Bankruptcy

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The bankruptcy is a judicial procedure that takes place when a person or company is unable to meet pending payments, that is, when they cannot pay their debts.

The objective of the bankruptcy is to organize the finances of the bankrupt to get the largest number of creditors to collect the maximum amount of money possible.

If the bankruptcy declaration is presented by the debtor, he must justify his state of economic incapacity. On the other hand, if the document is presented by a creditor, it must be based on the existence of embargoes for pending executions, general non-compliance with payment of tax obligations, payment of Social Security contributions or payment of wages and compensation and other derived remuneration of labor relations.

It can be done both voluntarily by the insolvent individual and through a request by one of those affected.

Who does the bankruptcy protect?

In fact, this procedure protects the weak - workers - and postpones those who have had an influence on the bad economic situation or who may benefit from the competition. An example of the latter could be the administrators of the company or people related to the bankrupt.

On the other hand, we must not forget that the bankruptcy is designed to offer the presentation of an agreement that allows the applicants to pay and, in the same way, to achieve the continuity of the company's business. To facilitate this task, the debtor employer can show a payment proposal to his creditors that includes a 50% reduction in the amount of his credits and a waiting, or payment schedule, of up to five years.

However, 90% of creditors' bankruptcies end in liquidation since, in this very difficult situation, fresh money is needed to continue financing business activities.And, for practical purposes, it is not always possible for banks to grant new credit or for partners to make new contributions to share capital. All of which has an impact on the breach of the agreement and the flat entry into the liquidation phase.

Moreover, in the vast majority of cases, the liquidation phase goes directly to either because the company's sales portfolio has decreased to unsustainable levels, or because it does not get enough financing - both its own and others - or from others. causes, such as the increase in unpaid bills.

Phases through which the bankruptcy goes through

1.- Declaration of insolvency, with adoption, where appropriate, of precautionary measures.

2.- Bankruptcy administration, appointment of administrators and rendering of accounts.

3.- Determination of the active mass, which includes all the assets of the company. At this point, the credits necessary for business activity are also included.

4.- Determination of the passive mass or, in other words, of those credits (debts) contracted by the company and that can be included in the bankruptcy (bankruptcy credits).

5.- Agreement or, where appropriate, liquidation of assets.

6.- Qualification and effects of the contest.

In some countries a difference is made between suspension of payments and bankruptcy. Which means that the bankruptcy is always preceded by a suspension of payments, and in case of not reaching an agreement, the company goes bankrupt. In contrast, there are other countries that do not differentiate between one and the other. That is, both a company in a situation of illiquidity (suspension of payments) and one in insolvency (bankruptcy) can request a bankruptcy. And, from him, try to save himself.

Finally, if the agreement is not approved, the company will be liquidated and the creditors will be paid according to their corresponding debt and according to the credit quality of their debt.

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