Losses, negative equity or strained liquidity – at the latest by this point, managing directors in Austria face a key question: is the company over-indebted within the meaning of insolvency law? The answer is provided by a two-stage over-indebtedness test. First, an over-indebtedness balance sheet is to be prepared at liquidation values. In it, hidden reserves are disclosed and hidden liabilities are valued. If the company is over-indebted even at liquidation values, a going-concern forecast must then be prepared. This comprises a primary and a secondary forecast. It determines whether the company may continue trading despite being over-indebted on paper, or whether an insolvency petition must be filed.
In this article, we explain concisely and with a practical focus what a going-concern forecast is, when it is required, how it is structured under the Going-Concern Forecast Guideline and which liability risks managing directors should be aware of.
When must a going-concern forecast be prepared?
According to the Guideline, a detailed going-concern forecast is required at the latest when the company’s continued existence is seriously in doubt. This is the case in particular where there is:
- negative equity in the (draft of the most recent) annual financial statements,
- a loss of half of the share capital combined with persistently negative results,
- tangible symptoms of crisis which, if losses continue, could wipe out equity within the next year.
Which crisis indicators should managing directors take seriously?
Financial warning signs: negative results, a need for reorganisation according to the URG ratios (notional debt repayment period of more than 15 years, equity ratio of less than 8 %), loans falling due without a realistic prospect of extension, withdrawal of supplier credit, frequent payment delays, creditors refusing payment or deferral arrangements (e.g. the tax office or the Austrian Health Insurance Fund ÖGK), covenant breaches, and a strained situation within the group or among shareholders.
Operational warning signs: departure of key personnel without adequate replacement, loss of major customers, suppliers or sales markets, serious staffing problems or shortages of important inventories.
Other warning signs: breaches of statutory provisions, pending proceedings with a potentially existence-threatening outcome, or legislative changes with threatening consequences.
What is a going-concern forecast?
A going-concern forecast is a reasoned, documented written statement as to whether a company is more likely than not (more than 50 %) to be able to continue its business operations in the future while meeting its payment obligations. Two criteria are decisive: the company’s future solvency and its viability.
The relevant perspective is the ex-ante view of a diligent managing director at the time the forecast is prepared. Specifically planned and achievable restructuring measures are taken into account. Within a group, the forecast must generally be prepared separately for each individual company, taking into account group financing, joint liability arrangements and group cost allocations.
Who prepares the going-concern forecast?
The going-concern forecast must be prepared and signed by the company’s governing bodies – i.e. usually by the management. Responsibility for the financial planning, assumptions and measures lies with the management. Advisors provide support in preparing the forecast and assess the planning for plausibility.
How are over-indebtedness and the going-concern forecast related?
In Austria, according to the settled case law of the Supreme Court (OGH), a two-stage concept of over-indebtedness applies. Over-indebtedness relevant under insolvency law pursuant to § 67 of the Insolvency Code (IO) only exists if both conditions are met simultaneously:
- over-indebtedness on paper (negative over-indebtedness status at liquidation values) and
- a negative going-concern forecast.
The key takeaway is therefore: if the going-concern forecast is positive, there is no over-indebtedness within the meaning of insolvency law, even if the company is over-indebted on paper.
| Going-concern forecast positive | Going-concern forecast negative | |
| Over-indebtedness status positive | no over-indebtedness | no over-indebtedness |
| Over-indebtedness status negative | no over-indebtedness | Over-indebtedness within the meaning of § 67 IO – obligation to file |
What role does a subordination agreement play?
Under § 67 (3) IO, liabilities are disregarded in the over-indebtedness test if the creditor declares that it will only seek satisfaction once negative equity has been eliminated or, in the event of liquidation, only after all other creditors, and that no insolvency proceedings need to be opened on account of these liabilities. Shareholder loans with a subordination agreement (Rangrücktritt) are therefore an important instrument in a crisis.
However, not every subordination agreement means that the liability can be disregarded in the over-indebtedness status or attributed to equity. A subordination agreement is only suitable for this purpose if it complies with § 67 (3) IO. The declaration must therefore contain both subordination to all other creditors and a waiver of triggering insolvency. A merely temporary subordination is not sufficient.
These must be distinguished from letters of comfort (Patronatserklärungen). A soft letter of comfort is merely the provision of information on business policy, particularly in connection with establishing business relationships. Legally, it only qualifies as a statement of intent regarding use and, as a mere communication of knowledge, does not express any will or intention to create legal consequences. It does not eliminate over-indebtedness on paper. A hard letter of comfort legally obliges the patron to provide the company with adequate financial resources. In individual cases, it can rule out over-indebtedness under insolvency law. This requires that it remains in force until the over-indebtedness has been eliminated and that the patron is sufficiently solvent. The patron’s recourse claim should additionally be made subject to a subordination agreement pursuant to § 67 (3) IO.
When is a company insolvent?
Illiquidity (Zahlungsunfähigkeit) exists if the debtor, for lack of available funds, is unable to pay its debts as they fall due and is not expected to be able to obtain the necessary funds in the near future. A merely temporary payment stoppage is not sufficient. Under § 66 IO, illiquidity is to be assumed in particular if the debtor ceases to make payments. The fact that individual creditors are still being paid does not in itself prove solvency.
According to case law, it is an indication of illiquidity if more than 5 % of the debts due cannot be settled with the available liquid funds (OGH 3 Ob 99/10w). For the going-concern forecast, this means that the financial plan must show that the company is able to meet its liabilities as they fall due at all times throughout the entire forecast period.
If illiquidity (§ 66 IO) has occurred, the going-concern forecast is necessarily negative. In this case, the opening of insolvency proceedings must be applied for without culpable delay, and at the latest within 60 days, regardless of the over-indebtedness status (§ 69 (2) IO). In the event of a natural disaster, epidemic or pandemic, the deadline for illiquidity is extended to 120 days.
