Economic definition

There are numerous definitions of the company crisis in literature. In practice, the corporate crisis is seen as a succession of several crises:

Stakeholder Crisis:

Stakeholders are members of the management, supervisory bodies, shareholders, employees and their representatives, credit institutions and other creditors. At the beginning of the business crisis, important decisions and necessary changes are usually prevented due to a lack of acceptance of or conflicts between the stakeholders.

Strategy Crisis:

In the case of a strategy crisis, the company's competitive advantages (the so-called "success potential") are neglected or impacted by internal or external factors.

Sales crisis:

During the sales crisis, a company has recorded unplanned sales declines over a longer period, which can be characterized by higher capital commitment and overcapacity. The causes of the sales crisis can have both internal and external factors.

Profit crisis:

As a result of the previous crises, the annual results fall more sharply than in the sector / market average and losses start to waste. Declining coverage contributions and unadjusted fixed cost structures are usually observed.

Liquidity crisis:

Tense liquidity situations and short-term liquidity shortcomings are the starting signals for this crisis. The procurement of funds is made more difficult and liquid funds are no longer used for the maintenance of the operating business but for the financing of losses. The longer the corporate crisis remains untreated at this stage, the more difficult it is to prevent insolvency.

 

Legal definition

For corporations as well as for companies in which no fully liable shareholder is a natural person, the Equity Compensation Act (EKEG) in § 2 defines the formal legal crisis definition. Accordingly, the company is in crisis when it is:

  • Insolvent,
  • Over-indebted or
  • Reorganization is required according to URG.

This means that a company will in practice reach the legal definition of the crisis if the corporate crisis adversely affects the ratio of equity to total capital and the ability to repay debt. This can happen at the very beginning, but it will in any case occur with untreated progress in the earnings crisis. Therefore, at this stage, you should be sure where the company is and how new financing can be built.