Hernien

Legal Capital and Limited Liability Companies: the European Perspective

“…Different remarks have to be made with regard to sophisticated creditors, such as banks and other financial intermediaries. In regard to these, it is worth noting that the role of legal capital in granting credit, albeit shared in the past, 279 has diminished over the years. This is because banks have more complete and effective information and instruments at their disposal for assessing the financial situation of a company; and indeed, they may arrange, parallel to the increasing amount and longer duration of the loan, sets of financial covenants equal or even superior to the advantages connected with legal capital.…”

“…For example: compliance with a business plan made with banks in the act of a loan's endowment, and cash flow, especially with regard to trade creditors and employers. 194 Thus these criteria are utilized before taking recourse to legal capital to determine the ratings issued by credit rating agencies so as to measure the creditworthiness of a corporate debtor. 195 In fact, even a legal capital of low or trivial amount, to which creditors cannot give significant weight anyway, may be compensated by a high cash flow, capable not only of repaying the cost of the borrowed capital and avoiding a surplus of liabilities, but also of generating a capital gain.…”