Going Concern Forecast and Restructuring Report – IDW S6

Corporate crises often occur slowly and inconspicuously at first. They lead to a gradual decline in competitiveness, profitability and corporate value. As the crisis progresses, the pressure to act increases and the room for maneuver decreases. At the same time, the risk of insolvency rises. Early and comprehensive rethinking and intervention can limit or prevent lasting negative developments and initiate a sustainable recovery of the company. As a rule, external support during the restructuring process is a prerequisite for the sustained stabilization of the financial circumstances.

The managing directors of a legal entity (e.g. a limited liability company) are obligated to draw up a going concern forecast as soon as the company’s financial situation deteriorates. Typical signs of deterioration are declining equity and delayed payments. If management fails to take measures to validate the prospects for the company’s going concern, it violates its due diligence duties towards the company and its business partners and may be held liable under certain circumstances.

Initiation of a Going Concern Forecast

The going concern forecast is intended to analyze whether the assumption of the company’s going concern within the meaning of Section 252 (1) (2) of the German Commercial Code (HGB) can be affirmed. There may not be any legal or factual obstacles to the going concern of the business activity. From today’s perspective, the company is expected to have sufficient financial resources in the underlying forecast period, among other things.

Restructuring Report in Accordance with IDW S6 and Case Law of the German Federal Court of Justice (BGH) 

The objective of a restructuring report is to assess the possibility of restructuring a company in a crisis. Both the competitiveness and the profitability must be regained through suitable restructuring measures in addition to the going concern forecast.

In order to be able to answer these far-reaching questions in connection with the ability to restructure, case law and the Institute of German Public Auditors (IDW) define the core requirements that are typically dealt with in a restructuring report:

  • Description of the Subject Matter and Scope of the Order
  • Basic information on the economic and legal background of the company in its environment, including its net assets, financial position and results of operations.
  • Analysis of the crisis stage and the causes of crisis, including analysis of whether there is a risk of insolvency
  • Presentation of the mission statement in connection with the business model of the restructured company
  • Measures to overcome the corporate crisis and avert the risk of insolvency
  • Integrated Business Plan
  • Summary assessment of the ability to restructure

Depending on the severity of the corporate crisis, various focal points can be set within the framework of a restructuring concept.

Implementation Process Following a Restructuring Concept

Restructuring and reorganization processes often do not end with the preparation and submission of a going concern forecast or a restructuring report. This is followed by regular negotiations with financing partners, employees, suppliers and, if necessary, other stakeholders, as well as a wide range of communication measures.

The preparation of restructuring concepts is usually followed by the implementation of the identified measures. In this phase, the planned measures are broken down into subtasks, and persons are assigned responsibility. Within the framework of project management, it is necessary to establish progress monitoring and reporting, which is regularly used for external communication with stakeholders.

In the implementation process we support our clients on the one hand on the basis of our comprehensive methodical know-how in the area of project management. On the other hand, our supplementary knowledge in the consulting areas of tax and legal means that we are available to address tax, employment or corporate law issues. By combining the above-mentioned specialized competencies, we contribute to ensuring that conceptual measures are effective in a timely manner. If requested, we also provide interim management capacities for the implementation process.

If you are interested or have any questions, please contact us.

 Dr. Rainer Doll Partner