The Federal Court of Justice (BGH) has clarified that, when drawing up a balance sheet for over-indebtedness, one must not rely on a flat-rate assumption based on insolvency proceeds; rather, the proceeds that could be realised through a planned, non-insolvency-related liquidation are the decisive factor. The ruling strengthens the defence position of company directors in cases of director and officer liability.
Under section 19(2) of the Insolvency Code (InsO), a state of over-indebtedness under insolvency law exists if the debtor’s assets no longer cover its existing liabilities (so-called ‘accounting’ over-indebtedness), unless it is highly probable that the business will continue to operate or remain solvent over the next 12 months (so-called positive going concern prognosis). When determining accounting over-indebtedness, the company’s assets must be valued at liquidation values rather than going concern values. In a recent ruling, the Federal Court of Justice (BGH) has now clarified the criteria applicable to the valuation of assets in the over-indebtedness balance sheet.
The insolvency administrator brought an action against the former managing directors for damages in respect of payments made after the company had become over-indebted. In the insolvency administrator’s view, there was no positive going concern prognosis due to imminent insolvency, meaning that the notional over-indebtedness was the decisive factor.
The insolvency administrator justified the technical insolvency by citing significant write-downs compared with the carrying amounts on the balance sheet (the commercial balance sheet showed positive equity of EUR 3.1 million). In doing so, he based his assessment on the proceeds he had realised during the insolvency proceedings. In particular, he valued the property assets and the shareholding in a subsidiary significantly lower than in the commercial balance sheet. Overall, this resulted in a write-down of around EUR 9.4 million – the positive equity was thus exceeded by around EUR 6.3 million, and the debtor was deemed to be technically over-indebted.
The defendants, however, argued that the proceeds from the sale realised during the insolvency proceedings could not be used as a liquidation value, neither in respect of the real estate assets nor in respect of the shareholding in the subsidiary.
The Regional Court (LG) upheld the insolvency administrator’s position and granted the claim; the Higher Regional Court (OLG) dismissed the appeal.
The defendants’ appeal against the refusal of leave to appeal was successful. The Federal Court of Justice (BGH) quashed the appeal judgment and remanded the case.
With regard to the real estate assets, the Court of Appeal, in breach of the principles of due process, failed to address the defendants’ key argument that the proceeds from the sale realised during the insolvency proceedings could not be used to determine the liquidation value in the over-indebtedness balance sheet. Rather, the decisive factor is the proceeds that would have been achievable through a planned, non-insolvency realisation – not a fire-sale value realised under time pressure. The defendants had drawn attention to specific price discounts associated with insolvency sales (including, amongst other things, the purchasers’ reduced prospects of enforcing their rights).
With regard to the stake in the subsidiary, the Federal Court of Justice (BGH) criticised the Court of Appeal for imposing excessive requirements on the parties’ submissions. The defendants had estimated the market value of the shareholding at approximately EUR 7 million on the basis of an EBITDA multiple valuation (5 to 7 times EBITDA). Although this method does not constitute conclusive proof, the BGH held that it is sufficient to plausibly demonstrate a higher value. The court must not simply disregard such a submission, but must allow further investigations into the actual assets.
In practice, insolvency administrators regularly attempt to use the proceeds realised in insolvency proceedings as a blanket valuation benchmark. The Federal Court of Justice has now clarified that the court must specifically examine the actual value of the assets at the alleged time when the company became insolvent. These values will generally be higher than the proceeds realised in the insolvency scenario, as disposals in insolvency take place under time pressure and against the backdrop of proceedings that have already been opened.
The ruling thus improves the procedural position of company directors. If they convincingly demonstrate that the assets had a higher value, the court may not disregard this argument without sufficient justification. A mere reference to the proceeds realised in the insolvency proceedings is not sufficient for this purpose. Rather, a comprehensible valuation of the relevant assets as at the relevant cut-off date is required, taking into account the realisation options and prospects for continued operation existing at that time.
The managing director against whom a claim is made should therefore present specific facts that argue against applying the value of subsequent insolvency proceeds to the cut-off date, whilst at the same time plausibly demonstrating a higher market value. Advisers should also inform their clients at an early stage that careful documentation of the assets and prospects for realisation as at the relevant date may be of considerable importance for their subsequent defence.
(Federal Court of Justice, decision of 28 April 2026, II ZR 40/25)
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