Avoid insolvency, but above all, avoid insolvency procrastination!

With the difficulties caused by the measures against the spread of the Corona virus, the insolvency filing obligation was suspended in many countries since spring 2020. However, not every entrepreneur and not every managing director is aware that the insolvency filing obligation has been fully put in place again – with a few exceptions that need to be justified. However meanwhile, in most of the countries, these exceptions have also ceased to apply. Since then, the insolvency law has once again applied in full. In the event of persistent overindebtedness or insolvency, managing directors of corporations are once again obliged to apply for creditor protection within the prescribed deadlines. If you do not do this, you commit insolvency delay and are personally liable as managing director for possible damages to creditors.

It is often not clear in operational business whether insolvency has already occurred or whether it is only imminent. However, this fine distinction leads legally to the big difference whether you now have to file for creditor protection or not. To be legally sure, you should have an insolvency status drawn up in a critical situation. An insolvency status indicates whether your company is currently in a position to service at least a certain share of its due liabilities – in many countries 90 % of the due obligations have to be fulfilled.

If this is not the case, it is advisable to draw up a liquidity balance sheet showing whether your company will be able to service the required  share of its liabilities again within the next three weeks. For this purpose, all payments expected within the next three weeks and all liabilities due within this period are taken into account. In addition to cash and cash equivalents already available, cash inflows may include assets that can be liquidated in the short term and receivables that are due, but not receivables that are not expected to be collectible. All liabilities due must be included in the disbursements. Accordingly, liabilities for which a deferral of payment (deferral) has demonstrably been agreed at the time the liquidity balance sheet is prepared are not to be included.

With a liquidity balance showing that you can restore solvency within three weeks, you can prove that you are in a payment stagnation, but not (yet) in insolvency.

A practical calculation template for a liquidity status and liquidity balance can be found here: https://www.consultingcheck.com/en/ressource/liquidity-status-and-liquidity-balance/.

The liquidity balance gives you time for the first effective performance and financial restructuring measures. Take these remedial measures immediately. Every day counts.

You can find tips on specific remediation measures that usually prove effective here: https://www.consultingcheck.com/en/topics/turnaround-management/5884/.

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