Legal violations related to delayed insolvency filings form a core of manager liability in terms of case numbers. Therefore, we periodically explore practical aspects of this topic on our blog, focusing on issues relevant in court and settlement discussions. This article is the fourth in this series and examines the criteria for "cessation of payments" as an indicator of illiquidity, as defined in a German Federal Court of Justice (BGH) ruling dated January 25, 2025[i]. The ruling confirms that the complex concept of "illiquidity" and its evidentiary requirements in legal proceedings are the focal points of most disputes in this field.

I. Section 15b of the German Insolvency Code (InsO): Starting Points

See Forray 1 dated August 20, 2024.

II. Legal Perspectives on Illiquidity: A Systematic Review

See Forray 2 dated from October 6, 2024, and Forray 3 dated January 6, 2025.

III. Cessation of Payments and Illiquidity

1. Starting Point

Pursuant to to Section 17(2) sentence 2 of the German Insolvenzordnung (Insolvency Act; „InsO“), illiquidity is "generally" assumed when a debtor has ceased making payments. The German Federal Supreme Court (Bundesgerichtshof; „BGH“) defines this as occurring when cessation of payments results from a lack of available funds, is sufficiently apparent to relevant stakeholders, and affects a significant portion of the debtor's obligations. Statements by the debtor indicating an inability to pay significant amounts within three weeks, requests for payment deferrals, and other indicators (such as delayed payments, failure to respond to payment demands, breaches of payment agreements, or disclosure of liquidity shortages) may, depending on the circumstances, indicate cessation of payments. [ii]

The BGH also holds that cessation of payments can be inferred from a single piece of evidence if it carries sufficient probative value. If no such single indicator is present, cessation of payments can only be assumed if the overall evidence fully convinces the court. [iii]

It is evident that these cases are complex and that the burden of proof is correspondingly challenging. However, courts provide some leeway, for example, by not rigidly requiring a liquidity statement if the party provides substantial evidence for or against illiquidity. [iv]

2. BGH Ruling dated January 25, 2025

The difficulty of establishing cessation of payments in court is illustrated by a BGH ruling (IXth Civil Senate) dated January 25, 2025. [v] In this case, the lower court (Landgericht) found cessation of payments, the higher regional court (Oberlandesgericht) overturned this finding, and the BGH was compelled to clarify its jurisprudence on the interplay between legal presumptions and circumstantial evidence.

The court reaffirmed that a debtor is insolvent if they are unable to meet due payment obligations (Section 17(2) sentence 1 InsO). The BGH noted that illiquidity can be demonstrated through a liquidity status report, but its inconsistent terminology creates some uncertainty. Here, it appears to refer to a "financial status" statement as of a specific date (sometimes also called a "liquidity status" by the BGH), which juxtaposes available funds with due liabilities on that date. [vi] If the financial status shows that the debtor can meet their due obligations, illiquidity is ruled out. If it indicates the opposite, a three-week forecast must be added, and both assessments must be merged into a "liquidity balance." However, in its ruling, the BGH did not address the necessity of a three-week financial plan but instead focused on the core issue: Section 17(2) sentence 1 InsO. The court clarified that a liquidity status report is unnecessary if cessation of payments establishes the statutory presumption of illiquidity under Section 17(2) sentence 2 InsO. [vii]

The decisive factor for determining cessation of payments is the court’s conviction, under Section 286 of the German Code of Civil Procedure (Zivilprozessordnung; „ZPO“), that the debtor cannot make payments due to a lack of liquid funds. The BGH assigns particular evidentiary weight to a debtor’s own statement that they are unable to pay a significant due obligation within three weeks, whether in full or in installments. This indirectly confirms that the three-week period—originally developed for assessing illiquidity—also plays a role in cessation of payments. The reasoning behind this is that key provisions on illiquidity filing obligations and avoidance claims share underlying substantive principles[viii] that apply across various legal contexts.

According to the BGH (para. 16), a debtor’s explicit statement of illiquidity carries special weight in the overall evaluation under Section 286 ZPO. If such a statement is missing, the surrounding circumstances supporting cessation of payments must carry equivalent weight. Repeated payment delays alone are "frequently" insufficient. Additional factors must convincingly indicate that the delays result from a lack of liquidity. Such factors may include non-payment of creditors essential to the debtor's business operations or significant pressure from dunning and enforcement actions. The court emphasized that each case must be assessed individually. [ix]

3. Outstanding and Unpaid Liabilities

The BGH reaffirmed that a “clear indicator of cessation of payments” is the existence of substantial due liabilities that remain unpaid until insolvency proceedings commence.[x] In avoidance proceedings, these include liabilities subject to the claim. The OLG had taken a different view, arguing that enforced payments should not count as indicators of cessation of payments, as they would otherwise always be contestable under Section 131(1) no. 2 InsO. However, the BGH rejected this reasoning, stating that the debtor’s payment behavior toward the contestation opponent is often the only basis for evaluating the opponent’s knowledge of the debtor’s insolvency (para. 22).

