When do you ring the alarm bell?
Banks that fund firms in crises through current account balances have two fundamental risks:
- The risk of default
- The risk of contestation
While the risk of default can be countered by calling for new collateral, the risk of contestation poses a far greater problem. In the case of an emergency, the main question of dispute is: When was a company bankrupt and when did the bank have to know about it? For the two insolvency reasons, inability to pay and over-indebtedness in terms of insolvency law are to be distinguished.
An indication of a possible inability to pay is the permanent exhaustion of a current account frame. Here, you can very quickly get certainty about the current situation through a solvency check.
When the question about over-indebtedness in terms of insolvency law is to be asked, is more difficult to define. Here, the judiciary speaks of persistent crises - that is, if steady declines in sales have been recorded over a long period of time and have led to losses. In this case, prudential and balance sheet ratios should be examined at close intervals, also during the year, from the time the URG limits are crossed. If there is no improvement or if the equity is even used up, further financing will only be achieved on the basis of a continuation forecast.