Bankruptcy
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What does Bankruptcy Mean?
An individual or company declaring bankruptcy means that they are unable to meet their financial obligations. Most bankruptcy proceedings are initiated through a bankruptcy petition, but it is also possible to open bankruptcy proceedings without a petition. In a bankruptcy proceeding, the debtor's assets are liquidated in order to repay the creditors.
Who Can File for Bankruptcy?
If a payment order request is not complied with, creditors may apply to the relevant court to have the debtor declared bankrupt as of the 20th day following notification of the payment order request. Debtors may also file for bankruptcy on their own initiative. A company that considers itself insolvent must file for bankruptcy on its own behalf.
The further procedure is as follows:
- The bankruptcy proceedings are initiated by the competent court and creditors are requested to file a petition.
- The bankruptcy process is initiated if the debtor is unable to repay the debt.
- Registries of bankruptcy in the commercial register.
- Creating a list of attachable assets for the bankruptcy office to liquidate.
- Creditors receive the proceeds of the realization.
- When there are no assets, the bankruptcy proceedings are closed, unless one of the creditors requests that the proceedings be continued within 10 days.
Summary and Ordinary Bankruptcy Proceedings
According to Articles 221 et seq. of the Federal Law on Debt Collection and Bankruptcy (SchKG), these two procedures must be completed within one year of the opening of bankruptcy proceedings. There are several differences between the procedures:
Summary Bankruptcy Proceedings
- most frequent procedure - fast and efficient
- used in simple circumstances or with small assets
Ordinary Bankruptcy Proceedings
- used mainly in the case of large bankruptcies
- the convening of two creditors' meetings during which creditors may observe the proceedings
Avoiding Bankruptcy
A contractual agreement between the debtor and creditors can avoid bankruptcy, i.e., a schedule for repayment. The parties will be required to initiate bankruptcy proceedings in court in addition to submitting a draft of the settlement agreement.
Procrastination in Bankruptcy: What does it Mean?
If a company procrastinates in bankruptcy, it continues to do business despite being over-indebted. In most cases, this occurs with the hope that the company's economic situation will improve in the near future. However, procrastination occurs only when there are no objective indications of such hope and insufficient or inadequate procedures are adopted in order to avoid bankruptcy.
What are the Consequences of Bankruptcy for Shareholders?
The good news for shareholders: If a company goes bankrupt, the shareholder is only liable with the capital she/he has invested. There is no obligation to make additional contributions, i.e. shareholders are not liable with their private assets.
The bad news is that the share price collapses with the bankruptcy. Invested assets may lose their entire value. In bankruptcy proceedings, shareholders also have relatively few rights since they are not considered creditors. Therefore, they are not entitled to make any claims in the proceeding or to receive any information.
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