Company in difficulty: what are the 10 warning signs to never ignore?

In 2024, Belgium recorded 11,067 business bankruptcies, an alarming increase of 8% compared to the previous year. These failures led to the loss of more than 32,000 jobs, a considerable social impact that could have been avoided in many cases. Faced with this reality, early detection of difficulties becomes a vital issue for any business manager. Maître Innocent TWAGIRAMUNGU, an experienced lawyer in Brussels since 2005, regularly supports entrepreneurs faced with these delicate situations. His in-depth knowledge of corporate law and safeguard procedures allows him to quickly identify red flags that we will explore together.

• A liquidity ratio less than 1means your business can no longer cover its short-term debts (keep it at least 1.5 for a margin of safety)
• Net assets below 50% of share capitalautomatically triggers a legal alert procedure with the obligation to convene a general meeting within 2 months
• NSSO debts greater than 2,500 eurosregister you in the register of economic flashers and incur your personal liability in the event of repeated bankruptcies
• The Judicial Reorganization Procedure (PRJ)allows you to obtain up to 80% debt forgiveness with an initial reprieve of 6 months (extendable up to 10 months with mediator)

The 4 financial signals that should alert you immediately

Financial indicators are often the first indicators of acompany in difficulty. These numbers tell the story of your business and help anticipate problems before they become insurmountable.

Signal #1: A liquidity ratio that falls below the fateful bar

When yourliquidity ratiofalls below 1, your business can no longer cover its short-term debts with its available assets. Imagine that you have 80,000 euros of current assets for 100,000 euros of short-term debt: your ratio is 0.8, a red signal which should push you to act.

Experts recommend maintaining this ratio at1.5 minimumto have a comfortable margin of safety. A ratio below 0.5 places your company in a critical zone: according to Graydon statistics, 2.78% of companies with this profile went bankrupt in the following year.

Signal #2: Equity that melts like snow in the sun

THEsolvency ratiomeasures the share of your equity in relation to your balance sheet total. When this ratio falls below 25%, your business becomes vulnerable to the slightest unforeseen event.

A company whose equity represents only 20% of the balance sheet depends 80% on external financing. This excessive dependence on creditors limits your room for maneuver and can quickly become a trap in the event of tougher credit conditions.

Signal #3: Negative profitability that sets in over time

When your business displayslosses two years in a row, the alarm signal is unequivocal. This situation affects 2.10% of Belgian companies which end up filing for bankruptcy the following year.

Beyond the gross figure, this recurring negative profitability gradually depletes your reserves and degrades your ability to invest. Your suppliers become suspicious, your payment terms tighten, creating a vicious circle that is difficult to break.

Signal #4: Debt that exceeds your equity

Adebt ratio greater than 100%means that your debts exceed your equity. This situation, which concerns 2.35% of failing companies, reflects a deep structural imbalance.

Concretely, if your balance sheet shows 150,000 euros of debt for only 100,000 euros of equity, your business is operating with negative equity. This configuration drastically limits your access to new financing and weakens your negotiations with partners.

The 3 administrative and legal signals to watch closely

Beyond the figures, certain administrative events constitutered turn signalsthat no leader can afford to ignore. These legal signals directly engage your personal responsibility.

Signal #5: Net assets falling below the critical threshold

When the net assets of your company decrease belowhalf of the share capital, Belgian law automatically triggers an alert procedure. This situation imposes strict obligations: you must immediately inform your shareholders, creditors and employees.

For example, for an SPRL with capital of 18,550 euros, net assets of less than 9,275 euros require you to convene an extraordinary general meeting within two months. Failure to respond may result in your personal liability in the event of subsequent bankruptcy.

Please note:An exemption from liability exists for small businesses whose average turnover is less than 620,000 euros excluding VAT over 3 years AND whose balance sheet total for the last financial year is less than 370,000 euros. Please note, however: this exemption never applies to NSSO debts, which always remain the personal responsibility of the directors in the event of default.

Signal #6: Annual accounts that remain in drawers

Do not publish your annual accounts sincemore than two yearsis a common but illegal attempt to hide financial difficulties. This short-term strategy invariably backfires for the company.

The chambers of companies in difficulty monitor these breaches and can initiate judicial dissolution proceedings after a period of 7 months following the close of the accounting year (the court cannot act before this minimum period). Transparency remains your best ally in maintaining the trust of your partners.

Signal #7: Social debts accumulating dangerously

Of theNSSO arrears greater than 2,500 eurosautomatically trigger your registration in the central register of economic indicators. This social debt constitutes one of the most predictive indicators of imminent bankruptcy.

Managers involved in at least two bankruptcies in five years with unpaid social debts becomejointly responsibleof these amounts, without it being necessary to prove fault. This strict rule highlights the crucial importance of keeping your social obligations up to date.

The 3 operational and external signals not to neglect

The difficulties of acompany in difficultyare also manifested in its daily functioning and its relations with the economic environment. These external signals deserve your full attention.

