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What are the terms of the bankruptcy procedure?

Updated: May 9

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Publication date: 23.04.2024


Failure in business is common and even normal, and bankruptcy proceedings affect many new and experienced companies every year. The term bankruptcy is frequently used, but its content is not always sufficiently understandable and clear. Bankruptcy has certain terms set by laws of the respective jurisdiction.


What is bankruptcy?


The scope of bankruptcy is general, therefore both natural and legal persons can be declared bankrupt. A legal entity can be declared bankrupt even if it has been deleted from the relevant register or liquidated. 


Basically, bankruptcy is a liquidation procedure to realize the debtor's assets and distribute the proceeds to creditors.



Buncrupcy of legal entity


  • A legal entity cannot be deleted from the register and liquidated without closing the financial statement. Creditors' claims must be satisfied.

  • Liquidate of a legal entity means in the law established procedures, announces a notice on the termination of the company's cactivity and the initiation of liquidation.

  • Basically, the bankruptcy procedure is started as part of the insolvency procedure.


Insolvency procedure


Insolvency proceedings are established in cases specified by law, for example, if the debtor is unable to pay his obligations for a certain period of time, at the initiative of the debtor or creditor.


If insolvency is declared, the debtor's company is liquidated and the funds obtained from the seized property and assets are returned to the creditors. The bankruptcy procedure is usually initiated by the insolvency administrator, who later submits an application to the court for the completion of the insolvency process due to the completion of the bankruptcy procedure.


The bankruptcy procedure continues until all the debtor's property is sold, except for the property that may not be subject to enforcement. The legislator has determined terms within the debtor's property must be sold.


How avoid bankruptcy?


Bankruptcy of the company can be avoided using the company reorganization procedure or the debt restructuring procedure. These are also insolvency proceedings.


Debitors assets


The debtor must transfer his funds to satisfy the creditors' claims. It is in the interest of the debtor to use the insolvency procedure to promote and restore his solvency.


The purpose of the bankruptcy procedure is to satisfy the creditors' claims with the debtor's assets, by transferring the debtor's assets or carrying out the rehabilitation of the debtor's company.


Creditors claim


The creditors must present their claims against the debtor. Creditors notify the liquidator or insolvency administrator of their claims against the debtor within a certain period. The content, basis, and amount of the claim shall be indicated in the claim, and supporting documents shall be attached to it.


Once bankruptcy proceedings have been formally initiated, creditors can no longer take individual steps to recover their debts. In the bankruptcy procedure, the interests of the group of creditors are protected.


Conclusion


Regardless of role in the bankruptcy procedure, knowledge of the rights and obligations of both the debtor and the creditor in order to achieve the best possible result. That will help to manage funds more successfully, not to lose the loaned investments, and to preserve the accumulated assets. In each country or jurisdiction may have slightly different terms for insolvency and bankruptcy procedures, but the basics are relatively similar.



 

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