What is a Bankruptcy?
Bankruptcy is an administrative procedure that results from a state of insolvency determined by the impossibility for a company to face its past due in relation to its available assets.
A request made by the company manager
This procedure requires a request, which must be made, by the manager of the company in difficulty and imperatively within forty-five days from the date of cessation of payment.
Let’s see how and why the establishment of such a procedure proves reassuring despite everything and is therefore a positive act of good management since it allows the company to continue its activity .
We interviewed the accounting firm of the SR Conseil Group in Chambéry, which provided us with these essential points to understand what is a bankruptcy.
The observation period
In the context of a receivership, the observation period will make it possible to determine in which condition the company will be able to continue its activity of “normal” or “satisfactory” contions.
The observation period is the period during which we will examine how the company behaves with for main actions:
- Freeze debts prior to the commencement of legal proceedings
- See if the company will manage to settle all of its current debts
- as soon as the company has settled its previous liabilities, see if it can again save
It is thanks to the observation of these criteria, that it is possible to determine if the activity of the company is profitable. It is true that the accumulation of payment difficulties increases debts and leads to the accumulation of a large liability. Moreover, the bankruptcy recovery is not automatically a continuation plan.
This is why the leader is obliged to demonstrate that:
- his business is profitable
- its accounts are properly managed and sufficient to pay current expenses
In the absence of such receipts, the insolvency administrator may request the conversion of the judicial reorganization into liquidation . Knowing that the administrator is responsible for new debts created during this observation period.
Finally this observation period can last from 6 to 18 months . In the case where the company can generate enough turnover to propose a continuation plan, the latter will be stopped by a court. There is also another way to avoid the judicial reorganization as the backup plan.
If the activity is viable
If an accounting expertise proves the profitability and the viability of the company’s activity, it is then possible to set up a recovery or safeguard plan limited to 10 years. This plan provides:
- a reorganization of the company so that it can regain the ability to settle its debts and continue its activity (updated accounting and proposals for the settlement of liabilities)
- redundancies necessary and sufficient for the survival of the company
- the identification of third-party acquisition offers relating to one or more activities
The benefits of the redress procedure
Knowing the law is an imperative for any company, especially in a delicate situation such as a judicial recovery.
The main advantages of judicial recovery are:
- the suspension of any legal action by creations against the company in difficulty and throughout the observation period
- likewise for penalties and interest generated by the cessation of payment , thereby being frozen during the observation period
- unpaid wages are then taken over by the AGS (Assurance Garantie des Salaries)
The recovery plan allows you to obtain discounts as well as payment scales.
As indicated by a recovery plan aimed at “straightening” the company, this is why the measures that are taken have consequences on the organization and the profitability of the company’s activity. This is the case of the economic redundancy to allow a reboot of the company. And only redundancies of an urgent, indispensable and unavoidable character can be pronounced.
If the company remains unable to find a sufficient activity, it will be asked:
- Partial or total cessation of activity
- The opening of a judicial liquidation