Entrepreneurs and managing directors are particularly challenged now
The economic crisis demands sacrifices and courageous decisions
Anyone who has been through difficult times as a managing director can tell you a thing or two about it:
In a crisis, you often don’t really know what to do first and best. Because with dwindling sales and a general economic downturn, entrepreneurs and managing directors have to act quickly, correctly assess the risks and make the most of their opportunities. Not an easy task.
Therefore, as an experienced law firm in the field of insolvency administration and restructuring and legal partner for companies, we would like to provide you with our guide, which gives you at least a few rough guidelines on what you should, must and can do in a crisis. Our tips are to be understood as measures that should at least reasonably save what can still be saved. They are general in nature and are no substitute for comprehensive advice and consideration of your company and its individual circumstances.
- Get a reliable overview of the company’s financial situation and draw up a liquidity plan for the future.
- Put your business model to the test: Is your offer up to date? Is it still in line with the market? Are your prices acceptable? Are the opportunities and risks of your business in a reasonable relationship?
- Consider whether closing down or selling certain products, departments or business units could save your company as a whole.
- What can you make more efficient by restructuring it? Develop targeted restructuring models for your company – preferably together with your employees, as they often have the best ideas and then also feel that they can help to secure their jobs and not end up directly unemployed.
Attention! As a managing director, you are obliged to report any insolvency that has occurred and to file for insolvency. Otherwise you may be liable or even liable to prosecution for delaying insolvency.
How to recognize insolvency: two conditions are decisive
Condition 1
Your company is over-indebted, i.e. your company assets can no longer cover the existing liabilities (costs). According to Section 19 (2) InsO, over-indebtedness exists if the assets do not cover the existing liabilities when liquidation values are applied, unless the continuation of the company as a going concern is predominantly probable under the circumstances. A strong indication of over-indebtedness under insolvency law is if the item “deficit not covered by equity” appears on the assets side of your balance sheet.
Condition 2
Your company is insolvent, i.e. if your company is unable to service 90% of its due and seriously demanded liabilities within three weeks – unless it is foreseeable that the coverage gap will narrow.
If the bailiff is already on the doorstep and account garnishments are being received, the threshold for insolvency has usually long since been crossed.
Recognize impending bankruptcy early and avert it: Filing for insolvency in the event of imminent insolvency
Our tip: An application for insolvency is already possible if insolvency is only imminent. In a crisis, an entrepreneur is always faced with a difficult decision: should I file for insolvency due to imminent insolvency or can we get our act together? The possibility of filing for insolvency at an early stage can mean that a company can possibly emerge from the crisis. The groups involved in the company’s success – employees, shareholders, suppliers and banks – are usually more willing to move in the company’s favor during insolvency proceedings. However, it is essential that the Insolvency Code contains restructuring tools that often create new options for action that do not exist outside of insolvency proceedings.
Necessary restructuring measures are sometimes easier to implement under insolvency conditions:
- As a rule, social plans are easier to implement in the event of insolvency.
- Under insolvency conditions, long-term rental agreements can be terminated with a statutory notice period.
- Creditors are much more likely to be able to see things clearly during insolvency proceedings.
Outdated structures cannot be maintained forever
Especially when structures that have been built up over years or decades due to the crisis can no longer be maintained, the only entrepreneurial means may be to bring about the necessary changes through insolvency proceedings.
This does not have to mean economic ruin for shareholders, managing directors and employees. After an appropriate change process, the business activity can be continued – often by creating a new legal entity by way of a so-called transferring restructuring.
If the core business model is correct, the necessary operating resources and employees are taken over by the new legal entity – and life goes on.
Our expert tip: If you require such a restructuring process, it is important that you act in good time, show foresight and seek the support of competent advisors.