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The financial authorities require that taxpayers must in future submit their tax returns to the fiscal office electronically (key word: e-tax return, or in German ELSTER, the abbreviation of Elektronische Steuererklärung).

This requirement includes not just the tax return itself but also the tax balance sheet that has to be attached to the tax return (key word: e-balance sheet).

The commercial financial statements together with the  associated audit and disclosure requirements are not affected. The e-tax return and e-balance sheet are only tax obligations.

 E-Balance Sheet and E-Tax Return – In a nutshell.

Comments regarding overindebtedness and regarding measures for preservation of capital

If a company is in an economic tense situation the managing directors of the company have to fullfill special statutory obligations and responsibilities. Particularly if there are liquidity problems or the company is overindebted in accountancy terms, the managing directors have to review if an application for insolvency has to be filed. Furthermore, special provisions for preservation of capital have to be applied if the subscribed capital is affected.

Please find below a short summary of the respective duties resulting from situations as indicated above. Per click on the links under 5. you can read the respective statutory regulations. In this context we like to point out that – in case the managing directors do not attend to the provisions indicated – the consequence may be personal liability and in the worst case penal proceedings. Therefore, please read our comments thoroughly. In case of additional questions, please feel free to contact us.

If the subscribed capital of your limited company is affected but still positive, please take account of the comments under 2..

In case of an overindebtedness in accountancy terms please read under 3. for a limited liability company or under 4. for a limited partnership with a limited liability company as a general partner – according to the respective legal form of your company.

Please note that we are not allowed to provide full flash legal advice, due to German professional rules for auditors and tax advisors (§ 5 Nr. 1 RDG). This means that we did work on this matter from tax perspective but do not take responsibility or liability for the mere legal consequences of our advice. Accordingly, we ask you to decide on your responsibility whether you want to have this matter reviewed by an attorney. Additionally, please note that we do not guarantee for the correctness of the wording of the legal texts. The translation is only a courtesy translation.

In case of additional questions, we are pleased to be available in person.

The managing director is obliged to call a shareholder’s meeting without delay, if – based on financial statements for the fiscal year or based on preliminary financial statements – half of the share capital is lost (§49 (3) GmbH (Limited Liability Companies Act))

Additionally, the managing directors have to ensure that the assets required for the preservation of the share capital may not be paid out neither for the grant of loans to managing directors or e.g. persons authorized with general power of representation (Prokuristen) (§ 43a GmbHG), nor for payments to shareholders.(2.1).

Please consider the following provisions in particular: § 43a GmbHG, § 49 GmbHG und § 84 GmbHG.

2.1 Payments to shareholders

The assets required for the preservation of the share capital may not be used for payments to shareholders. This is not applicable if there is a recoverable claim for the refund of the payments. Otherwise, the shareholders have to pay back the prohibited repayments (§§ 30, 31 GmbHG). Under certain conditions the claim can also be demanded from the managing director personally.

In case of a tense liquidity situation it is not allowed to authorise payments to shareholders if these payments cause insolvency. Additionally, if the company is insolvent or overindebted, in order to safeguard the assets under liquidation, the managing director may not make any payments on behalf of the company – excepts for a few exemptions. (§ 64 GmbHG).

Please consider the following provisions in particular: § 30 GmbHG, § 31 GmbHG and § 64 GmbHG.

2.2 Particularities concerning a limited liability company, which is a general partner of a limited partnership

Payments effected by a limited partnership to a person who is shareholder of this partnership and its general partner in the form of a limited liability company may in certain cases also be prohibited payments. One precondition is that this payment leads indirectly to a reduction of the share capital of the general partner.

If the company’s equitiy in the statutory accounts shows a deficit at the balance sheet date, the company is overindebted in accountancy terms. Thereof, special statutory obligations and responsibilities are resulting for the management board. For your information, please find a summary of those obligations below.

3.1 Obligation to file for insolvency according to § 15a InsO

The managing director has to file an application for insolvency without undue delay, however, at the latest, three weeks after the occurence of overindebtedness or insolvency. The managing director is personally liable for any damage resulting from the delayed filing of the application for insolvency.

