Bankruptcy scares entrepreneurs. Many see only negative aspects in this procedure. In fact, a statement of your own financial insolvency will help save the company from a lot of trouble. Through bankruptcy, you can improve the organization’s economy or pull it out of debt bondage. Our material will consider the main provisions of the Federal Law "On Insolvency (Bankruptcy)".
Bankruptcy: what is it?
Financial insolvency is the debtor's inability to satisfy the financial claims of the creditor. According to the Law on Insolvency, such inability must be confirmed by the arbitral tribunal.
It is important to understand that bankruptcy is not a one-time establishment of a certain status or physical condition. We are talking about a lengthy lawsuit, the purpose of which is not to close, but rather, save the enterprise.
The concept of financial insolvency is closely related to the category of insolvency. It can be due to various reasons, but it always comes down to the fact that a person gains the status of a non-transactional one. According to the Law on Insolvency, insolvency has a relative and absolute form.
The relative condition assumes that the debtor does not have sufficient funds to make the payment. In this case, the conflict with the creditor is resolved by simple civil methods, for example, holding the debtor accountable. Absolute insolvency means a complete lack of finance from the debtor. In this case, bankruptcy sets in.
Subjects of bankruptcy
According to the Federal Law of the Russian Federation "On Insolvency", the circle of persons participating in the bankruptcy procedure is strictly limited. These persons include:
- debtor;
- arbitration manager;
- authorized state bodies;
- representatives of the executive branch;
- person engaged in reorganization (financial rehabilitation).
When initiating bankruptcy proceedings, all data on the debtor is entered in a special register of persons with financial insolvency. The main duty of the debtor is to comply with the law and obey the legal requirements of managers.
The manager himself is obliged to conclude a contract with the debtor. If it causes harm to the organization when trying to improve it, the debtor will not have to present and demand anything. According to the Law "On Insolvency", the role of authorized state bodies is to control the correctness and legality of all implemented actions.
Bankruptcy Principles
The process of bankruptcy of an organization is based on a number of ideas, principles and principles enshrined in Chapter 1 of Federal Law No. 127-FZ On Insolvency. Here is what should be noted here:
- The principle of an individual approach. Bankruptcy is far from always the sale of organizational property and the liquidation of an enterprise. It all depends on the debtor himself, or rather, on his desire to correct the situation.
- The principle of optimality of terms. The procedure should be completed in a short time. Artificial lengthening of the process will only worsen the situation.
- The principle of accounting for industry specifics. According to the Federal Law "On Insolvency", the bankruptcy procedure is always the same. It contains many different stages and stages. However, the options for their use depend entirely on the industry specifics of the debtor.
Above were identified organizational, that is, the most basic ideas and beginnings. It should also be called the principle of efficiency, a variety of forms of bankruptcy, cost sharing, scientific orientation, legality, insolvency as the basis of the whole procedure, the priority of diagnosis, responsibility, liability and much more.
Reasons for Bankruptcy
Fear of bankruptcy is not worth it. You only need to know about this phenomenon and try to prevent it. That is why every company, company or individual entrepreneur should be acquainted with the main reasons leading to financial insolvency. Here are the highlights:
- low level of current assets and the presence of serious problems with the properties of financial flow;
- insufficient amount of own funds and refusal of banks to provide financial support;
- harsh competition and gross errors in determining the value of products;
- lack of an effective budget and strategic planning system;
- general degradation of the financial position of the organization.
How to prevent the degradation of your own organization?
- Firstly, you should fully interact with your rivals in business. Competition must be legal, sometimes even contractual. The desire to take a better place does not always lead to positive consequences.
- Secondly, it is necessary to conduct an audit in your own organization in a timely manner. This is a financial audit procedure that helps to identify the main weaknesses and problems in the economic sphere of the enterprise.
Bankruptcy grounds
In accordance with the provisions of Federal Law No. 127 "On Insolvency (Bankruptcy)", there are several reasons for assigning a bankrupt status to a debtor. There are four reasons - 4 statements from different persons. To initiate the appropriate case by the court, only one document will be sufficient.
A statement may be made by the debtor. At the same time, recent changes in the legislation make filing a document not a right, but an obligation of an impoverished person. For failure to fulfill this obligation, the culprit will be held responsible, and the organization’s recovery procedure will be called into question.
This rarely happens, but sometimes a creditor submits a lawsuit. There are times when a person who is interested in repaying the debt simply cannot stand it and wants to leave the wretched debtor as soon as possible. For this, the creditor independently files a claim.
The document may be generated and filed by the prosecutor. As you know, the prosecutor’s office is engaged in the search and prevention of crime. Nothing prevents an employee of this system from filing a bankruptcy petition for a person. The same applies to tax authorities. For example, auditors found that, in addition to financial insolvency, an enterprise does not expect anything else. They transmit the data to the tax office, and that, in turn, files a lawsuit.
