Insolvency costs

Payments that are incurred when a bank – generally: a company – can no longer meet its due payment obligations. – Direct insolvency costs are expenses for the insolvency proceedings themselves, such as court fees, expert fees and the remuneration of the insolvency practitioner, liquidator, receiver in insolvency, trustee of creditors. These expenses are largely determined by law, regulation and fee arrangements; they can therefore be estimated fairly accurately. In Germany, direct insolvency costs are estimated at around six percent of the value of the company (enterprise value, firm value, entity value: the net assets of a company). – Indirect insolvency costs are losses that a company suffers as a result of the publication of payment difficulties (financial embarrassment) or even in advance as a result of rumors about the approaching insolvency. Suppliers and customers restrict or break off their business relationships in view of the threat of insolvency because they doubt the ability to supply or the ability of the company to meet its contractual obligations to guarantee and service. Furthermore, banks will freeze or even cancel loans if there are signs of insolvency; flexible skilled employees at all levels will leave the company and often enough move to the competition. – These and other indirect insolvency costs, which are very difficult to estimate in detail, make it difficult for another company to take over a bankrupt company. – See cannibalization, financial oncologist, mergers and acquisitions, salary freeze, inrotation money, justice money.

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
E-mail address: info@ekrah.com
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