Bankruptcy (economic insolvency) of an enterprise should be understood as its inability to finance current operational activities. In addition, the structure is not able to repay urgent obligations due to excess obligations over the property complex or unsatisfactory balance sheet structure. In our article, we will talk about the internal and external causes of bankruptcy. Consider its options, a list of risks and the beginning of the official procedure.
Legal framework
The main legal act in our case is the Federal Law of 10.26.2002. No. 127- On Insolvency (Bankruptcy). It is through him that the concept and causes of bankruptcy are established. The law regulates the conditions and procedure for the implementation of measures related to the prevention of economic insolvency, as well as the rules for the implementation of bankruptcy procedures existing today and other relations arising in the event of a debtor's inability to fully satisfy creditor claims. It is worth noting that the action of the aforementioned Federal Law extends to almost all legal entities. The exceptions are state institutions, religious associations and political parties. In addition, the law is an instrument for regulating relations related to the economic insolvency of citizens, which include individual entrepreneurs.
According to the Federal Law, under insolvency it is necessary to consider the debtor’s inability recognized by the arbitration court to fully satisfy the creditors' claims for monetary obligations, as well as to fulfill the obligation related to the repayment of payments. It is in the interpretation that the main causes of bankruptcy are given. It should be noted that the case of economic insolvency of legal entities may be initiated by an arbitration court if the claims against the debtor in the total amount are not less than 100,000 rubles, actual obligations or obligations were fulfilled by him within three months from the moment when they should be carried out.
Causes of bankruptcy
Bankruptcy is nothing but a consequence of the imbalance of the mechanism of reproduction of capital of a structure that is distinguished by its economic nature. You need to know that the result of inefficient financial, investment and pricing policies is precisely insolvency. These causes of bankruptcy can cause it in a massive way, which in any case will entail serious negative social consequences.
In this regard, at the state level, the responsible management bodies have developed a certain mechanism to protect companies from collapse. We are talking about the legal regulation of economic insolvency, protecting the interests of participants in the process itself, measures to support insolvent firms by the state in order to preserve promising manufacturers of commercial products, maintaining a register of insolvent companies, external management, as well as reorganization.
Classification of causes
It is worth noting that the types and causes of bankruptcy are interrelated categories. That is why it is advisable to consider the classification and analyze the data. So, the following points are among the reasons:
- External causes of bankruptcy. It is worth adding that in another way they are called objective. They are a consequence of the general economic situation in the country. These causes of bankruptcy are either impossible or extremely difficult to eliminate at the level of a separate company structure. Nevertheless, they should be taken into account in the process of forecasting and planning finances of the production and economic activities of the company. Among the objective reasons for economic insolvency it is important to highlight the unstable financial and political situation in the country, the crisis of payments, serious inflation, slowdown in the circulation of means of payment, imperfection of the regulatory and legislative framework, deficiencies in the functioning of the financial and credit system, imperfect monetary and tax policies of the state, unfavorable conjuncture in the market and so on.
- Internal causes of bankruptcy. It is necessary to add that in another way they are called subjective. They arise directly from the economic activity of the company and act as a result of its unsatisfactory work. Such reasons for bankruptcy of organizations, it is advisable to include unreasonably high costs for the processes of production and sale of the product; a decrease in its quality and, as a result, a low level of demand among consumers; long production cycle; inefficient use of resources (the main ones among them are financial); decrease in sales and production; the growth of the external type of debt to other companies and the state budget; low degree of forecasting and planning; unreasonable increase in receivables; insufficient staff qualifications.
Options for Economic Insolvency
Depending on the reasons for the bankruptcy of the company, it is customary to distinguish the following options:
- Real bankruptcy. It is necessary to understand it as the complete inability of the legal entity to restore solvency within the established time frame and bring its own financial indicators back to normal. Lack of solvency suggests that the capital previously used by the company has been lost. With a catastrophic level of losses, the legal entity is no longer able to continue economic activity. The only legal way to get out of this situation is to declare bankruptcy through appropriate legal procedures.
- Technical insolvency. A similar situation occurs when the state of insolvency of a legal entity or a legal entity arises due to a bankruptcy reason such as a significant delay in receivables. With technical insolvency, the total assets of the company are significantly higher than its financial obligations, however, at the same time, accounts payable to legal entities are less than accounts receivable.
- Intentional insolvency is a form of criminal bankruptcy. Its essence is that the insolvency and insolvency of a company or individual entrepreneur are simulated. In other words, the lack of cash is not obvious. For imitation, various subsidiaries and shell companies are formed, to the account of which money is transferred.
- There is criminal insolvency, the types of which are very clearly dealt with in the Criminal Code of the Russian Federation. Article 196 of the Criminal Code explains intentional bankruptcy, and article 197 talks about fictitious insolvency. Article 195 of the Criminal Code is devoted to acts of an unlawful nature.
Decision-making
So, depending on the reasons for the bankruptcy of organizations, you can determine its variety. After that, it is advisable to make a decision. So, the action can be implemented:
- The company itself on a voluntary basis.
- In accordance with the conclusion of the Arbitration Court.
- Federal Office for Economic Insolvency Affairs under the State Property Committee of the Russian Federation.
