Financial insolvency, property incapacity and lack of assets to pay off creditors' claims lead to the bankruptcy of legal entities with debts. This is a difficult and lengthy procedure, but in many cases there is no alternative. Bankruptcy is the only legal way to get rid of unsustainable debts and preserve your business reputation. Going through all the stages on your own without legal support is very difficult, and in many cases impractical. Creditors are interested in maximum debt repayment, while the heads of debtor companies are interested in financial security and protection from being brought to subsidiary liability. Legal offers its services if the company cannot cope with mutual settlements and pressure from collectors, and its managers risk their reputation, finances and even freedom. We provide professional legal support, develop a strategy, prepare documents, represent interests in court and accompany the client at all stages.
What is bankruptcy
Bankruptcy is the inability of a company to pay its obligations: pay salaries, severance pay, and settle accounts with counterparties.
In order for the arbitration court to make a decision on insolvency, the period of delay in payments must be at least three months, and the total amount of debt must be at least 300 thousand rubles. If during the proceedings the court finds that the business’s income cannot cover its debts, under bankruptcy law the company will have to sell the property and transfer the money to creditors. At the same time, fines are not assessed and seizures are lifted from the assets of the legal entity.
Advantages of voluntary bankruptcy proceedings for a legal entity
Enterprises with the organizational forms of LLC, OJSC and CJSC can carry out the bankruptcy procedure. After an enterprise is declared bankrupt, it is excluded from the unified state register of legal entities. It is worth considering that the bankruptcy procedure depends on its initiator. If the debtor himself takes this step, then he receives benefits, for example, he has the right to continue economic activities until the liquidation of the legal entity. In addition, the company's assets, which represent the greatest value, can be sold in advance to one of its own, although such transactions are fraught with the risk of being accused of deliberate or fictitious bankruptcy.
Company bankruptcy: main stages
The arbitration court has 7 months to consider a bankruptcy case from the filing of an application by the debtor or its creditors. The court accepts the documents and checks whether there are signs of insolvency.
Observation
The court appoints a temporary manager who monitors the safety of the debtor's property, analyzes its financial condition and maintains a register of creditors' claims. During this period, the company stops paying fines and loans, and the bailiffs remove seizures from its property.
10 days before the end of observation, the temporary manager holds a meeting of creditors. Depending on its results, the arbitration court decides to switch to one of the procedures - financial recovery or external management. If, following the meeting, the court recognizes the company as a creditor, it will immediately open bankruptcy proceedings.
Financial recovery
The stage at which the company tries to restore solvency and cover debts. The process is overseen by an administrative receiver appointed by the court. This could be a temporary manager. The specialist’s task is to monitor settlements with creditors and report on them to the court.
Financial recovery lasts no more than two years. If, as a result of the procedure, there are no outstanding debts or complaints from creditors, the bankruptcy procedure is terminated, and the company continues to conduct business without restrictions. Otherwise, the court moves on to the next step - external administration or bankruptcy proceedings.
External control
The arbitration court transfers the powers of the manager to an external manager. This is a new specialist; they cannot appoint a former administrative or temporary manager in his place. The external manager develops a plan to restore the debtor's solvency and then tries to implement it.
External management takes up to 18 months with the possibility of extending for another six. If the debtor pays creditors at this stage, bankruptcy is terminated; if not, bankruptcy proceedings begin.
Bankruptcy proceedings
The court declares the company bankrupt and appoints a bankruptcy trustee. He takes inventory, hires an appraiser, and then sells the property to the company to pay off debts. Production takes six months, with the option to extend for another six months. Finally, a record of the liquidation of the debtor company appears in the Unified State Register of Legal Entities.
Settlement agreement
At any stage of bankruptcy, a company can reach an agreement with creditors and enter into a settlement agreement with each of them. In this case, bankruptcy is terminated. The meeting of creditors accepts the agreements, and the arbitration court approves them. The document specifies the procedure and deadlines for fulfilling the debtor’s obligations.
Simplified bankruptcy procedure
There is a simplified method of bankruptcy. You can use it in one of three cases:
- the owner began to voluntarily liquidate the company, but found out that due to debts to creditors he would not be able to complete the procedure;
- the location of the head of the debtor company cannot be determined or no transactions have been carried out on the company’s accounts for more than 12 months;
- bankruptcy began in relation to a mortgage agent or a specialized company created to issue bonds and invest in long-term projects.
When the owner or creditor learns of these circumstances, they file an application to declare the company bankrupt under a simplified procedure. The arbitration court appoints a bankruptcy trustee, bypassing the stages of observation, external management and financial recovery.
The manager sells the company's property to pay off the business's debts. If the debts are successfully repaid, the bankruptcy procedure is terminated and the company continues to operate. If not, then the company becomes bankrupt and is excluded from the Unified State Register of Legal Entities.
The bankruptcy procedure of an organization should be entrusted to professionals
By the way, if a company is doing poorly, then not only the owners, but also partners and creditors usually suspect this. Therefore, they will begin to collect debts until the company completely fades away. You should know that the bankruptcy procedure gives creditors a chance to purchase the debtor’s property at a price significantly lower than the market price or, for example, allows you to change all the management structures of an organization that has certain financial obligations to them. Therefore, the bankruptcy procedure should be carried out exclusively by professionals who will protect the interests of the owner, minimizing his losses as much as possible.
