Corporate crisis

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Corporate crisis is the phase of a company in which its functionality and stability is impaired and the risk of a company collapse ( insolvency ) threatens.

General

Under a corporate crisis is in corporate management , a risk of persistence of an entity or a significant division understood. It is in a crisis that can only be overcome through systematic crisis management . For outsiders, this is particularly noticeable in the market , where the crisis-ridden company cannot continue its previous market behavior and becomes a marginal supplier .

The constant jurisprudence of the Federal Court of Justice (BGH) on the problem of equity substitution in the GmbH has linked the concept of crisis to the creditworthiness of a company. According to this, it is a crisis if an outside third party, independent of the company concerned , would no longer grant a loan at normal market conditions and the company would have had to be liquidated without capital injection. In terms of content, this legal definition of the term corporate crisis is not far removed from the business management one. A uniform definition has not yet been found, but previous attempts at definition have often assumed common terms . For example, Gerhard Aschinger understands the more general term economic crisis to be events or developments which impair the functionality and stability of economic units and in which there is a risk of corporate collapse. Based on Lähn, who tries to fall back on the etymological roots of the term "crisis", a corporate crisis is a difficult situation or time that represents the climax or turning point of a dangerous development that is triggered by a change in the company's situation. In the literature, corporate crises are generally associated with the risk of bankruptcy .

Frequent causes of crises

If the causes of insolvency of companies in Germany are examined, conclusions can be drawn about the previous corporate crises. Insolvencies are a sure sign that it has not been possible to overcome a corporate crisis. A distinction can be made between internal and exogenous and between company-related and privately-related causes of the crisis.

Exogenous factors

The credit insurance company Euler Hermes found that in 82% of the cases the customer's payment behavior was responsible for the critical development of a company, 81% named the current labor and social law as a major obstacle, and the tightened banking guidelines ( solvency regulation ) became 60 % called.

Internal company crises

According to Euler Hermes, 71% of the insolvency administrators rated deficiencies in the management of the companies concerned as the most important cause of insolvency. In detail, the following causes of insolvency were the basis:

  • Missing controlling: 79%
  • Funding gaps: 76%
  • Inadequate accounts receivable management : 64%
  • Authoritarian, rigid leadership: 57%
  • Poor transparency and communication: 44%

Company-related causes

The Creditreform has determined that 71.4% of all bankruptcies in the areas of Sales / Orders / competition and 20.2% of all bankruptcy causes were due to funding problems of all insolvencies to management errors, 34.4%. Susceptibility to crises is also influenced by the size and age of the company. The age of the company therefore has an impact on the insolvency rate because, especially in the first few years, there is often equity and capital saved by creditors such as banks and private investors. In the first few years, this is invested in order to generate new income that is intended to maintain business operations. If the company does not work economically, too little turnover is generated for the continued survival and maintenance of business operations. The capital reserves are used up after a short time, so that the company gets into crisis. Special investor strategies such as those of business angels, who pursue an exit strategy and therefore only make their money available for a period of three to five years, make things more difficult. They then pull the capital out of the start-ups, which cannot find new investors without a good business concept and proof of success through certain key figures such as ROI or cash flow.

The risk of small businesses (sales up to € 500,000) going bankrupt is 60.3% in Germany, and 46.8% of all companies up to six years of age go bankrupt. The legal form also plays a role in the cause of the insolvency. A total of 48.5% of all bankruptcies are attributable to small businesses / freelancers, the number of GmbHs is declining with 39.8% of all bankruptcies. In the middle class, just 19.9% ​​of all companies with an equity ratio of more than 30% are sufficiently capitalized.

Private causes

Private crises, about which there is obviously no detailed statistical surveys in the context of insolvency analyzes, often have an impact on the company, especially when privacy extends directly into the company. This is the case with spouses or other relatives in the shareholder and / or management group; this also includes unexplained succession problems in family businesses. Private crisis situations (such as separations, divorces, consequences of accidents or serious illnesses and deaths) can then have an impact on the company via the links with the company. A typical case is divorce, which in turn can trigger compensation payments, which can result in a liquidity bottleneck in the company that can no longer be financed.

Causes of the crisis and the ideal course of corporate crises

In its standard requirements for restructuring concepts (IDW S 6), the Institut der Wirtschaftsprüfer lists the following reasons for the need for restructuring, which usually also occur in this chronological order (although not all stages have to occur in every restructuring case):

