Summary: Given the difficult situation that the Costa Rican economy is going through, here is a discussion about the processes of liquidation and judicial intervention, which not only corresponds to companies, but also has to do with individuals, who in the face of a very accessible supply of credit, they have come to be on their own payment capabilities. Reference is made here to the causes and consequences of these processes and the need to seek options on the part of the financial and judicial system, so that together they offer temporary alternatives to those who are going through critical situations, either as entrepreneurs or as individuals.
Introduction
Bankruptcy or liquidation and judicial interventions are processes that affect not only legal persons but also natural persons, in the sense that they make up a very simple phenomenon: assets become insufficient in relation to liabilities, or else Assets that by their nature are not easily liquid, so that the person loses the ability to convert them into hard cash to pay off their debts. When a company with financial problems faces reality, it has several options; You can refinance your debt, either with or without a co-debtor, obtain a productive second option that serves as a source of income, reduce expenses, or sell some of your assets.However, bankruptcy becomes the only effective option to obtain a reorganization and a respite from the pressure exerted on the company by creditors, who threaten collection actions.
The possibilities that the liquidation or judicial intervention process offers the company, allow the company a new beginning, a "clean slate." In other words, they guarantee that you can retain your properties through the protection offered by the exemptions established by law.
In the US the most common practice is bankruptcy where the liquidation or sale by a trustee of properties of a natural or legal person for the payment of their debts. In practice, nothing is settled and the debtor obtains a relief from the payment of his debts without guarantee, that is, generally, personal loans obtained from the bank, financial or cooperative and credit cards. The amount owed is not relevant. Secured debts are not released and can continue to be paid; they are generally mortgages. A trustee is appointed, who examines the information that the debtor has to provide about his properties to see which properties must be liquidated for the payment of unsecured debts.
Thus, bankruptcy, the liquidation process, or the phenomenon of judicial intervention that has occurred in recent years in this country, is a phenomenon typical of modern societies where the capitalist system dominates. In Costa Rica, people began to talk about judicial intervention in the 1970s, a difficult period for the economy, where there were several bankruptcies of national companies. In other words, there is a very important relationship between the legal response that is given to the prevailing economic situation. In the case of Costa Rica, critical moments have been accompanied by chaotic situations for national entrepreneurs. The Administration by Judicial Intervention process is a bankruptcy preventive mechanism, what tries to prevent is the cause,Unlike what is called a preventive agreement, what it seeks is to avoid its formal declaration.
In law three processes are mentioned: preventive, curative and elimination, within them the judicial intervention process (PIJ) is classified as preventive, since: "It is a debtor, whose patrimonial imbalance prevents him from facing to its obligations, which is why it must proceed to liquidate its assets in the liquidation processes "In this case, the measures that are taken must be considered based on the fact that the debtor has not ceased in the current payment of its obligations, or in the If it had reached that situation, there are still conditions for the search for solutions. Usually mention is made of a “transitory” situation.
In the case of the PIJ, when the existing contractual relationships have to be affected, two situations arise: (a) That the debtor reaches out-of-court agreements with his creditors (b) That if he finds opposition with them, he resorts to the court in the search protection to avoid the liquidation or bankruptcy process.
Bankruptcy: causes and consequences
When analyzing the causes of a crisis situation in the company, different hypotheses must be used. In these processes, external and internal variables are interrelated. For example, different factors could be considered:
Historical: The economic growth models in the country have been accompanied by protectionism processes, which have made it easier for national businessmen to manage their companies: exemptions, protections against international competition, soft credit; not only in the amount of the interest rate, but also in terms of terms, extensions, etc., as well as in relation to the pricing policy. Global changes and the adaptation of new growth models have left many entrepreneurs in different conditions, which makes them much more vulnerable to changes in the environment.
Economic: The new model has placed the national company in a much more competitive environment. Where commercial openness has become a real threat to national entrepreneurs.
