Arrangement bankruptcy - is it a chance for the company's survival?

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Arrangement bankruptcy - a rescue for the company?

Arrangement bankruptcy may be a very beneficial solution for a company which, due to financial problems, is often forced to sell its assets, and in addition, the company's insolvency entails liability for the management of the company, as under the provisions of the Commercial Companies Code, the company's obligations are partners. Arrangement bankruptcy is a real chance for the company's survival, and thus is a beneficial solution for management board members who can free themselves from personal liability.

When to file a petition for arrangement bankruptcy?

The bankruptcy and reorganization law regulates in detail the possibility of submitting a petition for bankruptcy proceedings by a company. Pursuant to the Commercial Companies Code, such a possibility exists if the company fails to meet its financial obligations (enforceable), and also if the value of its obligations exceeds the value of its assets. The debtor (persons managing the company) is obliged to file a bankruptcy petition with the court, not later than within two weeks from the date of the grounds for declaring bankruptcy. If the company does not comply with this obligation, it must take into account the consequence of incurring personal liability for the resulting damage.

Effects of bankruptcy

It should be mentioned that the obligation to declare bankruptcy does not have to mean the liquidation of the company, as bankruptcy proceedings may be conducted in two modes: liquidation or composition. In the event of liquidation proceedings, the assets of the bankrupt company are sold by the receiver and the funds obtained in this way are transferred to the creditors.

Arrangement bankruptcy is a completely different procedure of bankruptcy proceedings, which results in an arrangement (agreement) between the parties to ensure that creditors repay their receivables in a more favorable manner than would be the case in the liquidation of the debtor's assets. In the application, the company should substantiate the above-mentioned more favorable solution for the creditor in the event of an arrangement. The benefit for the company is the survival of its existence and the reduction of its obligations.

If the court declares arrangement bankruptcy, the company may not repay its obligations (contained in the arrangement) towards its creditors until the court's decision becomes final. In practice, this means that the creditor of such a company at that time is not able to demand fulfillment of its existing obligations. Moreover, the agreement concluded in the course of the proceedings, in addition to a partial reduction of liabilities, often provides for the repayments in installments, which additionally allows to postpone their repayment date. It can be concluded that the bankruptcy of a company is a mechanism that enables its existence in a difficult period.