Bankruptcy is understood as the inability of the debtor to satisfy all claims of creditors and to fulfill his obligations to pay any payments. An insolvency court recognizes insolvency; only after a court has ascertained a state of insolvency is recognized.
The bankruptcy procedure itself suggests that there are several persons who influence the fact of insolvency - these are the debtor and creditors. The debtor can be either an individual, for example, an individual entrepreneur, or a legal entity that is not able to satisfy the requirements of creditors to pay monetary obligations within the specified period. Creditors may be persons who are entitled to claim from the debtor for these monetary obligations. Thus, the bankruptcy procedure is regulated by the federal law “On Insolvency”.
To begin with, the bankruptcy procedure should be considered by the arbitration court at the location of the debtor for the legal entity and at the place of residence for the individual. Then the bankruptcy procedure includes several points - supervision, external management, financial recovery, bankruptcy proceedings and settlement. The objectives of the bankruptcy proceedings are to repay the debtor to the creditors and restore the conditions necessary for the introduction of their business.
Under the supervision of understand the procedure that applies to the debtor in order to ensure the safety of his property. Thus, an analysis of his financial condition is carried out, a register of claims is compiled, and the first meeting of creditors is held. So, the bankruptcy procedure , namely its first part - observation, is a preparatory procedure. It is here, before liquidating the enterprise, it is necessary to begin with giving time to collect the necessary documents, notify interested parties, and prepare an analysis of their financial condition. Surveillance is a mandatory procedure.
In a market economy, and even more so in a global crisis, the likelihood of bankruptcy is a more developing component of the enterprise. The probability of bankruptcy can be avoided from the moment it is identified. There are many methods that can identify the probability of insolvency, and then carry out its assessment. There are a number of factors that indicate a difficult financial situation. They need to be controlled:
- if the company has an unstable profit;
- if the profitability of products or services is low;
- if liquidity ratios are low;
- if there was a sharp drop in the value of assets or securities;
- if the borrowed funds were more used and exceeded the recommended level of return on assets;
- if liquidity ratios are low;
- if the return on investment is reduced;
- if the general factors of commercial risk increase.
Thus, if these factors exist in the enterprise, then this indicates the likelihood of bankruptcy.
After the monitoring procedure, the arbitration court may introduce such procedures as financial recovery and external management, which can be applied only to individuals of peasant farms.
In general, bankruptcy factors can be determined using both external factors and internal factors. Moreover, internal factors may depend on the work of enterprises, but an external factor can be exerted by an enterprise only slightly or not at all. External factors are purchasing power, political stability, level of culture, development of technology and science, international competition.
At the end of its activity, the bankruptcy procedure considers a settlement agreement between bankruptcy creditors and authorized bodies.