An insolvency procedure is taken when an organization or individual are no longer able to meet their financial obligations and pay their creditors when debts are due. Insolvency proceedings usually take place after less formal arrangements have failed and can be the result of bad financial management, of changing market trends, heightened expenses or reduced income.
The main purpose or the insolvency procedure is to create a collective procedure so that the insolvent debtor can cover its liabilities.
For the companies, the most common situation goes like this: a certain debtor can’t pay its suppliers; the same firm can’t get money from some of its partners for the services offered. When the revenues/expenses balance becomes negative, the state of insolvency kicks in. It can be asked by the company itself or by third parties which are interested in recovering as much as possible from their debt.
Ways of carrying out the insolvency procedure
the procedure of judicial reorganization is that way of carrying out the insolvency procedure that is applied to the debtor, the legal person, in order to pay his debts, respecting the program of payment of the debts;
the bankruptcy procedure is that insolvency procedure that is applied to the debtor in order to liquidate his assets to cover the liabilities, followed by the removal of the debtor from the register in which he is registered.
The procedure is opened by an application addressed by the creditor to the court in whose constituency the debtor’s seat is located. In certain cases provided by the insolvency law, the debtor himself has the obligation to request the opening of the procedure. After admitting the request to open the procedure, it can file for judicial reorganization or it can ask directly for bankruptcy. In limiting cases provided by law, a simplified procedure can be used whereby the debtor goes directly into bankruptcy. However, in most cases, the opening of the general procedure and the immediate opening of the bankruptcy procedure are chosen.
The participants in the bankruptcy procedure are:
economic interest groups;
any other legal person who also carries out economic activities.
With the decision to initiate the simplified procedure, the liquidator identifies the state body that made the registration of the debtor, annexing the court decision. Immediately after this, an inventory of the assets of the insolvent debtor will be made. After applying the simplified bankruptcy procedure, if it is found that the debtor has viable operational capabilities that would allow him recover his solvency, the insolvency court, at the liquidator’s request, orders the bankruptcy procedure to cease and the restructuring procedure to be established in the manner established by the present law.
By the decision to initiate the simplified bankruptcy procedure, the court will order:
Lifting the right of administration of the debtor;
Appointing the liquidator and establishing his attributions;
Handing over the management of the patrimony from the provisional administrator to the liquidator (at most 5 working days) with the documents provided by law;
Notification of the initiation of the insolvency procedure and the entry of the debtor in the bankruptcy procedure.
Bankruptcy and Insolvency lawyer
The role of a lawyer in insolvency and bankruptcy is to reduce all the negative effects both in the insolvent society, but also on the clients or employees. In fact, a good lawyer in insolvency will analyze in detail the entire financial situation and will implement a strategy for solving the problems of the company, in order to ensure as much as possible the future of the company or, in other cases, the fulfillment of the interests of the shareholders or the stakeholders.
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