Your business is experiencing serious financial difficulties and can no longer meet its debts. What will be the consequences if your business goes bankrupt? What is bankruptcy? What solutions exist for the entrepreneur? What are their obligations? Can a people have sanctions when their companies goes bankrupt? So many questions you need answer. Here at daily news bubble, we rkillen associates are going to discuss this that what is bankruptcy and what might be its consequences if your company become bankrupt. Richard Killen and Associates have helped thousands of people like you to become debt free in all over the Canada and surrounding.
What is Bankruptcy?
The expression “to be in bankruptcy” exists in the current language but legally one speaks about state of bankruptcy. We say that a company is bankrupt when its available assets are no longer sufficient to meet its current liabilities.
An available asset concerns everything that is liquidity. A payable liability is a debt, like an invoice or rent.
A manager can therefore consider that his company is bankrupt when he can no longer honor his debts with his own funds. In this case, he must declare himself in a state of insolvency.
The declaration of default of payment must be made by its manager:
- With the clerk of the commercial court closest to the head office if it is a company, a sole proprietorship, or a self-employed company
- With the tribunal instance if it is a civil society or an economic interest group (GIE).
The manager has 45 days to declare his state of insolvency.
The Consequences of Bankruptcy on the Company
Once the state of insolvency has been pronounced, two scenarios are available to the company.
The Receivership of the Company
To open judicial reorganization proceedings, the judge considers that the company is in a position to rectify its financial situation and to continue its activity. An observation period begins during which payment of debts can no longer be requested. The idea is to allow the company to take stock of its operation, to realize any management errors on the part of its manager. At the end of this observation period, the judge will be able to assess whether the pursuit of the activity is viable or not.
Several options are possible:
- A recovery plan is adopted for a maximum period of 10 years. This plan requires the company to make operational changes. The main objective is to be able to settle debts and keep jobs as much as possible.
- Third parties can take over the business. They then submit their offers to the judge.
- The company has sufficient liquidity to be able to fully discharge its liabilities. The recovery procedure is complete.
- The company is not able to repay its debts. It is put into judicial liquidation proceedings.
The Judicial Liquidation of the Company
If the judge considers that the company is not afraid to recover, that its situation is irreparably compromised, a judicial liquidation procedure begins. The purpose of this is to reimburse the creditors of the company regardless of the maintenance of its activity.
The liquidation will have the consequences of:
- Put up for sale by auction the movable and immovable property of the company. The sums collected will be used to repay debts
- Dismiss all employees of the company by terminating their employment contract. This must be done within 15 days of going into liquidation.
- The divestiture of the manager of the company. He can no longer manage and run his company
- Discontinuation of individual proceedings from creditors. The payment of debts can only be done collectively.
- The company is dissolved. Its delisting is the subject of a publication in a newspaper of legal notices
The Consequences of Bankruptcy
The opening of collective proceedings does not necessarily have consequences for the manager.
There are, however, cases for which the manager can be sanctioned. Three categories of sanctions can be applied:
The Prohibition to Manage
This sanction concerns the manager who committed minor management errors. This may be for the manager who knowingly failed to request the opening of bankruptcy proceedings within 45 days of the declaration of suspension of payment. He may also not have warned the prosecuting creditors of the opening of proceedings within 10 days.
The leader can no longer manage, direct or administer a business for a certain period of time.
Liability for Insufficient Assets
This sanction targets the manager who committed management errors which led to insufficient assets in the company. The manager will be ordered to personally pay all or part of the insufficient assets which should have made it possible to pay all of the liabilities.
Note: this sanction is only applicable in the event of judicial liquidation. It is also necessary to provide proof of the fault of the manager.
Personal Bankruptcy
The personal bankruptcy that can be brought against the manager is heavier. The decision is taken by the court when the manager has committed serious misconduct. The ban on running a business resulting from this sanction cannot be adjusted.
Note: this sanction may be accompanied by other sanctions such as the ban from exercising an elective public office.
