Positive going concern prognosis despite non-binding financing commitments is possible


Significance of a positive going concern prognosis

The positive going concern prognosis plays a major role in the over-indebtedness test pursuant to section 19 of the German Insolvency Code: even if a company is balance-sheet over-indebted, it is not over-indebtedness as defined the German Insolvency Code, and therefore not obligated to file for insolvency, if the company’s viability as a going concern is more likely than not based on the circumstances. While managing directors have some leeway is assessing this prognosis, their decision must be sufficiently based in fact. This includes providing a robust profit and finance plan for the entire forecast period, which since 1 January 2021 has been 12 months (section 19(2) sentence 1 of the German Insolvency Code).

Third-party restructuring contributions

In crisis situations, contributions or actions by third parties are often essential in determining whether a crisis can be overcome and the restructuring is successful. Until now, it was not fully clear in this context what requirements had to be met or the contributions to be made in order to include them in the forecast. Some German higher regional courts recognised financing contributions by third parties in the context of the going concern prognosis only if these were promised with legally binding effect. Accordingly, legally non-binding declarations of intent could not be taken into account. Although there were considerable opposing opinions in the legal literature, there has not yet been any case law handed down by the highest courts. For managing directors (and their advisors), this was an uncomfortable situation given the high level of personal liability in insolvency-related situations, for example in ongoing negotiations on rescue financing. Two new rulings now provide valuable guidance.

Likelihood of over 50% sufficient

The German Federal Court of Justice has provided more clarity in its new judgment handed down on 13 July 2021 (II ZR 84/20). Whether third-party financing contributions can be taken into account in the context of the positive going concern prognosis does not depend on whether the third-party commitments are legally binding and enforceable. Rather, it depends on whether the contributions can more likely than not be expected and whether the restructuring can then also be successful once the financing contributions have been received. This is because – as the court rightly pointed out – even the future revenues necessary for the going concern prognosis are not generally enforceable in court.

Boundaries for shareholder commitments in the context of a soft comfort letter

At the same time, however, the German Federal Court of Justice drew much narrower boundaries for shareholder commitments. According to the above, it would be possible to take a “soft comfort letter” into account in the going concern prognosis, where the company has no legal claim against the party committing to the funds, . However, according to the German Federal Court of Justice, this is only possible in special exceptional cases, e.g. if payment can actually be expected in view of the shareholder’s creditworthiness, special interests or previous conduct. For such requirements to be met, the managing directors has the sole burden of disclosure and proof and will always be confronted with the question of why the shareholder is not also prepared to provide a hard comfort letter, where a legally enforceable claim exists. This is because – according to the German Federal Court of Justice – in the case of a soft comfort letter, considerable doubts about a further inflow of funds arise, since the shareholder committing to providing funds obviously wants to retain the possibility of being able to cease providing liquidity to the subsidiary at any time.

Therefore, in the case of non-binding financing commitments by shareholders, managing directors must be able to justify particularly well why, at the time of the prognosis, the shareholders were (supposedly or actually) prepared to contribute further financing to maintain the value of their shares if, at the same time, they do not (yet) want to make a legally binding commitment. The answer to this question must be well prepared, because it will be asked precisely when the going concern prognosis has turned out to be objectively wrong and all restructuring efforts were not able to prevent the insolvency petition.

Less strict standards for start-ups – Dusseldorf Higher Regional Court judgment of 20 July 2021 on case I-12 W 7/21

Given that start-ups are often not profitable in the initial phase, the Dusseldorf Higher Regional Court is in favour of applying less strict standards in these cases: According to such standards, generally the management of start-ups can reasonably assume a positive going concern prognosis as long as an operative concept exists and it is not likely in the case at hand that the party providing the funds will not continue to finance the start-up company. This means that for start-ups the requirements for including non-binding shareholder commitments in the going concern prognosis are lower. Because this ruling was handed down after the landmark decision of the German Federal Court of Justice, it can be assumed that the Dusseldorf judges were aware of the previous decision and deliberately deviated from it. It remains to be seen whether this special approach will also be upheld by the German Federal Court of Justice.


The German Federal Court of Justice’s decision has brought more legal clarity for managing directors on the question of the going concern prognosis in the event of third-party contributions. This is a positive development. A business manager must check whether it is more likely than not that the contributions can be expected and whether the restructuring can then be successful once financing contributions have been received. Shareholder commitments, on the other hand, should be legally binding. If they are not, it must be well justified why they are nevertheless included in the financial planning and why the positive going concern prognosis is based on them. Appropriate documentation is urgently recommended.

As far as start-ups are concerned, the Dusseldorf Higher Regional Court, on the other hand, has decided to apply a more generous approach: the management can reasonably expect that shareholders will continue to finance the company until becoming aware of the contrary. It remains to be seen whether this view will hold up before the German Federal Court of Justice. 

Restructuring & Insolvency