Bankruptcy of any company is a complex and lengthy process consisting of several stages. Each stage has its own nuances, and during the procedure it is possible to draw up a settlement agreement in bankruptcy. It is signed between the direct debtor and the creditors if they can find a compromise solution. Not only the debtors themselves are interested in signing such a document, but also lenders who want to return all their funds.
Process characteristic
At any stage of recognition of a citizen or company insolvent, there is the opportunity to sign a settlement agreement. It is formed not only with private creditors, but also with state bodies if taxes or other obligatory payments are not paid on time.
A bankruptcy settlement is considered the optimal solution for all parties to this procedure. This is due to the fact that it is signed only after the creditors and the debtor have reached a certain compromise.
Objectives of the procedure
With such an agreement, important goals are achieved:
- time is given to the debtor to cope with its obligations, therefore, installment plan or debt restructuring is usually executed;
- In any case, creditors are able to repay all their invested funds, since if bankruptcy proceedings are to be used, it is likely that the debtor’s assets are simply not enough to pay off all debts;
- the company after repayment of debt can continue to operate further without different restrictions.
In practice, the conclusion of a settlement agreement in bankruptcy is quite rare. This is due to the fact that it is difficult for the debtor to offer the optimal solution to the existing problem for lenders. Moreover, any enterprise wants to comply with its own interests. The decision to sign such an agreement is made only by creditors who discuss all the advantages and disadvantages of the process at the general meeting. In this case, an additional vote is taken, on the basis of which a decision is made.
Nuances for individuals
Individuals have the right to declare bankruptcy if they have large debts that they cannot handle for various reasons. They can also sign a bankruptcy settlement agreement with creditors. The process features include the following:
- usually, the lenders themselves offer the citizen different options for signing this agreement, since in most cases a person does not have sufficient property to pay off all debts, therefore bankruptcy proceedings are considered ineffective for banks or other lenders;
- banks under such conditions offer restructuring or credit holidays;
- government agencies also offer the opportunity to return taxes or other mandatory installment payments;
- such actions lead to the fact that the burden on the citizen is reduced, so he can cope with small monthly payments;
- the debtor may accept or refuse to sign the agreement;
- if he makes a positive decision, then a document is necessarily signed between the two participants, after which he is approved by the arbitration court.
Often, citizens who do not have property refuse to sign this agreement. This is due to the fact that it is more profitable for them to sell all available values for partial repayment of debt. The remaining debts after bankruptcy proceedings are written off, so a person is exempted from payments with minimal negative consequences.
Company specifics
Most often, the insolvency procedure is conducted for different companies, which due to the low profitability of the business cannot cope with high payments on loans, taxes or various contracts with counterparties.
But even with firms, a settlement can be used as a bankruptcy procedure. It is signed only upon reaching a compromise with creditors. The initiator is usually the debtor himself, as for companies recognition of insolvency leads to many negative consequences.
When can it be made up?
This agreement can be signed by the debtor with creditors at any stage of bankruptcy. In this case, certain conditions must be met:
- in bankruptcy law, a settlement agreement should include information on all debts prescribed in the register;
- each party must comply with the terms of the document, therefore, unilateral refusal of existing obligations is not allowed;
- such an agreement is signed exclusively on paper, therefore it must be in writing;
- prior to signing, agreement with each creditor is required;
- no violation of the rights of any creditor is allowed;
- by agreement, equal opportunities should be formed for paying off all existing debts;
- there should not be any advantages for certain lenders;
- if a third party involved in this process is identified, then its interests should be taken into account additionally in the document.
The terms for which this agreement is formed are set by direct creditors. They affect all procedures related to insolvency. They can decide on the adoption of reorganization, supervision, settlement agreement bankruptcy. Observation allows you to establish what is the financial condition of the debtor. If there is an opportunity for its improvement, which will lead to the restoration of solvency, then after this an agreement may be drawn up.
Who can be the initiator?
The need to draw up such an agreement may be recognized by the debtor or creditors. Each situation has its own characteristics:
- the debtor can offer the creditors a settlement at the stage of financial recovery, when it becomes likely that the company will really be able to easily manage its debts, so it can repay the debts in the future;
- this option is often offered even by the bankruptcy trustee, who then directly participates in the signing of the contract by the two parties, and can also offer different options to achieve an agreement that is beneficial for each participant;
- lenders can also decide on the regulation of a financial dispute by forming an agreement, but in this case it is required that most of the lenders vote for such a decision.
This document is signed by the chairman of the board of all creditors. Additionally, a signature is made by the representative of the company or by the individual himself, who is the debtor. The document is examined and signed by the administrator appointed by the court.
Who is involved?
The participants in this process are:
- direct debtor acting as a company or private person;
- lenders;
- guarantors of the debtor, who assume its obligations and guarantee a refund;
- government representatives;
- third parties.
All of these participants must agree to a settlement in a bankruptcy case. If there are any obstacles, the process may be delayed.
Document Content
Amicable settlement is rarely drafted. This is due to the fact that the debtor really must have certain prerequisites for improving the financial condition, which is quite rare. In the event of bankruptcy, financial recovery, amicable settlement or other positive results are possible only if there is a good demand for the goods or services sold. Additionally, the company should have a lot of property, through the sale of which you can get funds to pay off most of the debts.
If a decision is made on the formation of an agreement, then the information must be entered into the document:
- the procedure for satisfying creditors' claims;
- the time period during which lenders will be able to receive their funds back;
- possible relief provided by restructuring, credit holidays, installments, or other opportunities to reduce the burden on the debtor;
- if there are requirements that are not included in the schedule, then they are written off in full;
- creditors must agree that they will receive funds only partially, since even with the introduction of bankruptcy proceedings there would not be enough money from the sale of property to pay off debt;
- The interest rate on payments is indicated;
- the entire amount of the debt for obligations is entered in the document.
Additionally, the agreement indicates the period during which payments will be charged.
Advantages of the agreement
The use of this method of resolving a dispute between a debtor and creditors has many advantages. In bankruptcy, a settlement is rarely drawn up. The positive process parameters include:
- all parties can reach agreement and set goals;
- save time and effort of each participant;
- no legal costs to spend;
- the debtor is not declared bankrupt; therefore, it may continue to operate in the future, obtain loans or hold managerial positions in other companies;
- the debtor saves all available property that was used as collateral.
Thus, in the event of bankruptcy insolvency, a settlement is a positive stage for each participant in this process.
How is an agreement signed?
The procedure is considered simple and understandable, as sequential actions are performed:
- An application is made to the arbitration court on the need to form a settlement agreement;
- additional documents are attached to it, which include the draft agreement, the minutes of the meeting of creditors, the register of claims and a list containing all the debts of the debtor;
- if there are creditors who object to the drafting of the agreement, their written explanations must be available;
- the application and the agreement are considered by the arbitration court, after which it makes a decision;
- the decision will be positive if the debts of the first and second stage have already been paid.
The decision comes into force from the day the agreement is approved by the court. All participants in this process are required to execute it.
Conclusion
Thus, in bankruptcy, a settlement is rare. This process has many advantages for all participants in the process. Approved only by the arbitral tribunal upon the satisfaction of certain requirements.
It is through the drafting of this agreement that the debtor manages to avoid bankruptcy.