Bankruptcy is the only alternative when company reorganisation is not a viable option. However, there are a number of ways to minimize creditors' losses and other adverse effects. In the course of a bankruptcy, our bankruptcy trustees will investigate which parts of the business may be worthwhile rescuing with new owners and which parts are to be wound up.
You can read more about the bankruptcy procedure here and also in the text below.
A company is declared bankrupt when there is no possibility of reorganising its operations and business as a whole.
Insolvent individuals or legal entities who are insolvent or in financial distress may be declared bankrupt. Insolvency implies that debt cannot be paid on time and cannot be paid for a lengthy period. An application for bankruptcy is filed with the District Court by either the insolvent party or the creditor(s).
The District Court may confirm the application and appoint a bankruptcy trustee accordingly. At the same time, the District Court sets a date for the meeting for the administration of oaths, which usually takes place within six to eight weeks of the Court’s bankruptcy decision.
The duties of a bankruptcy trustee include disposing of the debtor's property and to draw up an inventory of the debtor's assets and liabilities.
The inventory is reviewed at the meeting for the administration of oaths in which the debtor makes a sworn statement to the effect that information regarding assets and liabilities is correct.
During the bankruptcy, investigations are conducted as to which parts of the business may be rescued under new ownership, and which parts are to be wound up. Naturally, the decisions undertaken are to be the most advantageous for the creditors.
The company's assets are then sold off. The proceeds obtained from these sales are distributed among the creditors in accordance with the Preferential Rights of Creditors Act insofar as these proceeds suffice after the costs of the bankruptcy have been settled.
The bankruptcy trustee's duties also include preparing a report that includes a qualitative description of the bookkeeping, the reasons for the bankruptcy and the time of the insolvency, as well as whether grounds exist to rescue a part or parts of the business. Other considerations include whether there has been an unlawful transfer of assets, the date of the control balance sheet and whether there are any claims for damages.