In this article we are going to tell you what a bankruptcy is,
In this article we are going to tell you what a bankruptcy is , but from an interesting point of view.
You will agree with me that if the sales of your business slow down it may be usual and that with some specific actions everything returns to normal, but if your sales stop in their tracks and continuously for several weeks or even months you have a real problem that you must resolve immediately.
You sense that you are not going to hold on and you know that your resources are limited and you are not going to arrive. They will run out if you do nothing. Your suppliers, employees, and other expenses will not be able to be taken care of. If everything continues like this, your business could go under.
Well, you know that the law has an instrument called bankruptcy that is to help the employer in these difficult circumstances.
You may be wondering how exactly it works and how it can help you.
This term so heard in the press refers to a process in which it is about giving a way out to a company that has financial problems. If you do not know what a bankruptcy is , we explain it in a simple way so that you have no doubts. Does suspension of payments sound familiar to you ? It has a lot to do with it, since this was its old name. And we can already anticipate that it is a long and complex process.
When you finish this article you will know what a bankruptcy is, when you can use it and under what circumstances it can be a good solution for your problems. We are going to explain its phases and if this procedure is effective or not. Finally we will tell you what other solutions you can adopt before reaching the catastrophe.
Bankruptcy: what does it consist of
The business world is complex and not all entrepreneurs succeed in reaching their goals. Problems grow and defaults lurk. It is time to act and make the bankruptcy a correct solution to these types of problems. The objective of a bankruptcy is to avoid bankruptcy, and that suppliers and employees receive their debts. In other words, it is a type of negotiated exit in which the disappearance of the company is avoided.
The bankruptcy can be requested by companies, freelancers, and also by individuals. Faced with a debt situation that cannot be addressed by the usual means. The bankruptcy is a suitable solution. In Nigeria, bankruptcy is governed by Law 22/2003 of July 9 , amended by Law 38/2011, of October 10
Types of bankruptcy
The bankruptcy proceedings can be requested in two ways, the voluntary and the forced.
- Voluntary: In it it is the company itself, the self-employed person or the natural person who requests the contest, as a preliminary step to avoid bankruptcy. This is the usual way, since, as it is a judicial process, not requesting it and deliberately leading the company to bankruptcy can lead to heavy penalties. When there is a request for voluntary bankruptcy, the debtor must demonstrate his inability to meet the payments.
- Forced: It is requested by someone who is harmed by the lack of payment of wages, or by a provider who does not charge. He goes to court in order to solve this situation and receive what is owed to him.
Phases of the bankruptcy
This process, after its arrival at the court, is assessed by the judge, who is the one who determines whether or not it is accepted for processing. If so, a bankruptcy administrator is appointed. This figure is key and allows the accounts to be cleaned up and whoever claims their money collects it. It is known as the Common Phase of the contest. The administrator analyzes the information in his possession in order to act in the best way possible.
1. Agreement Phase
It takes place if there are signs of survival. A feasibility plan must be drawn up. We could say, the last step prior to the liquidation. In Nigeria, 90 percent of companies that go bankrupt end up being liquidated. Also say that most of the time it happens because you act too late. If there is an agreement, the way in which the creditors will collect must be established. This is done through the following legal figures:
- Removal agreements: in which the law allows a removal of the principal owed but that creditors must agree to.
- Waiting agreements: in which the creditors postpone the maturity of the debts, so that it can be paid by the interested party.
2. Settlement Phase
It inevitably ends in the disappearance of the company, in its extinction. This phase can be requested by the court itself or by the creditors themselves.
3. Qualification Phase
In this phase, the judge decides whether the contest will be classified as fortuitous or as guilty.
It will be considered guilty when there is clear evidence that in the insolvency there has been intent or gross negligence of the debtor. The law establishes different causes, among which are:
- Breach of the obligation to keep accounting or double accounting cases up to date.
- False of serious inaccuracy in the documents of the request of the contest.
- The uprising of assets.
- Outflows of the debtor's assets for two years before the bankruptcy.
- Not requesting the contest, which is a duty.
- Not cooperating with the judge.
One of the consequences of which the bankruptcy is guilty is the disqualification to manage the property of others for 2 to 15 years, in addition to representing any person during the same time.
As advice in this phase, in addition to doing things well, the most important thing is to have a good understanding with the bankruptcy administrator who, once time has passed, will make a report to the judge according to his criteria.
4. Liquidation phase
It is the consequence of the liquidation of the company or when there is no agreement with the creditors in the agreement; since this is harmful to your interests. The qualification term is given by the designation of fortuitous or guilty. In the first case, the company administrators are not held responsible for the situation. Therefore, they do not have to respond with their personal assets. In the case of a faulty rating, the administrators respond with their assets and are disqualified from the administration for a maximum period of 15 years.
The Contest Conclusion corresponds to its completion and its cause. As the fulfillment of the contest itself, by fulfillment of the agreement, the payment of the debt to creditors.
How long does a bankruptcy last?
Bankruptcy proceedings are long processes, since you have to allow time for the parties to make decisions, but the minimum times can be between 3 and 5 years. However, it is very difficult to determine since the situations of each company can be very different. Say that at this time all debts stop until the conclusion of the contest.
Is the bankruptcy effective?
Although the objective of the bankruptcy is to avoid the bankruptcy of the company and its liquidation, this is not usually the case. In some cases, an agreement is reached, in such a way that the debt is negotiated in different ways. Lengthening deadlines or paralyzing payments for a time. Everything that can be a lifeline is cause for hope. However, when this situation occurs it is usually too late.
The bankruptcy is not a dish of good taste for anyone. Neither for entrepreneurs nor for those who depend on it. The main causes of entering it are the following:
- Not evaluating future operations, ignoring their risks.
- Not having established a future plan in which the viability is analyzed.
- Lack of correct accounting management.
- Disproportionate investments without assessing the return on investment.
- Bad economic management.
- Needlessly lengthen a project that has no viability.
Be cautious and make the right decisions
The consequences of bankruptcy are negative. Because even if the process is resolved satisfactorily and the company is not extinguished, the image of the same is very damaged. A lack of confidence in the future may occur, preventing you from financing or obtaining credit.
We are in a period in which many inexperienced people dare to undertake. But you have to assess the consequences of your decisions. Mismanagement, largely done inadvertently, often has fatal consequences. Risking personal wealth and having to respond with it to defaults can end in ruin.
Having financial support in the form of a personal loan can be a good option to be able to respond to debts. In any case, you always have to sit down with the calculator in your hand and have very clear ideas. With proper financial management by professionals, future problems can be avoided.
We add a video that will explain in a very simple way what a bankruptcy is:
Now that you know what a bankruptcy is , you will know how to understand that it is a complex process. Long but with a clear mission, to save companies from bankruptcy. Having financing such as that provided by our comparator can be a specific help.