Two types of debtor's bankruptcy

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Bankruptcy proceedings are initiated when the enterprise turns out to be insolvent. In this case, all creditors of the indebted company file claims.

Types of bankruptcy

There are two types of bankruptcy, which we will briefly describe below. However, the effect of carrying out both types of proceedings is the same, i.e. repayment of debts owed to creditors.

What is composition bankruptcy?

Arrangement bankruptcy - as the name suggests, an arrangement is concluded in the course of arrangement proceedings. Such an arrangement is of course concluded between the debtor (insolvent company) and the creditor. In order to be able to conduct such proceedings, the debtor is obliged to prove (to be probable) that all his creditors will be satisfied thanks to these proceedings to a much greater extent than in the case of bankruptcy proceedings involving liquidation of the debtor's assets. But that's not all. Also, the attitude (behavior) of the debtor must clearly indicate that he is able to meet the arrangement. Arrangement bankruptcy is a favorable form of bankruptcy from the point of view of an insolvent company, as in this case the debtor can still continue to conduct business regardless of pending proceedings. The fundamental condition for concluding an arrangement is its approval by all creditors (this is done in the form of a vote) and then approved by the court.

Is there a liquidation bankruptcy?

Liquidation bankruptcy - this form of bankruptcy proceedings is aimed at selling the assets of an insolvent entrepreneur. Thanks to the money obtained from the sale of the debtor's property, the claims of the creditors will be satisfied. The entire sales process is quite complicated and consists of a number of steps. First, the bailiff seizes the debtor's property. Such property is secured and submitted to the management board of a designated trustee in bankruptcy, who makes an appropriate inventory list together with an estimate of the entire bankruptcy estate. Already at this point, the debtor loses the ability to decide about his assets and has no influence on his business. Then the receiver draws up a liquidation plan, in which he describes in detail how the sale of the bankrupt's property will take place, it is worth bearing in mind that even before the entire liquidation process begins, the official receiver may sell the movable property if funds are needed to cover the costs of the proceedings. Due to the irreversible and quite radical solutions, bankruptcy liquidation is carried out as a last resort, that is, when all other activities of the insolvent entrepreneur to date have not provided adequate grounds for his credibility and reliability in the performance of the arrangement.