Overindebtedness in accountancy terms does not imply automatically that the company is overindebted in terms of InsO (German Insolvency Code). Based on the current legislation there is overindebtedness in terms of InsO if the existing liabilities exceed the assets – evaluated with the current fair of value – and at the same time going concern is predominantly not likely based on the current situation of the company.

Thus, a favourable going concern forecast for the company excludes overindebtedness. The forecast has to be verified based on a business and financial plan and a feasible corporate concept. If going concern is not likely for the company, in a second step it has to be analyzed, if – based on a liqidation scenario – the assets of the company cover the liabilities respectively evaluated at the current fair value.

The management board is able to avoid overindebtedness with measures as e.g. subordination agreements or letter of comfort. However in case of overindebtedness in accountancy terms the management board has to control continuously a potential overindebtedness in terms of InsO.

Please consider the following provisions in particular: § 15a InsO, § 17 InsO, § 19 InsO und § 135 InsO.

3.2 Measures for the preservation of capital

In this regard, please see our comments under 2.

The company is overindebted in accountancy terms, if the equity of the company is depleted at the balance sheet date. Thereof special statutory obligations and responsibilities are resulting for the management board. For your information, please find a summary of them below.

4.1 Obligation to file an application for insolvency according to § 15a InsO

The managing director has to file an application for insolvency without undue delay, however, at the latest, three weeks after the occurrence of overindebtedness or insolvency. The managing director is personally liable for any damage resulting from the delayed filing of the application for insolvency.

Overindebtedness in accountancy terms does not imply automatically that the company is overindebted in terms of InsO (German Insolvency Code). Based on the current legislation there is overindebtedness in terms of InsO if the existing liabilities exceed the assets – evaluated with the current fair of value – and at the same time going concern is predominantly not likely based on the current situation of the company.

Thus, a favourable going concern forecast for the company excludes overindebtedness. The forecast has to bei verified based on a business and financial plan and a feasible corporate concept. If going concern is not likely for the company, in a second step it has to be analyzed, if – based on a liqidation scenario – the assets of the company cover the liabilities respectively evaluated at the current fair value.

The management board is able to avoid overindebtedness with measures as e.g. subordination agreements or letter of comfort. However in case of overindebtedness in accountancy terms the management board has to control continuously a potential overindebtedness in terms of InsO.

Please consider the following provisions in particular: § 15a InsO, § 17 InsO, § 19 InsO und § 135 InsO.

4.2 Measures for the preservation of capital

4.2.1 Payments to partners

In case of a tense liquidity situation it is not allowed to authorise payments to shareholders if these payments cause insolvency. Additionally, if the company is insolvent or overindebted, in order to safeguard the assets under liquidation, the managing director may not take any payments on behalf of the company – except for a few exemptions (§§ 177a, 130a HGB).

Please consider the following provisions in particular: (§ 177a HGB und § 130a HGB).

4.2.2 Specifics of a limited liability company, which is a general partner of a limited partnership

Payments effected by limited partnership to a person who is shareholder of this partnership and its general partner in the form of a limited liability company may in certain cases also be prohibited payments. One precondition is that this payment leads indirectly to a reduction of the share capital of the general partner.

Please consider the following provisions in particular: § 30 GmbHG, § 31 GmbHG und § 64 GmbHG.

§ 15a InsO – Obligation to file an application in case of insolvency or overindebtedness

(1) If a legal entity becomes insolvent or overindebted, either the representatives of the company or the liquidators are obliged to file an application for insolvency without undue delay, however at the latest, three weeks after the occurrence of insolvency or overindebtedness. The same is valid for the representatives who are authorised to represent the partners/ shareholders or for the liquidators of a company without legal personality and without any individual person with personal liability; this is not valid if one of the partners/ shareholders who are personally liable is a company with an individual as a personally liable partner/ shareholder.

(2) For a company according to paragraph (1) s. 2, paragraph (1) is valid analogously if the representatives who are authorised to represent the partners/ shareholders of the company are companies on their part without any individual as a partner/ shareholder or the (inter)connection of companies of this kind continues.

