If the equity drops below 50% of the capital, this is due to the losses carried forward.
It is a serious signal.
Almost half of bankrupt businesses report this negative signal.
(*)
In the previous legislation (before 01/05/2019), this would engage the alarm bell procedure.
As of this observation, the general assembly had to be convened to deliberate on the dissolution of the company or decide in taking on other measures.
When the net assets would fall below 25% of the capital, any interested party may request the dissolution of the company before the court.
(*) Source: Companyweb: results based on our own study into causes of bankruptcies.
One quarter of those which fail have a general indebtedness > 100% (*)
A general indebtedness of < 50% is absolutely healthy.
General indebtedness = debt/total assets
This shows what percentage of a company's total funds is being provided by third party funds, or debt.
Being > 100% indebted means a company's equity assets are negative, due to carrying over major losses:
so its liabilities exceed 100% of its total assets.
Such a situation is unsustainable in the long term (cf.
alarm bell procedure).
= A very bad sign!
Businesses do benefit from having a certain level of debt, however, as interest on debt capital is tax-deductible, for example.
Deducting notional interest also plays a major role in choosing between debt and equity in Belgium.
(*) Source: Companyweb: results based on our own study into causes of bankruptcies.
This company has moved its registered office to a business center.
In combination with other negative signals (e.g.
simultaneous change of shareholders or directors, non-payment of social security contributions, late filing of annual accounts, etc.), this is a point of attention.
Starting up or restarting in a business center is a normal course of action.
Conversely, it can indicate a less healthy evolution.
This may be an indication for creditors to exercise heightened vigilance.
