Bankruptcy of a company is the process of recognition of the entity to be financially insolvent, in order to satisfy the creditors’ claims fully and equally and restore the debtor's solvency.
The last mentioned case occurs rarely due to the peculiarities of domestic law. Bankruptcy is a way of redistribution of property from a less efficient owner to a more efficient one.
There are material and formal criteria for the organization's insolvency. According to the formal criterion, a legal entity meets the signs of bankruptcy if it is unable to fulfill its obligations in the amount of 300,000 rubles or more within 3 months; this is necessary in order for the arbitration court to accept the creditor's application for bankruptcy. However, in order for the court to satisfy the submitted application for bankruptcy, the debtor must meet the material criteria – insufficient property (excess of obligations over the value of assets) or insolvency (termination of payments on debts due to the lack of funds). When a material criterion appears, the debtor, as a rule, is obliged to apply for bankruptcy itself, otherwise its management may be brought to civil and administrative responsibility.
When the court satisfies the application for declaring the debtor bankrupt, a monitoring procedure is usually introduced. This stage last rarely longer than six months and its purpose is for the temporary manager who is appointed by court out of receivers to collect information about the debtor company, its financial analysis and prevention of reduction of its property (bankruptcy estate) value. In this procedure, the director of the debtor is not yet removed from the management of the company, but his scope of functions is limited. The initiated enforcement proceedings are suspended with respect to the debtor and his (its) property is released from attachment. Creditors can file most of their claims through the bankruptcy court only.
The monitoring procedure in most cases ends in bankruptcy proceeding – it is the main stage of bankruptcy. During this procedure, the management of the debtor is removed from management, which passes to the receiver. The main purpose of bankruptcy proceedings is to fill the bankruptcy estate and sell property at public auction, usually an auction. At this stage, the receiver, as well as creditors meeting certain criteria, can apply to challenge the transactions on the withdrawal of property, to bring persons controlling the debtor to subsidiary responsibility.
Bankruptcy can also occur in other forms – so-called rehabilitation procedures (external management and, rare and exotic financial recovery procedures). Bankruptcy is strongly specific with respect to individual legal entities (banks, developers, insurance companies, etc.). Russian bankruptcy legislation is highly regulated and has a whole layer of various rules and precedents in the field of priority of meeting creditors 'claims, challenging creditors' claims, holding meetings of creditors, and many other matters. This makes the field of bankruptcy a rather risky area for people who have no enough experience in this field. In addition, receivers who have significant powers in bankruptcy have completely different qualifications and moral attitudes, which also complicates the situation. As a rule, it is not possible for a single person to conduct large bankruptcy proceedings and even smaller ones, and receivers work in a team of lawyers whose experience and knowledge are also different, and the insolvency procedure itself requires planning and careful preparation.
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