(3) If a private limited liability company is without any managing director(s) also every shareholder, if a public limited company or a cooperative society is without any managing director(s) also every member of the supervisory board is obliged to file an application for insolvency, except the respective person is not aware of the insolvency and the overindebtedness.

(4) A prison term of up to three years or a fine shall be imposed on everybody who – contrary to paragraph (1) s. 1, as well as in connection with s. 2 or paragraph (2) or paragraph (3) – does not file an application for insolvency, who does not correctly file it or who does not file it in time.

(5) If the respective offender acts negligently, the punishment is a prison term up to one year or a fine.
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§ 17 InsO – Insolvency

(1) General reason for opening proceedings is insolvency.

(2) The debtor is insolvent, if he is not able to discharge due payments. Generally, insolvency is to be supposed if the debtor has stopped all payments.
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§ 19 InsO – Overindebtedness

(1) For a legal entity overindebtedness is a reason for opening proceedings as well.

(2) Overindebtedness exists, if the liabilities of the debtor exceed the assets, unless going concern is predominantly likely according to the current situation of the company. Receivables regarding the refund of shareholder loans or regarding legal acts economically corresponding to such a loan, for which in case of insolvency proceedings according to § 39 (2) between creditor and debtor the subordination behind the receivables according to § 39 (1) no. 1-5 is agreed have not to be considered in the liabilities according to s.1.
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§ 135 InsO – Shareholder / Partner loans

1) Refutable is a legal act, which – for a receivable of a shareholder/ partner regarding the return of a loan in terms of § 39 (1) no. 5 or for a coequal receivable –
1. provided hedging, if the legal act was executed within the last ten years before the filing of an application for insolvency or after the filing of the respective application, or,
2. granted satisfaction of the receivable, if the legal act was executed within the last year before the filing of an application for insolvency or after the filing of the respective application

(2) Refutable is a legal act, whereby a company has granted a third person satisfaction for receivables regarding the return of a loan within the periods mentioned in paragraph (1) no. 2, if a shareholder/ partner has granted securities for the receivable or is liable as guarantor; this is applicable analogously to payments for receivables, which correspond to loans economically.

(3) If an asset was left to the debtor by a shareholder for using or for exercising and if the asset is material for the going concern of the company of the debtor, the demand for selection cannot be claimed during insolvency proceedings, however not exceeding one year beginning with the insolvency proceedings. For the use or the exercise of the asset, a compensation is due to the shareholder/ partner; the compensation has to be calculated based on the average payments made during the last year before the beginning of insolvency proceedings, in case the use or exercise is less than one year, the respective average of this period is relevant.

(4) § 39 (4) and (5) are applicable analogously.
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§ 30 GmbHG – Preservation of capital

(1) The assets of the company required for the preservation of the share capital may not be paid out to the shareholders. This is not valid for payments made based on a dependency agreement or on a profit pooling agreement (§ 291 AktG (Stock Corporation Act)) or which are covered by a adequate claim of reward or return to the shareholder. Furthermore, s. 1 is also not valid for the return of a shareholder’s loan or for payments on receivables resulting from legal acts economically corresponding to those loans.
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§ 31 GmbHG – Refund of prohibited repayments

(1) Payments made contrary to § 30 have to be refunded to the company.
(2) If the recipient was in good faith, then a refund may only be claimed to the extent it is required for the satisfaction of the company’s creditors.

(3) In the event that the refund can not be obtained from the recipient, then the remaining shareholders are liable in proportion to their shares for the amount to be refunded, to the extent it is required for the satisfaction of the company’s creditors. Amounts to be refunded which can not be obtained from individual shareholders shall be allocated to the remaining shareholders in the proportion.

(4) The persons obligated may not be released from payments which are to be made on the basis of the foregoing provisions.