How to fire full-time employees during bankruptcy
It is impossible to simply liquidate an enterprise due to bankruptcy, because first it is necessary to pay off and officially dismiss all employees. First, in compliance with labor laws, all personnel are warned in writing two months before the day of dismissal. In the case where the company is no longer operating and bankruptcy proceeds according to a simplified scenario, employees are notified of the impending staff reduction one month in advance from the moment the bankruptcy proceedings are announced.
We are talking about employees associated with the enterprise through basic (unlimited) employment contracts. “Conscripts” with contracts lasting up to two months are notified of dismissal three days in advance. And for seasonal workers - exactly one week.
Contracts and service agreements concluded with the company before bankruptcy are terminated according to the terms specified in these agreements. There is no money to pay for these contracts? Counterparties are included in the register of creditors and will receive their money in order of priority.
Notifications of upcoming staff reductions due to bankruptcy are sent by registered mail. This is done by the bankruptcy trustee.
At the same time as the warning to the staff, the local labor inspectorate is also notified. By law, it must be prepared for an imminent massive influx of unemployed.
In bankruptcy there are no beneficiaries. They fire every single worker: vacationers, maternity leave, pregnant women, and the sick.
When employees are sent on a “free float”, they must be paid off on the same day and given a work book with a record of layoffs due to liquidation due to bankruptcy and all the certificates required in such cases.
Cash is paid for wages for hours actually worked, severance pay in the amount of double the average monthly salary (calculated for the previous twelve months), compensation for forced downtime due to the fault of the employer and unused vacation (if due).
Each person dismissed must sign the dismissal order.
What amounts must be paid to those fired due to bankruptcy of an LLC?
The financial manager handles payments to employees. He can petition the court to reduce the amount of payments to those employees whose salaries were increased shortly before bankruptcy. If the court approves such an initiative, workers will be calculated based on the salary they had before the increase. Severance pay for “seasonal workers” will be calculated based on their average two-week earnings. If we are talking about layoffs of workers working in the northern regions of the country, they are given severance pay in the amount of three months' salary.
Pregnant women and women on maternity leave have priority when paying benefits. If the bankrupt does not have money for these needs, the company issues appropriate certificates to beneficiaries. Based on these papers, the FSS will pay them off. However, you must apply there no later than ten days after the layoff. Severance payments are paid only from money received as a result of auctions for the sale of the bankruptcy estate. Therefore, not everyone will be able to receive them: a bankrupt person may simply not have enough funds.
Bankruptcy of a specialized company and a mortgage agent
An application for bankruptcy of a specialized company is submitted by a representative of the bondholders of such a company. The basis for filing an application is the decision of the general meeting of bondholders. The application must be accompanied by the minutes of the general meeting and a certified copy of the decision to issue bonds. For the bankruptcy of a mortgage agent, similar rules are used as for the bankruptcy of a specialized company.
A bankruptcy creditor of a company will not be able to apply to court for bankruptcy if an agreement between these persons limits this right to the fact that a certain period or circumstance must occur.
As we know, in cases specified by law, the head of the debtor is obliged to file a bankruptcy petition. However, for the director of a company, such an obligation does not arise if the charter of the company stipulates that a bankruptcy petition can only be filed upon the occurrence of a certain period or certain circumstances, and until this period or circumstances occur, the director is not obliged to go to court.
In the event of bankruptcy of a specialized company (mortgage agent), the court within a month makes a decision on bankruptcy and the opening of bankruptcy proceedings with the approval of the bankruptcy manager. Other bankruptcy procedures cannot be applied in this case.
Information that the company (mortgage agent) has been declared bankrupt and bankruptcy proceedings have been introduced is included in the EFRSB and is not published in the official publication, which is a feature of the bankruptcy of the relevant persons.
Creditors can submit claims within a month from the date of inclusion of information in the EFRSB.
USEFUL: watch also the video and read more about the simplified bankruptcy procedure for an individual via the link on the website of JSB “Katsailidi and Partners”, Yekaterinburg
External control
A more stringent procedure compared to financial recovery, during which all the reins of control of the debtor are completely transferred to an external manager.
During external management, a moratorium is introduced on any satisfaction of creditors' claims, and payments on all obligations are blocked, except for current payments.
But! The claims of creditors of the 1st and 2nd stages can be satisfied: payments for compensation for harm to health, wages, etc.
The manager develops an external management plan with a list of measures to restore the debtor’s solvency.
Duration of the procedure: no more than 18 months, extension for another 6 months is permissible, but the total period together with the period of financial recovery cannot exceed 2 years.
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Collection of evidence
The decision to initiate the procedure for declaring a legal entity financially insolvent is made by a judge of the arbitration court on the basis of documents provided by the applicant. A standard set of documentation generated in such a situation usually includes:
- package of constituent and registration documents of the enterprise;
- all types of reporting - financial, accounting, management, personnel - for the previous 3 years of the company’s activity;
- documentary evidence of debt;
- statements of accounts of the debtor company certified by banking organizations;
- a list of creditors, as complete and detailed as possible, indicating the amount of debt owed to each;
- other documents confirming the insolvency of a legal entity.
