This indicates an impending insolvency of the business partner

Tradespeople should pay attention to the warning signs that indicate a potential bankruptcy of their contractor. Then they can take the appropriate action. Here you'll find helpful tips on how to react correctly.

This article is part of the special topic: Restructuring, protective shield or insolvency?

What does it mean when a customer pays late? Is bankruptcy looming, or just a temporary lull? Or is the supplier constantly putting you off? Craft businesses should pay attention to certain warning signs that indicate an impending insolvency of their contractual partner. Because it's usually a gradual process and gives some warning signs beforehand.

The German Confederation of Skilled Crafts (ZDH) has published a free brochure to help craft businesses assess the situation correctly and take appropriate measures . > You can download the guide here.

These possible warning signs should be considered

If the following the Anzeich occurs more frequently, Caution offered:

• Customers exceed payment deadlines
• Customers ask for longer payment terms
• Customers delay acceptance of work contracts
• Customers place new orders despite old debts
• Customers ask for installment payments to repay old liabilities
• Suppliers have delivery problems and quality is declining
• Suppliers no longer grant customary discounts
• The business partner has a new bank account
• The business partner dismisses employees
• The business partner has a new legal form
• The business partner relocates the business location
• The business partner closes branches

What can you do immediately?

Craft businesses should react immediately if they recognize one or more of the warning signs. The following measures will then be helpful:

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1. Seek dialogue with management

If there are signs of impending insolvency of a business partner, the tradesperson should contact the company's management as soon as possible and openly discuss the situation to gain clarity and, if necessary, find solutions for future business relationships. Any agreements reached – such as specific installment payments with short-term payment deadlines – should be documented in writing.

2. Check alternatives

The persistent lack of necessary material deliveries can lead to problems within a company if it prevents the fulfillment of orders and results in liquidity problems . The more critical a supplier is to the operation of a business, the sooner craft businesses should look for alternative suppliers of required materials when they see signs of impending insolvency.

3. Monitor insolvency announcements

If there are persistent signs of an impending or even actual insolvency of the contractual partner, companies should regularly check the portal insolvenzbekanntmachungen.de to see if any official announcements have already been made (such as the ordering of preliminary measures after filing an insolvency petition, the opening of insolvency proceedings, or the rejection of an insolvency petition due to insufficient assets of the debtor).

Securing liquidity

In order to prevent payment defaults and to ensure sufficient liquidity, a reliable Receivables Management of the business. The following security instruments can be useful:
• Information gathering and Bonitätsauskunft over Commercial and Company Register/Credit agency/Schufa information.
• Performance only against Prepayment provide, deposit or appropriate Payment installments make
• For work contracts: The legally anchored Advance payments request and if necessary the Entrepreneur's lien on the items manufactured or repaired by the craftsman for the customer.
• For construction contracts (§ 650 a German Civil Code): The contractor’s legal rights to Security mortgage or Construction worker insurance desire.
• Bank guarantees claim
• One Trade credit insurance the abschließ
• Sale of receivables (Factoring)
• The Property of goods to be delivered Reserved. The advantage in the event of insolvency of the business partner is that the goods delivered under retention of title are generally demanded can be used if full payment has not yet been made and the contract is not continued.

However, these measures may not always prevent payments made from being reclaimed by the insolvency administrator of the contractual partner ( insolvency avoidance ).

Procedure in insolvency proceedings

If insolvency can no longer be avoided, insolvency proceedings can be initiated. The following steps must be observed:

1. File an application for the opening of insolvency proceedings

The application to open insolvency proceedings can be filed either by the debtor himself or by his creditors.

If an application for insolvency proceedings has been filed with the competent insolvency court, the court can order preliminary measures even before deciding on the insolvency application in order to prevent disadvantages for creditors at this early stage. In particular, the court can appoint a preliminary insolvency administrator . The tradesperson, as a creditor, should contact this administrator as soon as possible to clarify who has the power to dispose of the debtor's assets. This power can either be transferred to the preliminary insolvency administrator or remain with the debtor for the time being (but only with the preliminary insolvency administrator's consent). If the court has commissioned an insolvency expert report , the creditor should contact the expert.

2. Insolvency proceedings have been opened

If insolvency proceedings have been opened against a contractual partner, the tradesperson should seek legal advice as soon as possible . They can contact the advisors at chambers of skilled crafts, guilds, and trade associations . The goal is to enforce outstanding claims to the best of their ability and to clarify the risk of insolvency clawback actions. In standard insolvency proceedings, the insolvency administrator should be contacted immediately ; in self-administered insolvency proceedings, the trustee should be contacted to clarify the next steps.

Important: In a Standard insolvency proceedings The insolvency administrator has a so-called Option of performance: If a contract is not or not fully fulfilled by both parties after the opening of insolvency proceedings, the insolvency administrator can either suspend the performance of the contract request or refuseAccording to the law, creditors can actively requestto exercise this right of choice. With this right of demand, the craftsman as creditor can create clarity and planning security for his business. In insolvency proceedings in Self-management The right to choose the performance lies with the insolvent debtor. The craftsman as creditor can Exercise of the right to vote request.

Source: ZDH 

Outstanding receivables: How tradespeople can stay liquid with progress payments. > Read more here! Construction contract: Federal Court of Justice strengthens the rights of tradespeople! > Read more here! DHB now also digital! Simply click here and register for the digital DHB!