22.6.1.2 The normative role of undercapitalization

In my opinion, undercapitalization has occurred if, in view of the solvency, liquidity position, forecast profitability and the insurance that the company has taken out, the company has insufficient means to safeguard its continuity. Thus, the nominal capital is not a calibration point in determining undercapitalization, given that the company can meet its capital needs by both equity and loan capital. In this definition, ‘undercapitalization’ is an objective, factual term that indicates a funding shortfall, without the cause of this shortfall playing any role. Thus, a bankrupt company that was at some point in a state of undercapitalization does not justify any liability consequences for shareholders. This does not alter the fact that the determination of undercapitalization can most certainly play a role in assessing the conduct of shareholders regarding the funding of the company.

Firstly, a situation of undercapitalization – irrespective of its cause – may mean that shareholders are limited in their discretion to decide on the financing of the company because they are no longer permitted to withdraw capital from the company or keep the company going without reservation by issuing credit. Secondly, the shareholder may be responsible for the occurrence of the undercapitalization, for example by capital withdrawals or by creating an inadequate financial structure. For the sake of clarity, the term ‘culpable undercapitalization’ is used for these cases in the subject study to express that the shareholder can be blamed for (the occurrence of) the undercapitalization.