  • Stakeholder crisis : Fundamental differences of opinion among stakeholders cause efficiency losses, important decisions are delayed or not made at all. The leadership behavior becomes careless, the mission statement of the company is lost from sight. However, most of those involved are not yet aware that there is a corporate crisis.
  • Strategic crisis: weak leadership and internal disagreement mean that the strategic direction of the company becomes unclear and important competitive advantages are not sufficiently used and pushed. New developments in the relevant markets are not recognized and the company does not react to changed framework conditions. A clear characteristic of the strategic crisis are falling market shares .
  • Product and sales crisis : At this stage the drops sales of the products in absolute terms. The company does not concentrate sufficiently on those products and customers for which sufficient profit margins can be achieved; there are also weaknesses in product quality / service quality , marketing and sales .
  • Success crisis: The success crisis follows the product and sales crisis if no adequate measures have been taken to remedy it. The company's results deteriorate and become negative, equity is gradually being consumed. If the crisis of success continues, the company will no longer be able to raise the necessary funds for a restructuring itself. However, there is usually no acute risk of bankruptcy.
  • Liquidity crisis : A liquidity crisis occurs when there is a concrete and acute risk of insolvency . At this point in time, the financing structure is already very unfavorable (a lot of short-term or maturing debt , lack of matching maturities , low equity ratio ), and the company's previous success factors are no longer effective. The performance is severely limited.

Damage from corporate crises

Creditreform has calculated that the economic damage of all corporate insolvencies in 2004 was € 39.4 billion, of which € 11.9 billion was attributable to the public sector . This means that for each insolvent company, claims averaging € 606,000 had to be written off by its creditors. The main reason for this is that the average insolvency rate is between 3 and 5%, so an unsecured creditor in bankruptcy can expect a maximum of 5% of his claims to be repaid from the bankruptcy estate.

Crisis prevention

First of all, it must be clarified at what stage a company crisis is. Organizations typically go through three critical phases. After founding, financing growth and corporate succession, preventing and managing corporate crises is not infrequently the fourth critical phase in a company's life cycle. Each of these phases can be assigned to one of the subsequent crisis stages. For this purpose, decisions are required that are based on sound business principles and enable management to identify the causes of a crisis at an early stage. If the causes of the crisis are known, they must be consistently implemented with an adequate restructuring concept and its implementation must be permanently monitored by controlling. It is important to preserve the life's work and assets of the entrepreneur, but also the jobs associated with the company.

Potential crisis

Certain developments in a company indicate a risk of crisis, which is not yet concrete. The room for maneuver is then still relatively large, there is a correspondingly wide range of decision-making options and there is no time pressure.

Latent crisis

This is understood to mean the stage of a corporate crisis, which is indicated by warning signals. Here, too, there is still a relatively large amount of room for maneuver, but there is already a certain time pressure, since warning signals that are limited locally could spill over to other areas of the company.

Acute crisis

This stage of the crisis already has an external effect, so that customers, banks and suppliers can become aware of it and react accordingly. Entrepreneurial room for maneuver is significantly restricted compared to the other crisis stages, and the effects of the crisis force rapid action. This is particularly evident in the form of a lack of liquidity , whereby liabilities (e.g. to suppliers or credit institutions) cannot be satisfied in a timely manner or in full. This makes operational business more difficult, for example that suppliers only deliver against prepayment .

Response to crisis

Roland Berger has found out that the crisis response at German companies leaves much to be desired. Once a crisis has been identified, 50% react within 12 months, but on average it takes management even 16 months to react to a crisis. This reaction time is too long when you consider that renovation measures also have a time delay of at least six months. Experience has shown that negative developments exacerbate in a company crisis and can favor or trigger further crisis-intensifying effects. 72% of the insolvency administrators surveyed were of the opinion that companies filed for bankruptcy too late, and even 96% of the insolvency administrators had the impression of entrepreneurs that they were guided by the principle that "it will somehow go up by itself". The first warning signals - at the latest in the latent crisis stage - must be perceived and taken up. American entrepreneurs react to the first stagnation in sales, a slight drop in profits or falling cash flows.

Legal consequences of a corporate crisis

The legislature also wants to protect creditors with the help of criminal law . In a company crisis, criminally relevant facts can be realized by the management. While in "normal business management" the "honest entrepreneur" may have a rather low risk of criminal law, in the entrepreneurial crisis even "minor" offenses can be criminal offenses:

  • the concealment (or even “glossing over”) the crisis situation or the already existing insolvency vis-à-vis a long-standing business partner (if there is a special relationship of trust) can constitute an offense of fraud according to § 263 StGB;
  • the (even only temporary) withholding of income tax for the account of the employer or of contributions to health, pension or unemployment insurance can fulfill the extended offense of infidelity according to § 266a StGB;
  • a crisis-worsening repayment of a capital-replacing corporate loan to the shareholders can be breach of trust according to § 266 StGB.

There is also a significant risk of liability for the (shareholder) managing director / board member in the case of legal entities due to the obligation to file for insolvency according to Section 15a InsO ( Section 61 (1) GmbHG). Accordingly, in the event of the legal person's insolvency or over-indebtedness , the managing director must file an application for insolvency immediately, but no later than three weeks after becoming aware of it . If this does not happen, there is a risk of imprisonment of up to three years or a fine according to Section 84 (2) GmbHG. Since the provisions on the obligation to file for insolvency are primarily intended to protect the creditors , there is also personal and unlimited liability for damages of the managing director according to Section 823 (2) BGB.

