Insolvency or the so-called bankruptcy is the inability of the debtor to pay off his debts to the borrower within the prescribed period, as well as the inability to satisfy the requirements of the budget and extra-budgetary funds.
According to the Federal Law on Bankruptcy, only an arbitration court can declare insolvency on the basis of a statement by creditors or the borrower himself. Bankrupt can only be a legal entity or any organization engaged in commercial activities, except for state-owned enterprises, a pension or charitable foundation.
The Federal Law (Federal Law) on the bankruptcy of legal entities provides for the liquidation of an enterprise only after an attempt to restore the solvency of a legal entity through preventive measures. The purpose of these procedures, first of all, is settlement with all creditors and the budget, and secondly, the full restoration of solvency.
Actions to prevent bankruptcy make sense only if the debtor company agrees and can be initiated by creditors, government agencies, etc. According to the Federal Law on Bankruptcy, the following are considered grounds for filing an application with the arbitration court:
- the presence of arrears with a period of not less than three months;
- the inability of the organization to pay its debts in the near future.
The debtor is obliged to notify all his creditors of the conduct of preventive measures. If all the requirements are observed, the judge within five days from the date of filing considers the application and makes a final decision.
First, to help the company in restoring its solvency, the arbitration court introduces a manager who performs the supervisory and control functions. A month later, the manager provides a report on the work done.
If necessary, legislative norms are edited according to current trends and standards. So, for example, changes were introduced in the Federal Law on Insolvency (Bankruptcy), suggesting the expansion of the list of measures aimed at satisfying the requirements of creditors.
The maximum term for a bankruptcy hearing should not exceed seven months. Based on the studies, a decision is made to declare the debtor bankrupt. A measure such as bankruptcy proceedings, financial recovery or external management may be introduced . Moreover, at each stage, an amicable agreement can be concluded by mutual agreement of the parties with full settlement of all obligations with creditors.
The main task of the arbitral tribunal is not the announcement of the liquidation of a legal entity, but in accordance with the Federal Law on Bankruptcy, providing assistance to an enterprise in a difficult situation. Liquidation is carried out only after all of the above activities have not brought the proper result. Then the activities of the manager will be aimed at meeting the requirements of creditors and state bodies. The consideration of the case may be postponed on the basis of the petition of the debtor, if in the near future he plans to pay off all his debt.
As a rule, the introduction of external management gives hope for a significant effect. After a month, the external manager should provide a report on the work done and information on the prospects for further activities. After full satisfaction of the requirements of creditors and the budget, the prospects of the legal entity, that is, the feasibility of its existence, are assessed. The arbitration judge shall render a verdict: either it states the impossibility of further activities, or fixes a positive tendency of temporary management and allows the legal entity the opportunity to continue its activities with renewed vigor.