What does a court declare a legal entity bankrupt?

For one reason or another, the debtor's bankruptcy may be terminated. What are the grounds, procedure and consequences of terminating a bankruptcy case, and how to object to the termination of bankruptcy, you will learn from this material.

ATTENTION : our bankruptcy lawyer will help the claimant or debtor in the procedure for terminating bankruptcy proceedings: professionally, on favorable terms and on time. Call today and we will start solving your problem!!!

Grounds for terminating a bankruptcy case

The list of grounds on which a court may terminate bankruptcy is specified in Article 57 of Federal Law No. 127 of October 26, 2002, namely, the case is terminated in the following cases:

if a financial recovery procedure was introduced in relation to the debtor, as a result of which his solvency was restored;
if an external management procedure was introduced in relation to the debtor, which led to the restoration of the debtor’s solvency;
if a settlement agreement has been concluded;
if, during the monitoring procedure, the applicant’s claims, on the basis of which the bankruptcy case was initiated, are recognized as unfounded;
if all creditors in the bankruptcy case have renounced their claims or have waived the demand that the debtor be declared bankrupt;
if all the claims of creditors that were included in the register of claims are satisfied during any procedure in the bankruptcy case;
if the debtor’s situation is so deplorable that he does not have the money to reimburse the legal costs of conducting procedures in a bankruptcy case, including costs associated with paying remuneration to the insolvency administrator.

The law also provides for other cases for terminating the bankruptcy of a debtor.

USEFUL : our lawyer participates not only in the bankruptcy procedure for citizens, but will also help to bankrupt a legal entity that finds itself in a difficult financial situation

What happens after bankruptcy proceedings are announced?

When the court declares the beginning of the CP, certain legal consequences take effect:

The last opportunity arises to assert certain obligations of the bankrupt company;
The accrual of any penalties, including fines, interest, etc., ceases;
All data on the business activity of the debtor is no longer a trade secret;
The bankrupt's property, the volume of which is higher than 5 percent, cannot be sold, leased or seized;
Any executive documentation is no longer valid and is transferred to external management from the bailiffs;
Any restrictions on the use of the property of a liquidated company are lifted, including freezing of accounts, arrests, etc.;
The ex-management loses the opportunity to perform its functions;
The licenses, patents and permits of the debtor are cancelled, various rights of the debtor and individual entrepreneur registration are also lost.

The procedure for completing bankruptcy proceedings

Based on the results of its activities, the bankruptcy trustee draws up a corresponding report , which contains various information, according to the standard report form, including the progress of the sale of property, the register of creditors’ claims, etc. The bankruptcy trustee submits the corresponding report to the court considering the bankruptcy case.
The court considers the bankruptcy trustee's report on the results of the bankruptcy proceedings and makes a determination to complete the bankruptcy proceedings (in some cases, to terminate the proceedings).
The court's ruling to complete the procedure is subject to immediate execution.
After 30 days after issuing a determination on completion, the court must send the corresponding determination to the tax office, which is responsible for registering legal entities.
Based on the determination to complete bankruptcy proceedings, an entry is made in the Unified State Register of Legal Entities stating that the debtor has been liquidated. The entry must be made within 5 days after receiving the court ruling.

ATTENTION : a court ruling on completion of the procedure can be appealed until an entry is made in the Unified State Register of Legal Entities about the liquidation of the debtor, in which case the execution of the ruling is suspended. Bankruptcy proceedings are considered completed from the date when an entry about the liquidation of the debtor is made in the Unified State Register of Legal Entities.

What is bankruptcy proceedings?

Bankruptcy proceedings are a procedure that is applied to an enterprise during its bankruptcy case. This procedure is carried out in order to satisfy the legal requirement of the creditor in the required amount. In this case, all affairs of the debtor company, as well as its property, are transferred to the external management of a person specially authorized for this purpose.

The opening of bankruptcy proceedings in all cases occurs along with the implementation of a certain list of operations, namely:

The appointment of a specially authorized person who will manage all the affairs of the bankrupt enterprise (in most cases, such an appointment is carried out by the court);
Suspension of individual requirements on the part of the organization providing credit funds;
The creation of a bankruptcy estate of property that is owned by the debtor’s enterprise;
Satisfying the legal requirements of the organization providing loans by transferring to it property related to the bankruptcy estate.

In addition, it is important to note that the debtor in bankruptcy proceedings loses the opportunity to independently dispose of his property and manage the affairs of the company.

Objection to the arbitration manager’s petition to terminate the bankruptcy case

If the insolvency administrator suddenly requests the termination of bankruptcy against the debtor, this is usually unprofitable for the claimant, and therefore he has the right to submit objections to the court regarding the insolvency administrator’s petition.

IMPORTANT : whenever possible, it is better to submit objections in writing with a legal basis.

The essence of the creditor's objections will depend on the grounds on which the arbitration manager asks to end the bankruptcy case.

The insolvency administrator may, for example, file a pending petition if the debtor does not have enough property for procedural expenses.

