Management of bank loans and borrowings, cash flows and liquidity
Issue: the drastic drop in turnover and the lack of on-time payments by debtors have obliged companies to apply for medium to long-term loans, including as provided for by government measures, to cover their temporary shortfalls and/or total shortage of liquidity (e.g., the Liquidity decree).
Legal aspects: although bank loans and borrowings allow a company to cover its temporary liquidity shortfalls, they also create issues for the directors in terms of their liability as they have generated additional debt for the company, even when the company falls into the “undertakings in difficulty” category as defined by Commission Regulation (EU) no. 651/2014 at the time it requested the financing, especially those SMEs that are often undercapitalised. With the exception of the special rules for innovative start-ups, excess bank debt may just mean that a company temporarily puts off its insolvency.
The lack of liquidity also led to numerous contract defaults which may, however, partly be covered by the emergency legislation and the initial judicial rulings on this issue.