When is a company considered illiquid?
A company is illiquid if it is unable to meet its payment obligations as they fall due (Section 17 (2) of the German Insolvency Code). To determine whether it is illiquid, several factors have to be considered, including the amount of the payment obligations due, available funds and any additional sources of liquidity, such as loans. According to the case law of the Federal Court of Justice, illiquidity is generally to be assumed if a gap of 10 per cent or more of the total liabilities due cannot be closed within three weeks (Federal Court of Justice, judgment of 24 May 2005, IX ZR 123/04).
