2.III.2.4. The applicant does not have negative net assets, unless there is a possibility of coverage

Customs authorities must examine two key indicators in the financial statements and balance sheets in order to assess compliance with the proven solvency criterion: the net current asset position (current assets less current liabilities), and the net asset position (total assets less total liabilities).

• The net current asset situation is an important indicator in determining whether the applicant has sufficient capital to carry out its ordinary operations. Customs authorities should compare the net current assets of the three sets of accounts in order to identify possible significant trends over the three-year period under consideration, and to examine the reasons for the changes (for example, if the net current assets move from a positive situation to a negative one, or if they become increasingly negative). Such developments may be due to the effect of falling turnover, adverse trading conditions or rising costs. Customs authorities will need to assess whether the situation is due to short-term factors or whether it affects the company's long-term viability.
• The net asset position is a relevant indicator of the applicant's long-term viability, as well as its ability to repay its debts. To meet the proven financial solvency criterion, companies are expected to have positive net assets. Where net assets include significant intangible assets, such as goodwill, customs authorities will determine whether these assets have any real market value. In addition, they will take into account the nature of the company and its age. In certain circumstances, it may be normal for a company to have negative net assets, for example, when a parent company creates a subsidiary dedicated to research and development, and the latter's liabilities are financed by a loan from the parent company or a financial institution. Similarly, startups can operate at a loss and with negative net assets after incorporation, while they develop their products or consolidate their customer base, and before they begin to realize returns on their investment in later years. In such cases, negative net assets may not be a significant indicator of the company's inability to pay its legal debts.

The latest draft versions of the general accounts and management accounts between the date of the most recently issued financial statements and the current date must also be reviewed to determine whether there have been any significant changes in the applicant's financial position that may impact its proven financial solvency.

If any doubts arise, the applicant can take several actions to improve his or her net worth situation. For example, additional capital can be raised through a share issue. In the case of multinational companies, negative net assets can often arise from transactions made and existing liabilities within the group. In such circumstances, the liability can often be covered by a guarantee from the parent company (or another company in the group).