Financial situation of the structural builder is poor - Still build with him?

No envy of the depreciation skills of other people's tax advisors ;-) A completion guarantee decouples your nightmares from your builder's balance sheet – with the shell construction, of course, "completion" not in the turnkey sense.

If I have learned one thing in accounting lectures, it is that paper is very patient and accounting paper even more patient. Depending on how you want to present yourself (the poor sucker who really can’t pay any more taxes or the fat bunny who soon wants to go to the stock market), creative accounting hardly knows any limits. Therefore, one should keep such a result in mind but not see it as the sole criterion. The company has been fully engaged for 30 years with a good reputation. In a construction boom phase, nothing should go wrong there. After all, it is “only” the shell construction. It was erected so quickly that the devil would have to be involved for a total insolvency to break out right then.

In a construction boom phase, nothing should go wrong. After all, it is "only" the shell.

Nonsense!

I am currently financing a major construction project in which a renowned facade builder "overstretched" (took on more orders than he could handle and was unable to pass on price increases) and has now slid into insolvency. Consequences: major time delays in completion (more than six months), tenants can exercise their special termination rights, buyers of the property can withdraw according to the contract, additional costs for my client due to commissioning a new company, disputes over issued guarantees (advance payment guarantee, completion guarantee).

Applied to the average home builder: time delays / follow-up trades may no longer be carried out by the contracted company because it has taken on other orders meanwhile / price increases due to the general price development in construction / legal stress with the company, etc.

Calculating with poverty has nothing to do with this anymore. The loss carryforwards of this magnitude probably ensure that no taxes have to be paid in the long run.
One can therefore rather assume that when it comes to accounting options or valuation, the option is more likely to be chosen that leads to a better annual result instead of a worse one (e.g., long depreciation periods, low provisions). Of course, this is only possible to a limited extent.
It might be possible to see from previous financial statements where the loss originated.

In order not to slip into insolvency despite over-indebtedness, there must be a liability with subordination. This must be at least as large as the deficit. This can be, for example, a loan from a shareholder as a private person, as well as from a parent company.
Thus, more capital than the 50,000 DM = 25,564.59 € share capital is invested in the company.
Here it makes sense to read the notes in addition to the balance sheet.

If the company is really going to be built with, then this information is a good starting point to negotiate the completion guarantee at the very end. That's how we did it back then.

If you want, you can also send me the company name again via PN. Then I will take another look at the year and the previous years. Maybe I’ll find a few more pieces of information for you.

After [USER=45342]@Donradon informed me of the company, I looked at the current and historical balance sheets. According to the appendix, the two shareholders have provided loans >500K€ with subordination to the company since the mid-2000s. The first figures are available from 2005. At that time, the loss carryforward was almost 700K€. 2008 was the last year with a balance sheet loss. Since 2009, a small profit has been made continuously, so that the loss carryforward could always be reduced. If the loan were converted into equity, the company would be in quite a good position today. Overall, I therefore see the development rather positively. You can still negotiate getting out of the guarantee anyway.

Thank you Musketier, but that means the company is not overindebted because of the loans with subordination - right. I admit I once studied business administration - but 1. that was a long time ago and 2. we didn’t deal with such details back then.

A competitor we turned down pointed us to these financial statements... which we personally also found somewhat questionable...