In this case, the creditor may have other information about the debtor’s property status. To provide the relevant information, the creditor has the right to ask the court to postpone consideration of the petition, provided that he was not aware of the manager’s petition in advance or, for objective reasons, he was not able to prepare the necessary evidence to refute the arbitration manager’s arguments.

Appealing a court ruling on the end of bankruptcy proceedings

When the court makes a ruling on the end of bankruptcy proceedings, which ends the corresponding procedure, interested parties have the right to appeal it.

ATTENTION : the determination in question can be appealed within 10 days. If the deadline for appeal is missed, the complaint will be returned to the applicant.

The appeal is filed to a higher court of appeal through the trial court.

Based on the results of consideration of the appeal, the court will either satisfy the complaint and, taking into account the applicant’s requirements, cancel the appealed ruling, or refuse to satisfy the complaint.

USEFUL : watch a video about appealing a court ruling, and also read detailed information on the issue at the link

Protection of a bankrupt in case of refusal to terminate proceedings

If the court refuses to satisfy the petition to terminate the proceedings, in order to protect the rights of the bankrupt, it is possible to appeal such a court ruling to a higher court.

In addition, if the bankruptcy procedure continues, the debtor will need protection, since within the framework of a bankruptcy case it is possible to challenge transactions, bring the debtor’s manager to subsidiary liability, etc.

The defense of the bankrupt, taking into account the documents, must be structured in such a way as to refute the arguments of the arbitration or bankruptcy manager in terms of challenging transactions, declaring them invalid, etc.

One of the important points in protecting the debtor is assessing the legality of including claims in the register of creditors, since the more claims of creditors are included in the register, the greater the debt of the debtor, which must be repaid at the expense of the bankruptcy estate.

The specific defense tactics depend on the substance of the claims and the circumstances of the case.

Creditors' claims and bankruptcy proceedings

The timing for which bankruptcy proceedings are introduced is directly related to the requirements of creditors. It is because of unmet requirements that deadlines can be significantly extended over time. It is worth noting that the creditors' claims are satisfied not at the expense of the debtor's property, but only at the expense of the proceeds from the sale of the property. That is why, during the period of bankruptcy proceedings, it is necessary to have time to evaluate and sell the property and only after that settlement with creditors is made.

All funds from the sale of the debtor's property go to a single account. All other accounts of the debtor are subject to closure, and the property can only be sold through auction.

The terms of bankruptcy proceedings can be extended, as already mentioned, in the event of failure to comply with the requirements of creditors. That is why, immediately after the sale of property, the bankruptcy trustee makes settlements with all debtors in order of priority. The priority is provided in the register and some persons may be counted first. There are also several categories of expenses that are paid before settlement with creditors, these are:
All legal costs of the debtor
Utility payments, fines, financial sanctions of the enterprise. Payment of remuneration to the bankruptcy trustee
Claims of creditors that arose after the debtor was declared bankrupt and bankruptcy proceedings began
Debt in payment of wages to employees of the enterprise. Salaries are also paid within a strict sequence - first, the work of employees who are accrued current wages is paid, and secondly, wages accrued before the start of the bankruptcy procedure are paid.

As you can see, bankruptcy proceedings are a difficult and rather confusing period of bankruptcy, within the framework of which many obligations must be fulfilled both to creditors and to other persons. The terms of bankruptcy proceedings are established by the arbitration court and the initial period is set at one year. However, if all the assigned tasks were not completed during the announced period, bankruptcy proceedings may be extended for another period of up to six months. If obligations to creditors are still not fulfilled within these deadlines, by decision of the arbitration court, the period of competitive procedures can be extended again.

What you can do right now:

Watch the video in this article to know how bankruptcy proceedings take place.
Carefully read the requirements for a bankruptcy trustee in the article How to become a bankruptcy trustee, his powers, rights and obligations
Always remember that you can extend the terms of bankruptcy proceedings

Consequences of completing bankruptcy proceedings

One of the consequences upon completion of bankruptcy proceedings is the liquidation of the debtor.

Also, upon completion of bankruptcy proceedings, the debtor is actually released from fulfilling unfulfilled obligations. At the same time, the head of a legal entity, under certain conditions provided by law, may be held vicariously liable.

Thus, the completion of bankruptcy proceedings terminates the activities of the legal entity, but does not indicate that the head of the liquidated organization cannot be presented with claims for the debt of the legal entity that was not repaid as part of the bankruptcy case.

The bankruptcy procedure itself is complex for persons who do not have certain knowledge of the legislation governing the field of bankruptcy, including issues of termination of bankruptcy proceedings. Our lawyers are competent in bankruptcy matters and are always ready to listen, study documents, explain the provisions of the law and directly provide legal assistance in resolving issues related to bankruptcy.

How to resume bankruptcy proceedings

A person who did not participate in the conclusion of a settlement agreement has the right to resume bankruptcy proceedings, but it significantly affects his interests. The second reason for filing a claim is the discovery of circumstances that were previously unknown, but make filing a settlement impossible.

Important!