The main requirement for the documentation package for making a positive decision to initiate bankruptcy proceedings is the presence of objective and indisputable evidence of the debtor’s financial insolvency.
Peculiarities of bankruptcy of a liquidated debtor
The features of bankruptcy of a debtor who is being liquidated are the following:
- a legal entity being liquidated goes bankrupt in a simplified procedure if its property is insufficient, which can be sold to satisfy the claims of creditors
- the court makes a decision to declare the debtor bankrupt and bankruptcy proceedings are immediately opened with the approval of the bankruptcy trustee. Other procedures do not apply in this case
- if the managers of the liquidated debtor do not fulfill the obligation to apply to the court for bankruptcy of the debtor, then they will bear subsidiary liability in the event of failure to satisfy payments to creditors and for the payment of obligatory payments to the budget on the part of the debtor
A necessary condition for applying the simplified bankruptcy procedure for a debtor who is being liquidated is a decision to liquidate the legal entity, and the second point is that the legal entity does not have enough property to pay off its debts. At the same time, some courts believe that in order to liquidate a legal entity under a simplified procedure, only the fact that it does not have enough property is sufficient, while others take the position that the two above-mentioned circumstances must be present: a decision and a lack of property.
Consequences of declaring the insolvency of a legal entity. faces
After all judicial procedures are completed, the owners are free to engage in any type of activity, open companies and implement business projects. They lose only the amount of investment when opening a previous enterprise and do not answer with their personal property for its debts.
Sometimes, during legal proceedings or financial analysis, facts of intentional loss-making may be revealed. Then the former managers and chief accountant may be punished, including criminal liability.
Legal basis
The necessity, procedure, main stages and other important parameters of the bankruptcy procedure for legal entities and individuals are regulated by No. 127-FZ, signed by the President of the country on October 26, 2002. The federal law is constantly being updated, so the version of the document approved on December 2, 2021 is currently in effect.
The regularity of amendments to the text of the legislative act - during 2021 alone, 6 amended Federal Laws were adopted - allows us to draw two serious conclusions. Firstly, the bankruptcy procedure is extremely important for the state of the Russian economy, which is why it receives so much attention from government authorities.
Secondly, not all the legal nuances of the event have been worked out in detail, which is the reason for the constant clarification of key points relating to the practical implementation of the event.
Hidden stage
In addition to the main stages, there is also a hidden stage of bankruptcy. Its main feature is the beginning of an imperceptible decrease in the nominal “price” of the enterprise.
This can happen even when special accounting has not yet been established. The reason for the beginning of the latent stage of bankruptcy of a legal entity or individual is distinct unfavorable internal and external trends for the enterprise.
Internal reasons may include such as a decrease in the quality of decisions of management personnel. The most successful example of external trends is the deterioration of conditions for entrepreneurship and doing business for a given legal entity or individual.
Conducting competitive bidding for bankruptcy
The property of a bankrupt company is sold in the form of electronic trading, which is carried out on ETP (electronic trading platforms). This approach to the organization ensures transparency and openness of the event, allowing you to obtain the maximum possible amount of money for the debtor’s assets.
The bidding scheme provides for the following actions:
- formation of the bankruptcy estate;
- preparation of auction documentation;
- placement of lots on the ETP;
- holding an electronic auction;
- summing up results, drawing up contracts and completing transactions for the sale of property.
Almost any property of the debtor company becomes the subject of the auction. The bankruptcy estate usually includes:
- real estate, including land;
- unfinished construction projects;
- transport, special machinery and equipment;
- securities and other assets on the bankrupt's balance sheet.
Responsibility in case of insolvency of the organization
Liability under the norms of criminal and administrative legislation is applied in case of fictitious and deliberate bankruptcy of a legal entity. Deliberate insolvency implies that the company’s management deliberately created conditions for the ruin of the company: they entered into unprofitable deals, engaged in the withdrawal of assets, etc.
Fictitious bankruptcy involves creating only the appearance of financial insolvency. For example, not all assets are reflected in the balance sheet, the purchase of raw materials at an inflated cost, distortion of reporting data, etc.
Information
Managers who committed these acts can be held accountable in the form of a fine of 200-500 thousand rubles, corrective labor for up to 5 years and imprisonment for up to 6 years, depending on the scale of the damage caused.
Who can undergo simplified (out-of-court) bankruptcy?
The simplified procedure is simplified because in order to initiate it it is necessary to meet a minimum number of conditions.
In order to go bankrupt for free you must:
- have arrears on monetary obligations or obligatory payments to the budget from 50,000 to 500,000 rubles;
- the debt must go through the stages of judicial collection and enforcement proceedings;
- the writ of execution must be returned to the claimant due to the debtor’s lack of property that can be levied against, and all measures taken by the bailiff to find the property have not brought results;
- after the return of the writ of execution, the writ of execution was not presented again for execution.
Everything is quite simple and a citizen can independently assess the chances of filing an insolvency application out of court.
