resolved. In the process, specific aspects of employment law need to be considered.

In our CMS Employment Snack podcast “What happens when something happens”, available for free on Spotify, iTunes, and Podbean, insolvency law expert David Kohl and employment law expert Daniela Krömer speak with Christoph Wolf about actions businesses can take to avert crises or manage them with legal certainty.

You can depend on us for comprehensive advice and guidance as reliable partners in crisis management and crisis prevention.

Authors: Daniela Krömer and David Kohl