Signal #8: Turnover crumbling month after month

Aconstant decline in turnovervisible in your monthly VAT returns is an early indicator of difficulties. This downward trend often reflects deeper problems: loss of competitiveness, inadequacy with the market, or deterioration of your image.

Monitor these declarations monthly to react quickly. A drop of 20% over six consecutive months requires in-depth analysis and immediate corrective action. A wait-and-see approach to this erosion invariably leads to irreversible situations.

Signal #9: The dreaded summons by the chamber of companies in difficulty

Receive asummons of the chamber of companies in difficultyis never trivial. This specialized body of corporate courts has detected worrying signals: default judgments, unpaid bills of exchange, or notices of seizures.

Responding to this summons is imperative. Failure to respond may lead to the legal dissolution of your company. On the contrary, a proactive approach often makes it possible to obtain deadlines and personalized support to remedy the situation.

Signal #10: Cash flow problems that become chronic

Of therecurring cash flow difficultiesforcing you to constantly negotiate with your suppliers reveals a structural imbalance. When each end of the month becomes an obstacle course to meet your deadlines, your business is living beyond its means.

This situation uses up your credibility and your energy. Payment terms lengthen, conditions tighten, and some suppliers end up requiring cash payments, further aggravating your cash flow difficulties.

Your legal obligations in the face of difficulties: what you really risk

Faced with acompany in difficulty, the manager bears heavy legal responsibilities, ignorance of which can have dramatic consequences. The Code of Belgian Economic Law, in its Book XX, strictly regulates your obligations.

L’confession of bankruptcymust be deposited via the RegSol platform within the month following cessation of payment. Any delay exposes the manager to civil and criminal sanctions, as well as personal liability for the worsening of debt during this period. The court can also retroactively set the cessation of payment up to 6 months before the judgment declaring bankruptcy to determine the acts unenforceable against the mass of creditors (suspicious period).

In the event of serious misconduct having contributed to the bankruptcy, the court may issue an action infilling of liabilities. This procedure, prescribed after five years, allows the curator to seek your personal responsibility. Judges can also impose a ban on running a business for up to ten years.

• Automatic joint and several liability for tax debts after non-payment of withholding tax or VAT for 2 quarters
• Personal liability for social security contributions in the event of repeated bankruptcies
• Obligation to respect the strict legal order of privileges: creditors with security (banks) first, then social and tax debts (ONSS, VAT, taxes), finally ordinary suppliers
• Risk of professional ban in the event of manifestly imprudent management

Preventive solutions to save your business in time

Fortunately, theBelgian corporate lawoffers several backup mechanisms for businesses that respond in time. ThereJudicial Reorganization Procedure (PRJ)constitutes the preferred tool for recovering a company in difficulty.

This procedure gives you a6 month reprieverenewable, during which all proceedings are suspended. The mediator may request 4 additional months beyond these initial 6 months to finalize the reorganization under good conditions, thus bringing the total possible duration to 10 months. As part of a collective agreement, you can negotiate debt forgiveness of up to 80% of the main debts, spread over a maximum period of 5 years (subject to obtaining a double majority: majority of creditors in number AND representing at least half of the sums due in principal and interest).

Illustrative example:A Brussels transport company with 450,000 euros in debt obtained a PRJ with collective agreement in 2023. Thanks to the intervention of a mediator appointed by the court, it negotiated a 60% discount on its supplier debts (180,000 euros erased out of 300,000), a staggering of the balance over 4 years, while fully preserving the salary debts of its 8 employees and the NSSO debts (which can never be reduced in a PRJ plan). The company was able to maintain its activity and save all the jobs.

Practical advice:During the PRJ suspension, your creditors cannot terminate current contracts, except in the case of persistent breaches after a 15-day formal notice has remained without effect. This contractual protection allows you to maintain your essential business relationships during restructuring. Be careful, however: salary debts, alimony debts, criminal fines and bodily injury can never be reduced, even in a collective agreement.

THECenter for businesses in difficultyin Brussels offers free and confidential support. This public structure helps you analyze your situation, identify suitable solutions and prepare your reorganization file. The Brussels-Capital Region even finances 75% of PRJ costs, with a ceiling of 4,840 euros including tax.

Other options deserve consideration: direct negotiation with your creditors to obtain installments, the conversion of short-term shareholder loans into long-term financing, or the partial transfer of activity under judicial authority (where the transferee chooses the workers taken over and where approval by the labor court increases the legal certainty of the operation). However, be wary of appointing a provisional administrator: according to 2017 statistics, 22% of companies that had a provisional administrator appointed by the court went bankrupt, demonstrating the limited effectiveness of this preventive measure. The main thing remains to act before the situation becomes irreversible.

Faced with the warning signs of a company in difficulty, anticipation and appropriate legal support make all the difference. Maître Innocent TWAGIRAMUNGU puts his nearly 20 years of expertise at the service of Brussels companies facing these challenges. His firm offers a transversal approach covering corporate law, compliance and safeguarding procedures, with this human dimension essential in difficult times. If your business displays several of the signals mentioned, do not wait until the situation becomes critical: early consultation allows you to explore all legal options to preserve your business and protect your personal interests.