In a recently published landmark decision dated February 27, 2025 (Ref.: 5 StR 287/24), the 5th Criminal Division of the Federal Court of Justice addressed the question of de facto management exercised by a so-called “company undertaker” (colloquially referring to a fraudulent “phoenix operator” engaged in informal company liquidations). The Court held that such an undertaker may qualify not only as an accessory but also as a principal offender in insolvency and bankruptcy crimes. 

Facts

The defendant had previously acted on several occasions as a so-called “company undertaker”. He brought such financially troubled companies under his control and unlawfully appropriated the remaining corporate assets. In most cases, the defendant appointed an inexperienced strawman managing director (nominal director) while exercising de facto management himself in the background.

In the case decided by the Federal Court of Justice, the defendant gained control of several companies in financial difficulties. Following the takeover, he arranged for the immediate dismissal of the existing managing directors and the appointment of a new (nominal) managing director. The new managing director was a full-time nursing assistant who was neither interested in nor capable of managing the business. In any case, it was never intended that the (nominal) managing director would manage or continue the business. In return for his cooperation, the (nominal) managing director received dinner invitations or small amounts of money from the defendant. By appointing the nursing assistant as managing director, the defendant wanted to conceal the fact that he himself was controlling the fortunes of the companies.

The acquired companies became insolvent shortly before or shortly after the transfer of shares, with the defendant withdrawing some of the companies’ remaining assets. Subsequently, the appointed (nominal) managing director failed to file for insolvency and at the same time jeopardized the interests of creditors with regard to the satisfaction of their monetary claims.

Decision

The Leipzig Regional Court ruled as the court of first instance (Ref.: 11 KLs 281 Js 35309/18) that the defendant could not be considered the perpetrator. The defendant could not be regarded as the de facto managing director because he did not fulfill a “majority of classic characteristics” from the core area of corporate management (e.g., hiring and dismissing employees or shaping external business relationships). According to the Regional Court, it was also not possible to determine whether and to what extent the defendant had acted on behalf of the companies externally. This left only criminal liability for aiding and abetting bankruptcy and aiding and abetting the delay of insolvency on the part of the (nominal) managing director.

The Federal Court of Justice clearly disagreed with the regional court's ruling and called the rejection of the defendant's perpetration of an offense a legal error. According to the Senate, if a company’s sole remaining purpose was the winding-up of business activities, the characteristics developed for advertising companies can only be applied to a limited extent. According to the Federal Court of Justice, it was therefore not decisive for the status as de facto managing director whether the defendant acted on behalf of the company externally. The de facto position as an executive body, which establishes perpetration of an offense, is based solely on the actual assumption of management and is not dependent on external representation.

No traditional standards for management during liquidation phases

According to the BGH, the existence of a de facto management could also not be denied due to the absence of the above-mentioned “classic characteristics” originating from the Bavarian Higher Regional Court. In this context, the Federal Court of Justice points out that the companies taken over by the defendant had ceased their business activities and that the defendant's sole intention was to withdraw existing assets from them by means of a (fraudulent) company wind-down (Firmenbestattung) and to “shake off” creditors. In such a business context, according to the Senate, a position as managing director cannot be assessed on the basis of whether the person hires employees or whether contractual relationships with business partners are established. The only relevant aspect is the extent to which tasks typical of an executive body are actually performed. 

The Federal Court of Justice therefore overturned the Regional Court’s ruling regarding the defendant's conviction for aiding and abetting intentional bankruptcy and aiding and abetting intentional delay in filing for insolvency, and referred the case back to the Regional Court for a new hearing and decision. A decision is still pending.

Implications for practice

The decision of the Federal Court of Justice emphasizes that, in the case of (fraudulent) company wind-downs, it is not only the nominal managing director who can be guilty of insolvency and bankruptcy offenses, but also the “undertaker” operating in the background via his position as de facto managing director.

In economic practice, this means above all that companies in crisis should seek professional advice at an early stage. Experience shows that engaging the services of a company undertaker does regularly not lead to the elimination of the management’s criminal liability, but is in fact considered by the courts to be an aggravating factor.