Bankruptcy is a legal procedure for the liquidation or reorganization of a company facing insolvency (long-term debt inability). If a liquidation procedure is implemented, creditors settle their claims through the sale of the insolvent company’s assets, while reorganization requires a new way of organizing the company and its restart.

What is the goal of the bankruptcy procedure?

The goal of the bankruptcy procedure is the collective settlement of the creditors of the bankrupt debtor by converting the debtor’s assets into cash and distributing the realized income to the creditors or by concluding a special settlement agreement for the claims determined by the reorganization plan. According to the Bankruptcy Law, bankruptcy or reorganization of the bankrupt debtor is carried out when the debtor is unable to pay or is anticipated to become unable to pay. The existence of circumstances proving that the debtor is unable to pay is demonstrated by a certificate from the Central Registry. The bankruptcy procedure aims to collectively settle the creditors of the bankrupt debtor through the sale of the debtor’s assets and the distribution of the amount to the creditors. In addition to insolvency, over-indebtedness of the company, where liabilities exceed assets in the balance sheet, can be a reason for bankruptcy.

What does the bankruptcy law provide?

The bankruptcy law provides various options for publishing notices on the progress of the bankruptcy procedure, which in practice opens up possibilities for abuse and confusion. Furthermore, the law stipulates that the bankruptcy trustee must be licensed to perform this function. With the opening of the bankruptcy procedure, employment contracts are terminated for the employees. The settlement of creditors is based on the advanced distribution plan, which the bankruptcy trustee is required to prepare within eight days of receiving the proceeds from the sale of the debtor’s property. After obtaining approval from the creditors’ committee, the bankruptcy judge, and other creditors, the bankruptcy trustee is required to distribute the funds to the creditors within eight days. The final settlement of creditors is carried out when the debtor’s property is completely converted into cash.

Principles of the bankruptcy procedure:

• The bankruptcy procedure is initiated by proposal.
• The bankruptcy procedure is urgent.
• The court can make decisions without an oral hearing.
• The court may refrain from hearing the debtor when prescribed by this law or if persons authorized to represent the debtor on the basis of the law or persons holding a share or shares in the debtor, or the debtor himself – an individual, are of unknown residence or are abroad, and their hearing would lead to excessive delay in the proceedings.
• Proposals, statements, and objections cannot be made or submitted if the deadline or hearing, or meeting at which they should be given or submitted, is missed unless otherwise specified by this law. In the bankruptcy procedure, a return to the previous state cannot be requested, unless otherwise specified by this law.
• Tables and reports can be prepared and processed in electronic form.

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