What is a bankruptcy? phases

Today we will know in this articleWhat is a bankruptcy? Its scope, its consequences and the incidence in the business field, and the protection of the vulnerability of the weak legal.

What is a bankruptcy?

To start, we must answer the question about what is a bankruptcy. This is a procedural figure, established in the current legal system; that allows Legal Entities (Companies, Companies, Corporations, among others) and individuals; that are in a situation of insolvency, go to the jurisdictional instances to respond to third parties for the obligations contracted. Active Subject: Creditor (To whom they owe money) and Passive Subject Debtor: (Who must pay).

The bankruptcy is a legal figure applied through a procedure where in its form, substance and scope it leads to the defense of the interests of the weak legal, with the intention of safeguarding the interests of the same, applying the pertinent legal prerogatives to which give place; handling one of the most important such as the Right of Preference.

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The Right of Preference has as its essential nature, the defense of the interests of the legally vulnerable taxpayer in their interests, which is why it is based on the figure of priority and/or privilege.

In the Bankruptcy Bankruptcy, two payment figures are established: bankruptcy and suspension of payments.

The suspension of payments is defined as the impossibility of the subject to meet the obligations, before the stipulated term, understood as a situation of lack of liquidity, and therefore transitory and circumstantial (there is no financial capacity and/or availability to fulfill obligations now, but in the future); while bankruptcy occurs when the value of the assets (that is, the available economic resources) is less than the total of the debts (Deficit); and the ability to respond to obligations becomes impossible, given that in the short, medium and long term there are no solution alternatives or the ability to achieve solvency to deal with such a circumstance.

Both are conditioned to a process of prior financial evaluation of the Company, Society and/or Corporation and Individuals.

Pre Bankruptcy Creditors

There is an assumption established in the reform of the Bankruptcy Law of 2009, which gives a temporary prerogative to companies in difficulty.

With this alternative, the Debtor does not have to be obliged to present the Creditors' Meeting and begins to manage resolution possibilities with his creditors. Thus, it has three (3) more months to redirect the situation and establish consensual agreements with them. If in this period, none of them are found, the Law obliges the Court to request the declaration of Insolvency within the following month. The Company, therefore, has a total of six (6) months to refloat the company.

¿Who can apply for a bankruptcy?

After knowing what a bankruptcy is, We will tell you who can request the opening of this procedure. The Opening of the Creditors' Bankruptcy, is requested by the Debtor or any of the Creditors

This procedure may be voluntary or necessary, the Voluntary Bankruptcy, as its name indicates, is the Company itself, which requests the procedure before the competent Court, as the best alternative, when within its possibilities it cannot face its obligations and the Necessary Creditors Contest, is a consequence of the request of a creditor or partner of the Company, given the general breach of its obligations. If it is the Debtor who submits to the contest, he must submit the request within two (2) months following the date on which he disclosed his insolvency status.

Effectiveness of the Convention

To talk about the effectiveness of the agreement, it is important to discuss when the application of this agreement begins. In this sense, we will tell you that:

• From the date of their sentence, they are replaced by the effects approved in the agreement; ceasing their functions bankruptcy administrators.
• The privileged creditors will be linked to the content of the agreement, as long as they have voted in favor of the proposal.
• The approved agreement may establish prohibitive or limiting measures of the exercise.
• Every six months, the debtor must inform the judge about its compliance.
• After the debtor considers that what is established in the agreement has been complied with, the judge will declare and publish a sentence.

In case of non-compliance with what is established in the agreement, the recession of the same is considered, generating the legal consequences of the case.

Purpose and scope of the insolvency proceedings

The Bankruptcy Contest is a legal alternative established in the Law to assist Companies, Partnerships, Corporations, among others; that are going through moments and circumstances of financial insolvency, to establish the possibility of responding to third parties for the The insolvency of creditors contracted obligations.

The Bankruptcy Contest; It can also be understood as the procedure by means of which it is tried that a financially insolvent debtor, through this legal figure, corresponds to the extent of its possibilities, to a universe of creditors with whom it acquired in its opportunity any obligation.

The Creditors Contest is a Legal possibility, whose purpose is to establish agreements through feasible and feasible solutions in order to resolve the circumstances that generated such request.

Phases to request the Opening of a Creditor Competition

To request the opening of a Bankruptcy meeting, three fundamental phases must be fulfilled, among them: the preliminary phase, the bankruptcy phase and the final or liquidation phase. Below we will describe each of them. 

Preliminary phase

• The Jurisdictional Instance to process the request for the Insolvency of Creditors, is before a Mercantile Court. Once the Judge reviews and analyzes the request and it meets the formal and substantive requirements, it will be admitted.
• Once the request is admitted, the creditors must present to the Court a list of all the debts they have with the Debtor (bankrupt) as identified during the process.
• After the presentation of the lists of debts and obligations, the judge, at his discretion and discretion, decides which ones he admits and which ones he does not, and consequently, he will open the process.
• A Bankruptcy Administrator will be appointed to negotiate the payment of the debt, who will carry out an exhaustive review of the financial situation of the Debtor, the term to present challenges and finally the rendering of accounts; will determine in turn the assets, liabilities and equity of the Debtor. Its fundamental objective is to serve as arbitrator and mediator to establish agreements with the intention of safeguarding the interests of the weak legal. In the event that the intentions of the Administrator are exhausted in the search for agreements and the means have been unsuccessful; The Company will go through a process called the asset liquidation phase and the right of preference or priority will be unfailingly applied, giving the most vulnerable the possibility of receiving their compensation with priority.

Final or liquidation phase

Once this preliminary phase is completed, the Bankruptcy Debtor has the option of making an Advance Proposal for a Payment Agreement to the Creditors that allows proposing payment alternatives that satisfy the bankruptcy and thus continue operating and in its functional activities.

And put an end to the contest and its lengthy procedures. In this sense, it must be accepted by 50% of the creditors and judicially confirmed. However, the process does not end there, to consider it finished, it is necessary to prove its compliance; If there is no agreement between the parties, the Company will proceed to a process called the asset liquidation phase and the right of preference or priority will be unfailingly applied, giving the most vulnerable the possibility of receiving their compensation with priority.

The Bankruptcy of Creditors as an Alternative for Conflict Resolution in the Commercial and Negotiating Field.

• As a Debt Satisfaction Mechanism, it guarantees that the universe of Creditors satisfy their claims under equal conditions and prevents the first to claim from harming the collection expectations of the rest, safeguarding the interests of those involved in the process.
• As a second-choice alternative, it is oriented towards the continuity of economic activity. It is about preventing the social impact that the Bankruptcy of a Company can have.
• As a Social Protection tool, it must have priority collection of specific credits. In this sense, both the employees and the Public Administration benefit from certain priorities.

What does it mean that a company is in a situation of technical bankruptcy?

It is generated when the book value is below the value of the debts contracted with third parties; This gives rise to a negative net worth, as a consequence of recurring and extended losses over time, in the different financial years. When a company declares itself timely and legally bankrupt, it has the possibility of resorting to a Bankruptcy Process before the competent Courts, where it is evaluated if its assets, when selling it, would allow it to comply with the obligations it assumed at the time; prior to the application of the respective procedure.