Effects of a waiver of receivables on the value of the company
Does a balance sheet restructuring also affect the share value? As is often the case, it depends on the valuation method.
One man’s joy is another man’s sorrow?
Corona leaves its mark on the balance sheets that have just been prepared and audited. Subordination and debt waivers are often the first responders and a prerequisite for a real restructuring. For debtors, the debt waiver is a nice thing: they are effectively relieved of debt, their book equity increases. But what about the other side, especially when the creditors are also shareholders? It is unattractive, but it is clear that the claim has to be written off there. If, however, the value of the credited participation were to increase accordingly, it would merely be an asset swap and a “devaluation not affecting net income”. The question is also interesting in the case of asymmetrical debt waivers, i.e. when only individual shareholders waive their claims. Does this result in shifts in value that must be taken into account, for example, in the shareholders’ agreement or for tax purposes? As is so often the case, it depends on the valuation method.
Read the full article in EXPERT FOCUS April|2021 here (in German or French).