Bankruptcy of any company is a specific, lengthy and complex process consisting of several successive stages. Often, external control is performed within it. A responsible person called the manager is appointed for this procedure. Companies themselves should be well versed in what the purpose of such management is, how the process is conducted, and what the results may be.
Bankruptcy concept
Bankruptcy, otherwise called insolvency, is a process in which, by a court decision, the debtor is exempted from repaying his obligations to all creditors, since he cannot manage to pay payments and satisfy the full amount of counterparties' claims due to his financial condition.
This procedure applies if the debt is not repaid within 90 days. Bankruptcy is realized in successive stages, which include:
- observation, involving an analysis of the existing financial condition of the company, while the property is still at the disposal of the debtor;
- rehabilitation (reorganization), which consists in the formation of a special schedule, on the basis of which all obligations to creditors are repaid successively;
- external management, which implies the conclusion of the company from the crisis, but not by the efforts of the owners, but by the appointed manager;
- bankruptcy proceedings, on the basis of which all property belonging to the debtor is sold, which will make it possible to pay off most of the debt or all debts in full;
- an amicable agreement, moreover, it can be drawn up at any stage, if the company copes with its obligations, so it can continue to function.
The process of external management is considered the most complex and specific.
Process purpose
If the company is declared insolvent, this does not mean that it should be automatically closed. Numerous procedures can be applied to the firm to rehabilitate it. These include financial management.
It is used as part of a bankruptcy organization. Its main goal is the restoration of the solvency of the debtor, as well as the repayment of all debts held by the enterprise. Often, different deferrals of payment, refinancing, or other opportunities are applied at all, on the basis of which the company emerges from the crisis.
When is it used?
The transfer of company management to an external manager is made by court order. The lawsuit is filed by the owners of the enterprise on the basis of a decision adopted at a meeting of shareholders. For this process, there must be a justification presented by the opportunity to lead the company out of the crisis and restore its solvency.
External management has advantages not only for the company itself, but also for its lenders. This is due to the fact that if a company becomes bankrupt, then there is a possibility that its assets are simply not enough to pay off all debts. If she regains her financial condition, then in the future she will cope with her debts.
Process objectives
There are several tasks that can be solved by management. These include:
- restoration of solvency and financial condition of the company;
- repayment of company debts;
- optimal organization of work;
- preventing the company from being declared insolvent.
External management of the debtor begins only after a court decision. And at the same time, it is important to correctly select the manager himself who has the necessary qualifications and knowledge to cope with the task.
How is management done?
The process is implemented in several successive stages:
- Initially, all the powers available to the head of the company are transferred to the arbitration manager.
- He accepts all documents of the enterprise.
- Company management begins, so previously used methods of returning debts may be canceled.
- Often, as part of this procedure, the strategy of the enterprise changes.
- While this process lasts, a moratorium is imposed on debt payments to prevent pressure from creditors.
Financial management is not a mandatory step in declaring a company insolvent, since it is used only if there are appropriate grounds. The decision-making court should receive enough evidence that, with proper management of the company, it is possible to get it out of the crisis and pay off all its debts.
If all the measures taken do not give the desired results, then bankruptcy proceedings will begin immediately with respect to the debtor, which involves the sale of the company's assets at auction.
Planning
When the company passes under the supervision of a specialist, he must evaluate the prospects of applying various measures to improve the state of the company. For this, a special external management plan is formed. It must be approved by an arbitrator. When it is formed, the requirements are taken into account:
- a plan is drawn up within one month after the company is transferred to the manager under external control;
- it should include various measures that are effective and contribute to the restoration of the optimal financial condition of the company;
- the procedure for applying these measures is indicated;
- Includes expenses that the company will have to incur in order to return to normal operation;
- establishes a period of time during which the above measures can be used to improve the financial position of the company;
- justifications are necessarily given for restoring solvency in a predetermined time frame;
- references to various normative acts are indicated, since the work of the manager must exactly comply with the law.
