Liquidity management
TL;DR
- The board of directors must monitor the company's liquidity and take appropriate measures swiftly.
- In the event of confirmed over-indebtedness, the board of directors must notify the court.
- The company must always keep sufficient money to pay taxes and social contributions. Members of the board of directors may be personally liable.
The solvency of the company is a key topic for the company, both with regard to its relationship with its customers and providers, but also with regard to its obligations towards its employees.
Considering the importance of this topic, the board of directors is legally tasked with monitoring the company's solvency.
From a legal perspective, the board must watch out for capital loss and over-indebtedness and take appropriate action:
Event | Definition | Action |
|---|---|---|
Capital loss (725a CO) | The most recent annual accounts indicate that the assets less the liabilities no longer cover half of the sum of the share capital, the statutory capital reserve not to be repaid to the shareholders, and the statutory retained earnings.
| The board of directors shall take steps to remedy the loss of capital (e.g., restructuring).
|
Overindebtedness (725b CO) | There is justified concern that the company’s liabilities are no longer covered by its assets.
| The board of directors mustimmediately prepare an interim account at going concern values and sale values. An interim account at sale values is not required if it is assumed that the company will continue to operate and the interim account at going concern values does not indicate over-indebtedness. If it is assumed that the company will not continue to operate, an interim account at sale values is sufficient. The board of directors must have the interim accounts audited. If the company is over-indebted according to the two interim accounts, the board of directors shall notify the court. |
In addition, and from a general perspective, the board must also take certain measures to limit its personal liability in the event of liability concerns. In particular, the board of directors must ensure that (i) appropriate action is taken promptly, (ii) no creditor is given preferential treatment, and (iii) the company is able to pay all social security contributions and taxes.
Best practices
Taxes and social contributions: Liquidity is managed to ensure the ability to pay taxes and social security contributions.
Concerns: In case of liquidity concerns:
appropriate measures are taken promptly,
no creditor is given preferential treatment, and
if required by law, the bankruptcy judge is informed.
Considering their duty to monitor the company's solvency, board members are personally liable for unpaid taxes and social security contributions. Failure to take prompt action may also result in liability to shareholders and creditors.
It is key for the board members to make sure that the company is not over-indebted or in a capital loss situation, and that it always has sufficient liquidity to pay taxes and social security contributions.
Monitor your financial situation regularly, taking into account your runway (how long you can last with your current reserves based on your monthly recurring costs) and taxes and social security costs.
In the event of liquidity problems, action must be taken as soon as possible and all creditors must be involved in finding debt restructuring solutions. One key measure is to subordinate the loans of shareholders and investors.
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