External management as a bankruptcy procedure is one of the existing ways to avoid declaring an organization insolvent and restore solvency. Based on the law on external management, Articles 93-123 of Law No. 127 of the Federal Law, if the procedure is successfully carried out, it is possible to get the organization out of debt and return it to its previous state. The main thing is that the introduction of external management is carried out by an authorized person who has a strategy and plan for further changes in the company. An external management plan in bankruptcy is resorted to only in cases where the situation can be changed.
What is external management and why is it carried out?
External bankruptcy management is a financial insolvency procedure that is carried out to restore the solvency of a legal entity. To overcome the crisis, an external management plan is being developed.
During the procedure, the following activities are carried out:
- production is repurposed (for example, a company begins to produce a modernized or new product);
- unprofitable lines of business are closed (for example, unprofitable branches or production facilities);
- accounts receivable are collected (through the court and the bailiff service, the debts of counterparties to the company are returned);
- part of the property is sold (for example, real estate, machinery, securities, equipment);
- additional shares are placed (funds are raised through the issue);
- other measures are being taken.
At the stage of external management, all powers are transferred to the external manager. The manager is removed from official duties and fired.
Important! At the stage of external management, creditors have a chance to get their money back. Thanks to the measures taken, the organization’s solvency is restored, which allows it to pay off debts to counterparties.
Under what conditions is external management introduced in relation to an organization?
External management is not a mandatory stage of the bankruptcy process of an organization. The transition to restoring the company's solvency is carried out by court decision.
The procedure is introduced if the following conditions are met:
- there is an opportunity to restore the company's solvency;
- The meeting of creditors made a decision to open external administration.
To open the procedure, it is important to deny to the court that the company has a real opportunity to overcome the crisis through the measures taken. The goal of this stage is not only to return the business to normal activity, but also to fully repay debts to creditors.
You should know! If the business is not restored during the process of external management, the company will move to the last stage of bankruptcy - bankruptcy proceedings. In this case, all the debtor’s property will be sold at auction, and the proceeds will be used to pay off debts.
External manager
Bankruptcy procedure for a legal entity
The procedure for opening and conducting external management
To open and conduct external management, a number of actions must be taken:
- Make a decision to open external management at a meeting of creditors.
- Submit a petition to the court and take part in the trial.
- Develop an external management plan.
- Approve the external management plan.
- Execute the external management plan.
Let's look at the whole procedure in more detail.
Stage 1 – Making a decision to open external management at a meeting of creditors
At the end of the observation procedure, the first meeting of creditors is held, at which the issue of the next stage of bankruptcy is decided. The temporary manager provides an analysis of the company's financial condition with a conclusion on the possibility or impossibility of restoring solvency.
If the manager makes a conclusion about the prospects for overcoming the crisis, this issue is put to a vote of the meeting participants. The adopted decision is documented in the minutes of the meeting of creditors.
Stage 2 – Apply for external administration and take part in court proceedings
Based on the results of the meeting of creditors, the temporary manager applies to the court with a petition to open external administration.
The following is attached to the application:
- minutes of the meeting of creditors;
- newsletters;
- log of registration of meeting participants;
- report of the interim manager;
- analysis of the debtor's financial condition.
The debtor, the applicant (creditor) and the temporary manager are invited to the court hearing to consider the petition. If the decision is positive, the court stops monitoring and opens external administration.
An example from judicial practice. The Federal Tax Service applied to the court to declare OASIS CJSC insolvent. The debtor was placed under surveillance. Based on the results of the procedure, the temporary manager established that the debtor in the amount of 26,763,112 rubles was included in the first place in the register of claims of the debtor’s creditors. At the meeting of creditors, it was decided to petition the court to open external administration for 18 months. The court considered that the organization could overcome the crisis and opened external administration in relation to it (Determination of the Arbitration Court of the Kaluga Region dated February 14, 2019 in case A23-3823/2018).
Step 3 – Develop an External Management Plan
Before the expiration of a month after the opening of the procedure, the external manager develops an external management plan and submits it for approval to the meeting of creditors.
The external management plan must contain the following information:
- general characteristics of the organization and its activities;
- financial condition of the debtor;
- measures to implement the external management plan with economic justification;
- procedure and timing of plan implementation;
- monetary valuation of events;
- the ultimate goal of the procedure.
Thus, the document represents a business plan for exiting the enterprise and the crisis.
Step 4 – Approve the external management plan
The external management plan is submitted for consideration to a meeting of creditors, which is organized no later than two months from the date of approval of the external manager. Notifications of the date, time and place of the meeting are sent to creditors.
At the meeting one of the following decisions is made:
- approve the plan;
- reject the plan and apply to the court to open bankruptcy proceedings;
- reject the plan and remove the external manager from office in order to appoint a new one.
Five days from the date of the meeting, the plan is submitted to the arbitration court for consideration.
