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C. Bankruptcy Under German Law
Under German bankruptcy law, the gesch�ftsf�hrer of a GmbH
must file a bankruptcy proceeding, at the latest, within 3 weeks
of the GmbH’s becoming overindebted or insolvent.12 For purposes
of German bankruptcy law, a GmbH is overindebted when its
liabilities exceed its assets, and it is insolvent when it cannot
pay its immediately due debts on a permanent basis for the
foreseeable future.
A GmbH’s bankruptcy allows its creditors to accelerate the
debts owed to each creditor and to pursue collection of
guaranteed debt from the guarantors. In addition, a creditor of
an overindebted or insolvent GmbH is authorized to file for the
GmbH’s bankruptcy.
If a shareholder of a bankrupt GmbH has made loans to, or
assumed other liabilities of, a bankrupt GmbH, including payments
of guaranteed debt, and the German bankruptcy court determines
that such loans, assumptions, or payments were made at a time
when the GmbH was overindebted or insolvent, the bankruptcy court
can deny the shareholder repayment of such amounts. Within 1
year after bankruptcy proceedings are opened, the administrator
may challenge (1) any transaction by the bankrupt GmbH
prejudicing creditors that occurred within 6 months of the
beginning of the bankruptcy proceeding, if such transaction
12Failure to do so is a criminal offense under German law.
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