Credit risks due to changes in the insolvency code
The Financial Market Stabilisation Act (Finanzmarktstabilisierungsgesetz – FMSTG) eliminated the equity capital requirements for companies that had previously been customary: At its core, this relates to the amendment of the provision of section 19 II of the Insolvency Code (InsO), according to which over-indebtedness now only exists if the debtor’s assets no longer cover the existing liabilities, unless the continuation of the business is predominantly probable under the circumstances.
There is no legal obligation to inform one’s own contractual partners of this. Finance departments in particular, especially as creditors, are thus forced to check the creditworthiness of their own business partners more closely. Balance sheet analyses no longer permit a reliable assessment of creditworthiness, at the latest since the changes in valuation regulations in 2002 and 2008. Since the financial market crisis, so-called ratings have also proven to be useless in many cases, as they are outdated. Creditors are therefore increasingly demanding standard bank loan collateral. In case of doubt, companies will continue to operate over-indebted, at the longest until they have reached a state of insolvency: Then an insolvency ratio of “0.00” is likely to be the result. The fact that, in addition to insurance companies, the banks’ own house banks must now also be put to the test is particularly sensitive.
by Dr. Johannes Fiala
by courtesy of
www.finance-magazin.de (published in Finance 05/2009, page 29)