If, based on the results of the actions taken, the company will have no signs of bankruptcy listed in the legislation, then it is considered that the company has restored its solvency.
At a meeting of creditors, a decision may be made that the appointed manager reports on all the results achieved.
How is the manager appointed?
Based on the court decision, a manager is selected. It is he who performs the enterprise management process in order to get him out of the crisis.
When choosing a specialist, his education, qualifications, experience and other parameters are taken into account. The founders cannot contribute to the choice, nor can they influence the activities of the manager.
Manager's Responsibilities
The specialist is endowed with numerous powers, but at the same time he has certain responsibilities. Therefore, it performs the following actions:
- forms a detailed and competent plan;
- implements external management of the organization on the basis of this document;
- Manages the company as a director;
- takes various measures to rehabilitate the enterprise;
- develops various measures aimed at collecting debts from debtors;
- opens a register of requirements;
- accepts documents and company property;
- conducts an inventory;
- opens separate bank accounts with which various financial transactions are performed;
- compiles reports on all completed actions.
Violations by a specialist lead to the fact that he is losing his job, so the management of the company can be transferred to another person.
Manager Rights
In addition to duties, the specialist is vested with certain rights as part of the company management process.
Therefore, he can conduct business, use and dispose of existing assets, conclude peace agreements with other companies, as well as draw up statements on the basis of which he renounces obligations under various contracts. He may legally demand the recognition of various transactions concluded by past management as invalid.
How long does the process take?
It is not allowed to use this method of restoring solvency for an unlimited amount of time. Therefore, external management can be maximally carried out within six months. If there are good reasons, it is allowed to extend this period to 1.5 years.
For certain companies, a different time frame may apply. This includes city-forming organizations, since their closure may adversely affect the social and economic sphere of a particular region or country as a whole. Therefore, for these enterprises, an external management procedure can be carried out for 2.5 years. But for this you need to file a statement with the local administration in court.
There are also certain concessions for farms, as they can get out of a crisis only after the crops have matured and harvested. Therefore, time periods are established on the basis of this feature of activity.
If the work of the company, which is the debtor, was affected by various emergency situations or natural disasters, then the court may decide to extend the management for a year.
What can lenders do?
As part of this department, creditors often do not want to wait too long for the results of the process. Therefore, they can make different decisions:
- participate in the bankruptcy process of the debtor company;
- hold general meetings at which various issues are discussed regarding the activities of the manager;
- make requirements for a specialist appointed by the manager;
- consider and approve the plan drawn up by the appointed citizen, and they can make various additions or changes to this document.
Often, collectors are government agencies that require a bankrupt company to pay off taxes, insurance premiums, and other payments. They are not creditors, therefore, all their requirements are satisfied in the first place.
What measures are taken by the manager?
The specialist should use all possible means to achieve the goal of external management. It is to improve the financial condition of the company. For this, different actions are used:
- change in the direction of the enterprise;
- making adjustments to the production process;
- the closure of divisions and branches of the company that are not profitable;
- collection of receivables in various ways;
- sale of property owned by the company;
- replenishment of the capital with the help of invited investors or founders.
Different events can be used separately or in a complex.
The consequences of the procedure
There can be two control results:
- the company's exit from the crisis, so it returns its optimal financial condition;
- lack of required results, therefore, bankruptcy proceedings begin further.
Other consequences of this process include the following:
- the head of the company can be dismissed or transferred to another position;
- termination of all powers held by the owners of the company;
- cancellation of previous decisions;
- invalidation of previous transactions;
- introduction of a moratorium on debt recovery.
If the company has improved its financial position, then settlements with creditors are made on the basis of a special schedule. It is allowed to extend the term of management if necessary, if there are really positive results of the specialist’s work, but in a short time the company has not returned its solvency.
Finally
Thus, the external management of the company is a complex process that requires a court decision and the use of the capabilities of a professional manager. It is carried out as part of the bankruptcy of the enterprise. It involves the implementation of numerous actions by a specialist.
The main goal of the procedure is to improve the financial condition of the company so that it can cope with all debts and continue to function.