Advance financing of insolvency benefit (§ 165 SGB III)

From the opening of insolvency proceedings (or already from the appointment of a preliminary administrator), employees are entitled to insolvency benefit (Insolvenzgeld) under § 165 SGB III for a maximum of three months — the Federal Employment Agency steps in for unpaid net wages. The benefit itself, however, is only paid out after this period ends, on application, not on the regular payday.

So that staff are still paid on time and the business keeps running, the (preliminary) administrator has employees assign their future insolvency-benefit claims and sells or pledges these receivables to a bank or specialised financier — this is advance financing of insolvency benefit. The bank pre-pays net wages monthly and is reimbursed the insolvency benefit directly by the employment agency once the three months end.

For buyers, this advance financing is both an important signal and a time window: it explains why an insolvent company keeps operating in an orderly fashion in the first weeks — and marks a natural deal deadline. Once the three-month period runs out without a buyer in place, the administrator must fund wages from the estate again or cut staff, which makes a going-concern sale harder.