Stage 4 – Execute the external management plan
After the external management plan is approved by the meeting of creditors and the court, the external manager begins to implement it. External management is introduced for a period of 18 months.
Based on the results of the work performed, the external manager prepares a report and submits it to the meeting of creditors for consideration. After approval of the report, a petition to terminate external management is submitted to the arbitration court. Further, the situation develops in one of the directions:
- the court opens bankruptcy proceedings;
- The court dismisses the bankruptcy case.
A report on the activities of the external manager is published on the EFRSB portal.
Beginning of bankruptcy proceedings
In order to begin the bankruptcy procedure, a number of mandatory conditions must be met:
The debtor must have outstanding debt obligations in the amount of at least 300 thousand rubles, and in some cases a minimum 3-month delay in repaying debts or paying wages is required.
The presence of these circumstances is confirmed by a court decision that has entered into force, an administrative court opinion, or a writ of execution, according to which the Arbitration Court obliges the debtor to fulfill its financial obligations.
In individual situations, the necessary conditions for starting bankruptcy proceedings may differ. In particular, it is not always necessary to comply with the requirement of having an overdue debt in the amount of 300 thousand rubles - the debt may be of a different size or absent. Regardless of the conditions and circumstances, as well as the status of the debtor, all bankruptcy cases are considered exclusively by the arbitration court. In order for this process to go as smoothly and calmly as possible, it is recommended to entrust the management and support of the bankruptcy procedure to qualified lawyers. You will receive such assistance by contacting Legal Bureau No. 1.
Who is an external manager in external management?
An external manager is an arbitration manager appointed by the court for the purpose of organizing and implementing external management. He is appointed by the court and completely replaces the head of the company.
Responsibilities of an external manager
In the process of external management, the manager is obliged to:
- conduct an inventory of the debtor's property;
- develop an external management plan and submit it for approval to the meeting of creditors;
- maintain accounting and other reporting;
- object to creditors' claims;
- identify the debt to the debtor and collect it through the court;
- maintain a register of creditors' claims;
- implement the external management plan;
- report to creditors on the results of the procedure.
In the event of improper performance by the external manager of his duties, a complaint may be filed against his actions or inaction. Applicants may be creditors and other persons participating in the bankruptcy case.
Rights of the external manager
In the course of its activities, the external manager has the right to:
- dispose of the company’s property in accordance with the external management plan;
- enter into a settlement agreement with creditors on behalf of the debtor;
- apply to the court to challenge the debtor’s transactions;
- refuse to perform a contract concluded by the debtor.
The external manager takes part in all legal proceedings on behalf of the debtor in courts of general jurisdiction and arbitration courts. He is the representative of the organization in all organizations and departments.
We must remember! The external manager receives compensation for the work done. The court approved a monthly fee of 45,000 rubles. at the expense of the debtor's property. He is also paid a bonus in the form of a percentage of the amount of claims repaid by the creditor and the increase in the value of net assets.
Advantages of contacting a law office
By contacting us, you receive comprehensive support and protection of your interests:
- individual analysis of your situation;
- objective assessment of the prospects of the case;
- assistance in choosing SRO insolvency practitioners;
- preparation of necessary documents;
- sending documentation to the court;
- representing the client's interests during arbitration proceedings.
We adhere to the principle of honesty and openness in working with each client. You will be aware of all the actions taken, the main goal of which will be to achieve the result you require. We also offer the most favorable prices on the market, which are free from the influence of third-party factors. Each request is assessed individually, so if we take on your case, the probability of achieving the result we voiced is 99%
Leave your application on our website or call us and get answers to all your remaining questions!
Rights and obligations of the debtor and creditors
Lenders take an active part in the external management procedure. The issue of approving the external management plan falls within their exclusive competence. Creditors have the right to choose measures to restore the solvency of the debtor and an external manager to implement the plan.
After opening the procedure, the debtor is obliged to transfer to the external manager all documents about the company’s activities, since from this moment the powers of the manager are terminated. Seals, stamps and material assets must also be transferred.
Legal regulation
The order and features of the procedure are regulated by Chapter 6 of Law 127-FZ. In practice, external management is the transfer of a company under the full control of an external manager, who receives the right to make any important decisions:
- on the reorganization of production;
- on the sale of part of the debtor's assets;
- on the closure of unprofitable industries;
- on debt collection in favor of the company;
- about re-profiling the company;
- on participation in venture projects;
- about staff reductions.
The difference between financial recovery and external management?
External management is often confused with financial recovery. Both procedures are similar in that they are aimed at restoring the business and paying off creditors' claims.
However, there are significant differences between financial recovery and external management:
- In the event of financial recovery, the company's management remains intact, and the manager continues to carry out his duties. If external management is opened, the manager is fired and his powers are transferred to the manager.
- Financial recovery is primarily aimed at providing installment plans for paying off debts to creditors and attracting investments. With external management, the entire business is modernized and the company's strategy is changed.
