Entrepreneurs may be able to avoid bankruptcy by anticipating difficulties - if they keep a close eye on the financial situation of their business.
When a debtor is declared insolvent by a court judgment, this is called bankruptcy. The bankruptcy procedure is specified in the Bankruptcy Act.
In case of bankruptcy, a court judgment declares a debtor’s insolvency. If the liabilities of a debtor become too great and the owner's equity of the company becomes negative, the debtor must file a bankruptcy petition with a court.
The aim of the bankruptcy procedure is the satisfaction of creditor claims from the debtor’s assets. The defending of claims takes place in the bankruptcy procedure. The creditors shall receive money proportionally to the amount of their claim. A natural person debtor is, through the bankruptcy procedure, given an opportunity to be released from his or her obligations.
A bankruptcy procedure is carried out by the court and the trustee in bankruptcy. Upon declaration of bankruptcy, the debtor’s right to manage and dispose of the bankruptcy estate transfers to the trustee in bankruptcy.
The hearing of bankruptcy matters is within the competence of county courts.
Entrepreneurs having experienced bankruptcy should not lose confidence in their ability to embark on a new business.
Bankruptcy procedure: step-by-step instructions
Bankruptcy petition can be filed with a court by the debtor or creditor. The court will decide the initiation of the bankruptcy procedure within 10 days from filing the bankruptcy petition.
In a bankruptcy procedure the claims of the creditors shall be satisfied either out of transferring the assets of the debtor or by improving (reorganising) the company of the debtor.
A court shall declare bankruptcy if the debtor is insolvent. After that the business or any other name of the debtor may be used only in combination with the word “bankrupt”.
In the event of the bankruptcy of a debtor who is a legal person, the court may order which of the persons may not act as an undertaking, a member of a management body of a legal person, the liquidator of a legal person or a procurator until the end of the bankruptcy proceedings. The same applies for a debtor who is a natural person.
Information on the persons, who have received a prohibition on business, shall be published in the Commercial Register.
The notices related to the bankruptcy procedure shall be published in the publication Official Notices. In case of the insolvency of an employer, the Unemployment Insurance Fund shall pay compensation to employees for unpaid wages and holiday pay and the compensation. In order to receive compensation, the application to the Unemployment Insurance Fund shall be submitted by the trustee in bankruptcy or a temporary trustee, not the employees themselves.
The compulsory dissolution
The compulsory dissolution of a public limited company or a private limited company is executed by a court ruling. Prior to the initiation of the procedure for compulsory dissolution, the court may grant an additional deadline for the company to eliminate the circumstances resulting in compulsory dissolution. Compulsory dissolution comes into force from the enforcement of the relevant court ruling.
The grounds for compulsory dissolution can be found in the Commercial Code.