The last option that must be taken in a company is to declare bankruptcy, since after starting its liquidation process it is also the beginning of the legal death of the company.
Bankruptcy in the legal sense occurs when the company cannot pay its bills or when its obligations exceed the fair value of its assets. In any of these situations, a company can be declared legally bankrupt.
Although bankruptcy proceedings do not necessarily result in liquidation, there is a certain stigma attached to companies that have been reorganized through bankruptcy proceedings. Voluntary arrangements that allow the business to continue in existence are generally preferable.
Permanent surveillance
The property custodian protects the interests of creditors during the litigation period.
Types of bankruptcy
There are two main types of bankruptcy: voluntary and involuntary.
Volunteer
In any institution other than a municipal or financial institution, you can initiate a bankruptcy petition on your own behalf. Insolvency is not necessary to formally initiate voluntary bankruptcy, nor does the company have to have incurred one of the legal bankruptcy acts.
Involuntary
Involuntary bankruptcy is started by a stranger, usually a creditor. An involuntary bankruptcy petition can be initiated against a business if one of the following conditions is met:
- The business has past due debts of a value that exceeds its ability to pay and third party liability Creditors who can prove they have aggregate unpaid claims against the business The business has incurred bankruptcy within the four months prior to the initiation of bankruptcy petition.
Liquidation in bankruptcy
A company that has been legally declared bankrupt, voluntarily or involuntarily, incurring one of the acts of bankruptcy, may be liquidated. The liquidation of a failed company usually occurs once the courts have determined that the reorganization is not feasible.
Normally the creditors or administrators of the bankrupt company must file a petition for reorganization. If a reorganization petition is not filed, if a petition is filed and denied, or if the reorganization plan is denied, the business must be wound up.
In this case, the following should be taken into account when facing the liquidation of the company when it enters a bankruptcy process, such as the legal aspects, the priority of the claims and the discharge of the company.
Creditors generally try to avoid, if possible, forcing the business into bankruptcy if it appears to have future chances of success.
Aspects of law
When a business is declared bankrupt, the judge may appoint an arbitrator to take over the many routine tasks necessary to administer the bankruptcy.
The judge, in involuntary bankruptcies, or the arbitrator, in voluntary bankruptcies, may appoint property custodians to take charge of the properties of the bankrupt company to protect the interests of creditors during the period that elapses between the filing of the petition for bankruptcy and the appointment of a trustee or denial of the petition. A custodian of assets is necessary because a long period of time elapses between filing for bankruptcy and the appointment of a trustee.
Once the bankruptcy of a company is decreed, a meeting of creditors must be held in 10 to 30 days from the date. The meeting is chaired by a judge or the referee. Creditors appoint a trustee who not only assumes the function of custodian, but is responsible for the liquidation of the company, the disbursement of funds, keeping the records, examining the claims of the creditors, supplying the information that is required and preparing the final settlement reports.
In essence, the trustee is responsible for the liquidation of the business. Often three trustees are appointed and / or an advisory committee composed of three or more creditors is formed. Occasionally, the court convenes subsequent meetings of creditors, but only a final meeting is required to settle the estate.
Claims priority
It is the responsibility of the trustee to liquidate all the assets of the company and distribute the liquid proceeds among the holders of comparable claims. The courts have established certain procedures to determine whether the claims are comparable.
When distributing the liquidation funds the trustee must maintain the priority of the claims that are specified in the bankruptcy law. The order of priority is as follows:
- The expenses of administration of the assets in the bankruptcy The salaries that the workers have accrued, during the three months immediately prior to the initiation of the bankruptcy proceedings. government subdivision Debts for services received within the three months prior to the date of bankruptcy. Lease payments are included in this category: Claims from secured creditors that receive the proceeds from the sale of assets. If the proceeds of these in settlement is insufficient to satisfy the secured claims, the secured creditors generally become creditors of the unpaid sum. General and subordinate creditor claims.Unsecured or general creditor claims, unsatisfied secured creditor claims, and subordinate creditor claims receive equal treatment in their entirety. Subordinate creditors must pay the necessary amounts (if any) to senior creditors. Preferred shareholders who receive a sum equal to the par value or assigned value of the preferred shares. Common shareholders who receive any remaining funds, which are distributed based on an equality per share. If the common stock capital has been classified there may be priorities.Subordinate creditors must pay the necessary amounts (if any) to senior creditors. Preferred shareholders who receive a sum equal to the par value or assigned value of the preferred shares. Common shareholders who receive any remaining funds, which are distributed based on an equality per share. If the common stock capital has been classified there may be priorities.Subordinate creditors must pay the necessary amounts (if any) to senior creditors. Preferred shareholders who receive a sum equal to the par value or assigned value of the preferred shares. Common shareholders who receive any remaining funds, which are distributed based on an equality per share. If the common stock capital has been classified there may be priorities.
From this list it can be seen that the claims of the holders of certain obligations have higher priority than the claims of the secured creditors.
Bankruptcy proceedings, salaries, taxes and recent service fees are paid first. The secured creditors then receive the liquidated participation value. General and subordinate creditor claims, which include preferred and common shareholder claims, are then satisfied.
Company discharge
After the trustee has liquidated all the assets, distributed the liquid product to satisfy all the verifiable claims in the proper order of priorities and made a final accounting, the discharge of the bankrupt company can be requested. This means that the court releases the company from all verifiable debts in bankruptcy with the exception of those that the law stipulates as the entity's responsibility to third parties.