Thus, the grounds for initiating bankruptcy proceedings are many. Not only debtors and creditors, but also third parties are capable of starting the appropriate procedure.
Observation
According to Federal Law No. 127 "On Insolvency", the entire bankruptcy procedure is divided into five stages. The first stage of the process is observation. It is implemented in order to ensure the safety of the property of the debtor, as well as to analyze its financial condition. Monitoring continues from the moment of filing the insolvency application until the beginning of the direct consideration of the case.
The consequences of the observation can be called the following points:
- suspension of the production of the debtor at the request of the creditor in connection with the recovery of money from a bankrupt;
- suspension of execution of documentation on property recovery, as well as the removal of arrests from the property of the debtor in connection with the adoption by the arbitral tribunal of a special decision on the introduction of a monitoring procedure;
- a ban on the seizure of property of a debtor acting as a unitary enterprise;
- a ban on the payment of dividends, share income, as well as the inadmissibility of the distribution of profits between the founders of the debtor organization.
According to the provisions of Law No. 127-FZ "On Insolvency (Bankruptcy)", supervision is necessary for the preliminary determination and analysis of the financial position of the debtor. At this stage, the question of whether the organization will need to be rehabilitated will be carried out or it will be meaningless, and the only solution will be liquidation.
Remediation (financial recovery)
If during the observation it was decided to move to the second stage, the debtor organization will be subject to reorganization. In accordance with Law No. 127 “On Insolvency”, reorganization refers to one of the stages of bankruptcy proceedings applied to a debtor to restore its solvency and subsequent repayment of debts in accordance with a plan approved by the creditor.
In the course of financial recovery, the management board of the debtor organization is limited at the disposal of its own funds, but continues to fulfill its powers. The maximum rehabilitation period is two years. Based on the results of the review of the recovery results, the arbitration judicial commission adopts one of the judicial acts: is it a decision to terminate bankruptcy, or a decision is made to introduce external management.
Thus, reorganization, that is, financial recovery, is an effective measure to restore the solvency of an organization. Moreover, the procedure itself is passive in nature, as it is applied to the debtor independently. Outsiders do not interfere in the process of rehabilitation.
External management
The third step in the bankruptcy proceedings is the introduction of external management. According to Law No. 127 "On Insolvency", the goal of external management is the financial recovery of the organization with the direct participation of third parties.
The main difference between external management and the reorganization procedure is non-independence. If during the reorganization, representatives of the arbitration court and the tax inspectorate only advised the debtor what to do, then with the external management of the organization all the powers are assumed by outside managers. This is stated in the Federal Law "On Insolvency".
The law gives external managers the same powers as direct representatives of the debtor organization. To implement its functions, an external governing body forms a management plan. He prepares all the necessary documentation, asks for the requirements of the lender, and then proceeds to improve the organization. The main goal of the manager is to pay off all debts of the company for 18 months. The new head of the organization has the following powers:
- assignment of rights of the debtor;
- reorganization of the organization;
- closing unprofitable financial flows;
- increase in the authorized capital of the debtor at the expense of participants and third parties.
Based on the results of external management, 4 options for further developments are possible:
- termination of bankruptcy proceedings in connection with the satisfaction of the claims of debtors;
- decision to extend the term of external management;
- definition of refusal to approve a management report from outside;
- the decision to declare the debtor bankrupt and the subsequent opening of bankruptcy proceedings.
The last option related to bankruptcy proceedings will be studied in detail below.
Bankruptcy proceedings
According to the Federal Law "On Insolvency (Bankruptcy)", bankruptcy proceedings are the final stage. The procedure itself lasts a year, but there is the possibility of its extension for 6 months.
With the opening of the competition, creditors stop charging interest, fines and penalties for non-payment of debt. They present all their claims to the debtor organization. The bankruptcy manager studies and evaluates the debts of the enterprise. After that, he hires an appraiser and conducts an inventory of the property of the debtor. Simply put, all that can be sold goes to a bankruptcy estate - the amount of money that will be offered to the creditor to pay off the debt.
Formed bankruptcy estate can cover only part of the debt. If the debtor organization cannot satisfy the creditor's claims, then it will officially become bankrupt. This is stated in the Federal Law of the Russian Federation "On Insolvency".
Settlement agreement
At the last stage of bankruptcy, a special document is called a settlement agreement. It spells out the conditions that the debtor and the creditor present to each other. This may be a delay in fulfillment of obligations, reduction of payments, exchange of creditor claims for shares or shares in the authorized capital of the debtor organization, etc.
The agreement can be concluded at different stages of the bankruptcy procedure - this is not prohibited by anyone. The arbitration court verifies the conditions that the parties presented to each other, and then draws up the contract as legal.
According to the provisions of the Law "On Insolvency (Bankruptcy)", the conclusion of a settlement agreement is the most independent and independent procedure of all of the above. The debtor and creditor shall independently, without the intervention of third parties, determine all the necessary requirements and conditions. If the agreement is not reached, the arbitration court will again enter the case.