How do you assess whether a company is over-indebted (ueberschuldet)?
A core Restructuring interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
Two-step test: (1) Balance sheet test: do liabilities exceed assets at liquidation values? (2) Going concern prognosis: is there a positive going concern prognosis for the next 12 months? If the balance sheet is negative but there's a credible going concern prognosis, the company is not over-indebted under §19 InsO. This is why the quality of the going concern forecast is so critical.
WHAT INTERVIEWERS LISTEN FOR
- ✓Two-step test
- ✓Balance sheet test at liquidation values
- ✓Going concern prognosis for 12 months
- ✓Negative equity but positive prognosis
- ✓§19 InsO over-indebtedness definition
COMMON MISTAKES
- ✗Only checking balance sheet
- ✗Using book values instead of liquidation values
- ✗Ignoring going concern prognosis
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