Tips for an Entrepreneur: What to Do if a Company Is on the Verge of Bankruptcy

What to Do if a Company Is on the Verge of Bankruptcy

Knowing several nuances will help to avoid the adverse consequences that the head or owner of a bankrupt organization may face. Bankruptcy law and law enforcement practice contain many subtleties, situations related to the debtor’s inability to satisfy all the requirements of creditors and the goals pursued by the parties to these legal relations are varied. However, knowledge of some features of the law enforcement practice of bankruptcy will certainly not be superfluous if you may encounter this as the head or owner of the company.

Tip 1: Have loyal creditors in the registry

It is no secret that the creditor or several creditors with the largest amount of claims controls the bankruptcy procedure. Creditors make a majority vote on the main decisions in the bankruptcy procedure, starting from the choice of procedure and the candidacy of the arbitration manager and ending with the approval of the procedure for the sale of property or the conclusion of a settlement agreement.

It is always useful to have loyal creditors in the registry. Do not forget that in the bankruptcy procedure, the creditor of his company may even be its founder, if he provided his company with real funds that were used in the organization’s activities. At the same time, if the creditor is “fictitious,” the court may exclude it from the register.

Tip 2: Don’t make transactions aimed at causing damage to creditors

Creditors have the right to challenge transactions concluded in order to cause damage to the property rights of creditors. Such transactions may be declared invalid by the court if they were completed within 3 years before the application for declaring the debtor bankrupt or after the acceptance of the said application, and the responsible persons may be held subsidiary. The head of the “potential bankrupt” must be extremely careful about transactions that can later be regarded as the withdrawal of property of the debtor.

At the same time, transactions related to the establishment of new companies and the incorporation of property of a future bankrupt into their authorized capital are less likely to be challenged and declared invalid. The courts indicate that the disposal of the property of the disputed transaction from the debtor may be compensated by an equal counter-performance – receipt of a share in the authorized capital, which cannot be regarded as a decrease in the bankruptcy estate

You should remember that bankruptcy does not protect the debtor and its co-dependent persons from all creditors.