The delay in bankruptcy is often accompanied by immoral damage according to Section 826 of the German Civil Code. The offense for this is the non-disclosure of the managing director's positive knowledge of the imminent insolvency due to over-indebtedness of the company towards business partners. In addition to the risk of liability due to the delay in bankruptcy or immoral damage, there is also a risk of negligence when concluding the contract. New believers in particular can invoke this (according to Section 241 (2) in conjunction with Section 311 (3) and Section 280 BGB) against the GmbH if the managing director failed to point out the critical economic situation when the contract was concluded. The managing director does not have to prove “positive knowledge” (as in the case of immoral damage), but only “need to know”, i.e. negligence. It is a prerequisite that when the contract was concluded, either a special personal trust was exercised by the managing director or the manager had a special economic interest in concluding the contract.

In addition to tortious liability, the more recent case law with the judgment on “Bremer Vulkan” has also introduced a “shareholder's behavioral liability” which, together with the capital preservation rules ( § 30 et seq. GmbHG), is intended to help protect creditors in a company crisis or in the event of insolvency. The decisive factor is no longer the dominant position of a shareholder (such as the shareholder-managing director) in the case of actions that aggravate the crisis, but his actions in general. In the case of "existence-destroying interventions" by the shareholders (or the shareholder-managing director), which were consciously carried out or approved and in which damage to the GmbH and the creditors was ruthlessly (grossly negligent) accepted, a "direct liability for legal abuse " be valid. In any case, it should be noted that in the event of interventions by the shareholders and / or the management that destroy the existence of the company - apart from possible criminal offenses - the threat to the existence of the company alone can trigger personal liability.

Consequences then arise for a phase that ties in with the economic crisis or its processing under insolvency law. In corporate law there are grounds for exclusion (e.g. Section 6 (2) GmbHG) that prohibit convicted shareholders / entrepreneurs from becoming active in certain functions in the future. The following convictions are harmful:

These facts increase the entrepreneurial risk considerably. An entrepreneurial risk does not consist exclusively of financial damage, loss of assets and possible claims for damages, but also of a legal risk of being convicted and then - at least for a limited time - no longer being allowed to exercise entrepreneurial functions.

See also

Literature and web links

Individual evidence

  1. ↑ Hans-Dieter Zollondz / Michael Ketting / Raimund Pfundtner (eds.), Lexicon Quality Management , 2016, p. 589
  2. ↑ BGHZ 81, 252 , 62
  3. ^ Gerhard Aschinger: Currency and financial crises. 2001, p. 1.
  4. ↑ Marcel von Lähn: Hedge Funds, Banks and Financial Crises. 2004, p. 23.
  5. ^ Ingolf Bamberger: Strategic Management Consulting . 2008, p. 51 ff.
  6. ↑ Euler Hermes: Wirtschaft Konkret No. 414, Causes of Insolvencies. 2006, p. 23. The study is the result of a survey of 125 experienced insolvency administrators who handled around 19,000 bankruptcies.
  7. ↑ Euler Hermes: Wirtschaft Konkret No. 414, Causes of Insolvencies. P. 20.
  8. ↑ Creditreform: Insolvencies, start-ups, deletions. (PDF; 145 kB) 2004, p. 18.
  9. ↑ Creditreform: Insolvencies, start-ups, deletions. (PDF; 145 kB) 2004, p. 11.
  10. ↑ Creditreform: Insolvencies, start-ups, deletions. (PDF; 145 kB) 2004, p. 13.
  11. ↑ Creditreform: Insolvencies, start-ups, deletions. (PDF; 145 kB) 2004, p. 19.
  12. ↑ Andreas Crone, Henning Werner: Modern renovation management. Restructuring concepts, financing instruments, insolvency proceedings, liability risks, labor law and negotiation. 4th edition. Vahlen Verlag, Munich 2013, ISBN 978-3-8006-4229-8 , p. 7ff.
  13. ^ Philipp Diffring: Conversion of claims for the restructuring of corporations. Structures and privileges in tax and business law . Lit Verlag, Berlin 2012, ISBN 978-3-643-11868-4 , p. 10ff.
  14. ↑ Creditreform: Insolvencies, start-ups, deletions. (PDF; 145 kB) 2004, p. 15.
  15. ↑ Roland Berger Strategy Consultants: Causes and Success Factors of Restructuring 2002.
  16. ↑ Euler Hermes: Wirtschaft Konkret No. 414, Causes of Insolvencies. 2006, p. 7.
  17. ↑ Roland Berger Strategy Consultants: Causes and Success Factors of Restructuring 2002.
  18. ↑ New believers are those creditors who have still done business with the actually insolvent company that they would not have done had they duly filed for bankruptcy. The new believers have not only been deceived in their trust in the solvency of the company, but the violation of the obligation to file for insolvency is also directly related to the occurrence of damage. New believers can therefore demand compensation for their full damage (so-called "contract damage"). They are to be presented as they would be without the contract concluded with the company (so-called "negative interest").