Administrative: The administration under a protectionist model, versus the administration in a highly competitive model, is profoundly different, which means that companies that do not adapt in the transition period can have serious problems.
Structural: Family businesses have a highly subjective element that characterizes the administration. Its owners, mostly traditional families who have moved the business for generations, run the business in a very particular way and react to change very differently from non-family businesses, with a more objective and scientific management.
Thus, the causes of the crisis in the company are various and act in a circular manner, while one drags another. The characteristics of the situation that prevails in this type of crisis have to do with:
- Generation of accumulated operating losses. High level of indebtedness Impossibility of meeting cash flow (liquidity problem)
The accumulated losses have to do with the ability to carry out goods and services in the market, with high costs of inputs, with inefficiency, processes, human resources and other aspects related to the general administration of the company, but also with the impact of the environment. For example, an exogenous variable for any entrepreneur is the increase in the prices of inputs that are acquired in the international market, or the impossibility of making their goods in a market where there is high competitiveness as a result of the entry of international companies with a high level efficiency.
On the other hand, the high level of indebtedness is another aspect that is present in the crisis that leads to the PIJ. In many cases, this situation has been caused by the “relative ease” with which some entrepreneurs have access to credit, in the face of a bank that facilitated the debt processes, without really measuring the implications of said debt. It can be affirmed that many of the companies in crisis, in addition to using credit excessively, have diverted it to other purposes; for example the acquisition of land and assets, which at the time of crisis are not easily "liquid".
In an almost automatic way, the two previous problems affect an inability to attend to the cash flow, it is at that moment that the crisis becomes evident, since the suppliers and users are directly affected by the company. This is a consequence of the company having been accumulating losses and debts.
Regarding the consequences, this is a matter that concerns the decision that a PIJ is socially justified, since, regardless of the causes; A company that has a significant number of workers and is considered strategic within the economic and social development of the country, would have greater reasons to enter a preventive process that prevents its liquidation. The same would not happen in the case of companies that do not have a significant role in this regard, despite the fact that in other countries general criteria prevail and even the natural person is considered as a subject of “intervention”, in that sense, it is a request made by a debtor, who can be an individual or marriage or a legal person such as the company.However, banks and commerce accuse lawyers of promoting these loss situations; However, a fairly valid argument is the following, which could well be applied to companies with a high level of indebtedness:
“You visit Consumer Credit Counseling (CCCS) or Friends for Good Credit (ABC) and they tell you to find a“ part time ”and they prepare a budget that you know you will not be able to pay. You have other creditors who are not CCCS clients and they cannot do anything with those other creditors. "ABC" and "CCCS" have a conflict of interest. They represent the interest of your creditors and are interested in collecting as much as possible for your clients, without guiding that, in many cases, you do not even have to pay because the law imposes the responsibility on them who are in the business of lending. If your creditors did not guarantee the debts, the law cannot allow them to harass you indefinitely if you simply cannot pay ”(Cited by ACW Acevedo Colón & Vélez Wampl Taken from internet [email protected])
Returning to the issue of consequences, in a process of total liquidation of the company, which would fall within what is called "elimination", the company disappears, affecting workers, creditors, suppliers, and if it is a strategically important company, It can lead to the formation of monopolies or oligopolies that are inconvenient for the system. This was the situation that was initially foreseen in the case of Corporación Periféricas SA, when it was considered that its probable disappearance would cause a monopoly and monopsony situation in the market (a single buyer), affecting consumers (as long as it can manipulate the price system) and suppliers, inasmuch as it makes them dependent on them and therefore influences them in terms of prices,payment conditions and general supply conditions.
In conclusion, the economic and social environment does not show favorable signs, so as not to believe that difficult situations will come for our companies, and needless to say for many of the families, mainly young couples who have acquired debts. Therefore, the financial and judicial systems must be prepared to strengthen figures that allow temporary support to companies and families, in such a way as to avoid total bankruptcy, due to temporary crises, that with the support and appropriate advice could be surpassed.