Start Bankruptcy Procedure
After finding out the reasons for bankruptcy and making the appropriate decision, it is advisable to proceed with the procedure itself. It begins by filing an application on the recognition of the debtor enterprise as economically insolvent. It is important to note that it can be submitted by the company itself, which decided to declare itself as such voluntarily, and the creditor. Further, the arbitral tribunal considers the validity of the application. It is important to know that the insolvency procedure includes a number of steps. Consider the first two:
- Supervision takes place immediately after establishing the cause of bankruptcy of a bank or organization. This stage is needed to ensure the safety of the property complex of the debtor, to analyze its condition in terms of finances, to create a register of creditor claims and to organize the first meeting of creditors. It must be borne in mind that the observation period cannot be more than 7 months from the date of acceptance of the application from the company or creditor.
- Financial recovery should be considered as a procedure designed to save the company from liquidation. First of all, it is aimed at covering debts and restoring solvency. To do this, debt restructuring is carried out, as well as a schedule for their repayment, which is mandatory approved by the arbitral tribunal. At this stage, the manager is not entitled to make decisions that may lead to an increase in the debt of the company. He undertakes to coordinate his own actions and ideas with a meeting of creditors. It is worth considering that this stage can drag on for up to two years.
External management and bankruptcy proceedings
The third stage after identifying the causes of bankruptcy (insolvency), making an appropriate decision, monitoring and financial recovery is external management. Thus, according to a creditor's claim, the arbitration tribunal may determine the external manager of the collapsing firm. It is important to know that for him this position is relevant for a period not exceeding eighteen months. Upon the implementation of such management, the debtor may not be charged interest or penalties on his debts. Article 101, clause 6 of the Federal Law “On Insolvency (Bankruptcy)” indicates that the external manager does not have the right to dispose of the deposited property of the debtor, which is the depositor in accordance with the escrow agreement (in other words, escrow).
The fourth stage of the procedure is bankruptcy proceedings. It begins if the arbitrator decides: there are no chances to restore the solvency of the enterprise in the process of rehabilitation procedures, or these procedures in practical terms have not proved their own targeted effectiveness. This stage, as a rule, is organized to proportionately satisfy the claims of creditors related to the repayment of accumulated debts. It is worth noting that the following items may be additional tasks of this stage: focus on liquidation of the company, as well as search and subsequent accumulation in the bankruptcy estate of the entire property complex of the legal entity that is the debtor. The stage may take up to a year and a half.
Simplified Insolvency Procedure
From the foregoing, it can be concluded that the bankruptcy procedure of a company is a very complex and lengthy process. However, at present, there is also a simplified version that allows you to implement all the necessary items in a short time, as well as with minimal financial losses. A simplified procedure of economic insolvency begins immediately after identifying the causes of bankruptcy of the bank, organizing it and making the appropriate decision on the part of the creditor or the structure itself.
To begin with, a legal entity is liquidated. After making certain entries in the Unified State Register of Legal Entities, an official message is published regarding the liquidation of the enterprise in the media. Two months after publication, it is advisable to draw up an interim liquidation balance sheet of the structure, after which the liquidator of the company, due to the direct indication of part 2 of article 224-FZ “On insolvency (bankruptcy)”, is obligated to notify creditors that there are signs of economic insolvency, and also file a arbitration court claim for bankruptcy of the company.
Examination of the application in a simplified procedure
The arbitral tribunal considers the validity of the application, and if the evidence is weighty, the debtor is declared bankrupt. The following is a bankruptcy proceeding procedure, which lasts approximately six months. In the case of a simplified procedure of economic insolvency, there are no stages of observation, financial recovery and external management. This approach significantly reduces the time period for the procedure.
Despite the absence of several stages, the simplified insolvency procedure of the organization remains a very complicated and complex process, during which it is impossible to do without the help of a professional, that is, a lawyer. It is worth noting that most managers are corny can not cope with the process on their own. That is why legal support for economic insolvency is increasingly being outsourced.
Conclusion
So, we examined the external and internal causes of economic insolvency, bankruptcy options and their features, a list of risks, as well as the beginning and stages of the official procedure. In addition, we considered a simplified process. It is worth noting that the so-called simplified bankruptcy has obvious advantages for the debtor enterprise. It is advisable to include the possibility of continuing the activities of the company until the liquidation of the legal entity, as well as protecting the property complex of the organization from creditors.
Nevertheless, the initiator of economic insolvency must be able to protect himself from accusations of a fictitious or deliberate procedure (its distinguishing features are discussed in the article). In addition, the package of necessary documentation is very large. It must be borne in mind that it is categorically prohibited from making errors. That is why it is easier and more reliable to choose a structure whose lawyers will prepare all the papers and represent the debtor company in court. Today, legal entities operating on the territory of the Russian Federation do just that.
It must be remembered that usually bankruptcy is preceded by a whole streak of financial difficulties and, as a consequence, the deterioration of the financial condition of the company. In principle, economic failure can be predicted in advance and necessary measures can be taken to prevent it. Today, there are many methods for predicting the financial condition of a structure from the point of view of its potential bankruptcy.
First of all, it is an assessment of possible insolvency by analyzing certain parameters of the company’s activities, which reflect the financial condition in reality, as well as the threat of bankruptcy in future periods. It is worth considering that the analysis is based on a comparison of actual indicators with normative (planned) for a specific time period. Actual calculation of possible shortcomings in the dynamics. If in the process of analysis an increase in the deviations of a negative nature is identified, it will be about the danger of bankruptcy.