Furthermore, the BGH (parass 25 et seq.) reinforced its previous position from a 2022 ruling[xi] regarding unpaid liabilities: If significant due liabilities remain unpaid until proceedings are initiated, this indicates cessation of payments—even if the debtor temporarily receives liquidity sufficient to cover those liabilities. The key factor is that the liabilities remained outstanding despite incoming payments. This suggests that available funds were insufficient to meet all obligations, confirming cessation of payments.

Ultimately, the BGH emphasized that assessing cessation of payments requires a holistic view of all relevant evidence. The mere amount of liabilities is not the sole determinant—it may be decisive but is not necessarily so. Other critical factors include the duration of the payment backlog at the time of the contested transaction, the nature of the obligations, and the significance of the creditor’s performance for the debtor’s business operations. Cessation of payments is particularly likely when multiple creditors remain unpaid, rather than just a single one. [xii]

IV. Conclusion

Section 17(2) sentence 1 InsO is not as straightforward in application as it may seem. Determining cessation of payments requires a thorough evaluation of all circumstances.

From a practical standpoint, distinguishing between mere non-payment and deferral agreements under Section 17(1) sentence 2 InsO is crucial. Deferral agreements postpone due dates, meaning that deferred liabilities must also be adjusted accordingly in liquidity status reports and three-week financial plans. Against this background, a successful deferral request typically does not indicate cessation of payments.

[i] BGH, ruling dated 25.01.2025, IX ZR 41/23, NZI 2025, 185.

[ii] Overview in Standard IDW S 11 of the Institut der Wirtschaftsprüfer, para. 19 f.

[iii] BGH, ruling dated 28.04.2022 – IX ZR 48/21, para. 29 ff.; see for more detail Reuter, Kontroversen um die Zahlungsunfähigkeit zwischen BGH-Senaten und dem Institut der Wirtschaftsprüfer, NZI 2025, 52 ff., as well as Reuter, Blog Contribution dated 06.01.2025, https://www.reutercomplianceblog.com/artikel/managerhaftung-bei-insolvenzverschleppung-streifzug-3-widersprueche-zwischen-bgh-und-idw-bei-der-zahlungsunfaehigkeit/.

[iv] For example Higher Court Brandenburg, ruling dated 02.02.2024, 7 U 175/19, paras. 1.6 and 1.6, BeckRS 2024, 2662.

[v] BGH, ruling dated 25.01.2025, IX ZR 41/23, NZI 2025, 185.

[vi] BGH, decree dated 19.07.2007 – IX XB 36/07, para. 18; IDW S 11, para. 26 ff.

[vii] Ibid., para. 15, referring to BGH, ruling dated 06.05. 2021 - IX ZR 72/20, BGHZ 230, 28 para. 14.

[viii] For more details see Reuter, Kontroversen um die Zahlungsunfähigkeit zwischen BGH-Senaten und dem Institut der Wirtschaftsprüfer, NZI 2025, 52, 57, as well as Reuter, Blog Contribution dated 06.01.2025, https://www.reutercomplianceblog.com/artikel/managerhaftung-bei-insolvenzverschleppung-streifzug-3-widersprueche-zwischen-bgh-und-idw-bei-der-zahlungsunfaehigkeit/.

[ix] Ibid., para. 16, referring to BGH, Urt. vom 06.05. 2021 - IX ZR 72/20, BGHZ 230, 28 para. 41; ruling dated 10.02. 2022 - IX ZR 148/19, ZInsO 2022, 762, para. 22.

[x] A.a.O., para. 18, referring to BGH, ruling dated 28.04.2022 - IX ZR 48/21, ZInsO 2022, 1498 para. 41; cf. Reuter, Kontroversen um die Zahlungsunfähigkeit zwischen BGH-Senaten und dem Institut der Wirtschaftsprüfer, NZI 2025, 52, 54, as well as Reuter, Blog Contribution dated 06.01.2025, https://www.reutercomplianceblog.com/artikel/managerhaftung-bei-insolvenzverschleppung-streifzug-3-widersprueche-zwischen-bgh-und-idw-bei-der-zahlungsunfaehigkeit/

[xi] BGH, ruling dated 28.04.2022 - IX ZR 48/21, ZInsO 2022, 149.

[xii] Ibid., para. 27, referring to BGH, ruling dated 30.06. 2011 - IX ZR 134/10, ZIP 2011, 1416 para. 13 ff; v. 29.03. 2012 - IX ZR 40/10, WM 2012, 998, para. 15.