How does a going-concern forecast work? Primary and secondary forecast
The Guideline distinguishes between two forecast stages. The going-concern forecast is positive if it is more likely than not that solvency is secured during the forecast period (primary forecast) and that viability is achieved through a sustainable turnaround (secondary forecast).
| Feature | Primary forecast | Secondary forecast |
| Objective | Maintaining solvency | Turnaround: return to positive results (EGT/EBT) |
| Focus | Financial plan | Integrated profit and loss, financial and balance sheet planning |
| Period | Usually 12 months, at least 6 months | Usually 2–3 years; longer periods must be justified |
| Periodisation | monthly | annual |
What should a going-concern forecast contain?
- Analysis of the company’s status and environment, including the stage of crisis (stakeholder, strategic, earnings or liquidity crisis)
- Primary forecast: financial plan including explanatory notes
- Secondary forecast: restructuring concept, integrated planning, financing measures, implementation and monitoring
- Forecast result: statement, dated and signed by the management
What requirements apply to the reasoning?
The forecast must be based on the most probable development. Best-case and worst-case scenarios serve only as an aid. The going-concern forecast must be documented in writing, presented in a way that is comprehensible to an expert third party, and dated and signed by the management.
Which restructuring measures may be taken into account?
Restructuring measures may only be taken into account in the going-concern forecast if they are specifically planned and achievable. The Guideline specifies this as follows:
- Cost savings: if they are convincingly demonstrated (specific measure, timing, feasibility).
- Revenue increases: only if they appear realistic in light of the industry and the environment.
- Shareholder and equity measures: generally only with a legally binding commitment.
- New loans: creditworthiness is generally sufficient; if shareholder collateral is required, a commitment is needed.
- Creditor support such as deferrals or debt waivers: generally only with a legally binding agreement.
Measures that are not sufficiently secured can be shown as additional “potential”, but are not included in the planning.
What is a conditional going-concern forecast?
If the result depends on measures that are still pending – such as a shareholder contribution that has been promised but is not yet legally binding – a positive forecast can be issued subject to expressly stated conditions. Whether the conditions are fulfilled must be monitored promptly. If a condition is not fulfilled in time, the forecast must be regarded as negative, and a decision must be made without delay on filing for insolvency or initiating restructuring proceedings.
What liability do managing directors face?
If the conditions for insolvency are met, the opening of insolvency proceedings must be applied for without culpable delay, but at the latest 60 days after the occurrence of illiquidity (§ 66 IO) or over-indebtedness under insolvency law (§ 67 IO) (§ 69 (2) IO). For clarification: the existence of either one of the two grounds for insolvency is sufficient to trigger the obligation to apply for the opening of insolvency proceedings. In the event of a natural disaster, epidemic or pandemic, the deadline for illiquidity is extended to 120 days. The special COVID-19 rule on over-indebtedness has expired. The obligation to file lies with the company’s statutory representatives; where there are none, with the majority shareholder.
Breaches of the obligation to file may result in, among other things:
- internal liability towards the company under § 25 GmbHG (Limited Liability Companies Act) or § 84 AktG (Stock Corporation Act),
- external liability towards creditors under § 1311 ABGB (Austrian Civil Code) in conjunction with § 69 IO as a protective law (quota damage vis-à-vis existing creditors, reliance damage vis-à-vis new creditors), and
- criminal law risks, in particular under § 159 StGB and § 158 StGB (Criminal Code).
In the event of insolvency, management may also – irrespective of whether the obligation to file was fulfilled in time – incur liability towards the tax office under § 9 BAO (Federal Fiscal Code) and towards the social insurance institution under § 67 (10) ASVG (General Social Insurance Act). Under these provisions, the representatives are personally liable for the company’s taxes or social insurance contributions to the extent that these cannot be collected from the company as a result of a culpable breach of the duties imposed on the representatives. Even slight negligence can give rise to this liability. In practice, managing directors must therefore be able to prove, in particular, that they did not treat tax liabilities less favourably than other liabilities.
In addition, there are further liability risks for shareholders, such as internal liability under § 22 URG (Business Reorganisation Act), under which shareholders are jointly and severally liable to the company for up to € 100,000.00 per person if, contrary to the provisions of the URG, they have failed to initiate reorganisation proceedings.
A positive going-concern forecast prepared lege artis can rule out over-indebtedness or an allegation of fault. Important: in liability proceedings, the management bears the burden of proof for the positive forecast. Careful documentation is therefore the best protection against an allegation of delaying insolvency.
Is the job done once the going-concern forecast has been prepared?
No. The going-concern forecast is no substitute for ongoing liquidity monitoring. Management must continuously monitor compliance with the assumptions and measures – for example by means of monthly target/actual comparisons – and, in the event of material deviations, prepare a new going-concern forecast without delay.
Conclusion: acting in good time protects the company and its management
The going-concern forecast is the key instrument for creating clarity in a corporate crisis: it determines over-indebtedness, the obligation to file, accounting and access to restructuring proceedings. Those who prepare a sound forecast at an early stage, structured in line with the Guideline of the KSW, WKO and KMU Forschung Austria, gain room for manoeuvre vis-à-vis banks, shareholders and creditors – and considerably reduce their personal liability risks.
Are you seeing the first signs of crisis or do you need a going-concern forecast? The KINDL.trusted team supports managing directors in Austria in preparing and plausibility-checking going-concern forecasts and in assessing insolvency and liability issues – at the intersection of forensic accounting, tax advisory and white-collar criminal law. Contact us now for a no-obligation initial consultation.
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