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
You've seen the model answer. Now get graded on yours.
In the interview you won't have this page — you deliver your version on a clock. Practice this and 1,000+ questions with AI feedback on every answer.
RELATED QUESTIONS
- Explain a debt-to-equity swap and its implications.
- Explain the concept of 'new money' and super-seniority in a restructuring.
- Walk me through a waterfall analysis. A company has €200M EV, €120M senior secured, €80M unsecured, €50M mezzanine. Where does value break?
- How does a liquidation analysis work and why is it important in restructuring?
- A client has €80M EBITDA and €400M net debt. Senior secured €250M, unsecured €150M. How would you analyze the capital structure in a restructuring scenario?
- Explain structural subordination and why it matters.