(5) The claims of the company are barred after ten years in case of (1) and in case of (5) after five years. The limitation begins with the expiration of the day on which the payment of the refund of which claimed has been made. In the case of (1) § 19 (6) s. 2 is applied analogously.
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§ 43a GmbHG – Loans out of company assets

No loan may be granted to the managing directors, other legal representatives, the company officers with statutory authority (“Prokuristen”) or holders of a general power of attorney (“Handlungsvollmacht”) out of the assets of the company required for the preservation of the share capital. A loan granted in violation of s. 1 has to be repaid immediately, irrespective of agreements to the contrary.
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§ 49 GmbHG – Call of meetings

(1) The shareholder’s meeting is called by the managing directors.

(2) Apart from the cases expressly provided for, it shall be called if this appears to be required by the interest of the company.

(3) The meeting shall be called without undue delay especially if it follows from the annual balance sheet or from a balance sheet prepared during the fiscal year that one half of the share capital is lost.
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§ 64 GmbHG – Obligation for the payment after insolvency or indebtedness

The managing directors are liable to the company for restitution of payments made after the insolvency of the company has occurred or after its overindebtedness has been ascertained. This does not apply to payments which are still compatible with the diligence of an orderly businessman if made after such date. The managing directors have the same obligation for payments to shareholders as far as the payments had to cause insolvency, unless the insolvency could not be identified also considering the respective diligence mentioned in s. 2. The regulations in § 43 (3) and (4) are applicable to the claim for compensation analogously.
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§ 84 GmbHG – Violation of the obligation for notication of a loss

(1)A prison term of up to three years or a fine shall be imposed upon the managing director if he fails to notify the shareholders of a loss in the amount of one half of the share capital.
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§ 130a HGB – Obligations in case of insolvency or overindebtedness

(1) If a company without any individual person as shareholder/ partner becomes insolvent or if an overindebtedness exists the representatives of the company who are authorised to represent the shareholders/ partners and the liquidators may not make payments on behalf of the company. This is not applicable to payments executed after the respective date if the payments are still compatible with the diligence of an orderly and conscientious business manager. The same is valid for payments to shareholders as far as the payments cause insolvency, unless the insolvency could not be identified even considering the respective diligence mentioned in s. 2. The provisions in s. 1-3 are not valid, if one of the partners of the ordinary partnership is an additional ordinary partnership or a limited partnership with an individual person as personally liable partner.

(2) If – contrary to § 15a (1) InsO – the filing of an application for insolvency is not executed or is not executed in time or if payments are made contrary to (2), the representatives of the company who are authorised to represent the partners as well as the liquidators have the obligation as joint and several debtors against the company to make up for any losses of the company resulting from these payments. In case of any doubts, if the diligence of an orderly and conscientious businessman has been applied the respective person responsible has the burden of proof. The obligation to make up for the losses can neither be limited nor excluded by an agreement with the shareholders/ partners. As far as a reimbursement is required for the satisfaction of claims of the company’s creditors, the obligation is neither cancelled by waiving or mutual agreement of the company nor by the fact that the dealing is based on a resolution of the shareholders. Sentence 4 is not applicable, if the person obligated to make up for the loss is insolvent and has a composition agreement with its creditors in order to avoid insolvency proceedings or if the obligation is agreed upon in an insolvency plan. The claims resulting from these regulations are barred after five years.

(3) These provisions are applicable analogously, if the representatives of the company indicated in (1) and (2) are companies themselves without any individual person as shareholder/ partner or a (inter)connection of companies of that kind is continuing.
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§ 177a HGB – Application of § 130a HGB for a limited partnership with a limited liability company as a general partner

§§ 125a and 130a are also valid for a company with an individual person as limited partner; however § 130a with the proviso that § 172 (6) s. 2 is applicable instead of (1) s. 4. The information for the shareholders/ partners required according to § 125a (1) s. 2 are only necessary for the personally liable shareholders/ partners of the company.

Power of Attorney in tax matters

In order to represent our clients in tax office matters, Pape & Co. uses a Power of Attorney that is based on the officially prescribed form. English speaking clients are required to sign the German Power of Attorney form.

Please find the translation of the Power of Attorney:

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