Bankruptcy risks for business. How not to aggravate the situation in case of formation of a large debt?

Sep, 01 2022

Contents:

Bankruptcy is the inability of a legal entity to fulfill financial obligations. The bankruptcy procedure is initiated if a limited liability company does not pay its obligations for more than 3 months and the total amount of debt exceeds 300,000 rubles.

Creditors have the right to file a statement of claim in court with the requirements to declare the LLC bankrupt and collect funds to repay debts from among the company’s assets or funds available on settlement accounts. If these finances are insufficient, a procedure may be initiated to bring the responsible person to subsidiary responsibility – payment of debts from personal finances.

It is important to keep in mind that the process of declaring a debtor bankrupt takes place in the arbitration court of the Russian Federation. One of the following parties may file an appropriate claim for insolvency:

  • Creditors,
  • Authorized state body – Federal Tax Service, Prosecutor’s Office.

Risks of bankruptcy of LLC

There are several categories of bankruptcy risks that managers and founders of companies may face. Among them are the following:

  • Loss of business. Preservation of the company’s assets is one of the goals of any manager in bankruptcy. With the bankruptcy procedure initiated in a timely manner and the competent actions of the bankruptcy trustee, the debtor can restructure his debts and keep the business with the possibility of its gradual development.
  • Subsidiary liability. This type of responsibility may occur for a responsible person from among the management, financial services, or management personnel – those who may be directly involved in bringing the company to bankruptcy. The essence of subsidiary liability is the seizure of personal funds or assets of the person controlling the debtor. In the case of bringing a subject to subsidiary liability, it becomes important to have evidence of a connection between the controlling person and his actions, which could or did lead to the insolvency of the enterprise.
  • Loss of reputation. Counterparties and clients are entities that provide the company with financial viability. The bankruptcy procedure severely affects the image of the company, especially in situations where the court finds signs of deliberate bringing the company to insolvency. By the way, in this case, the management can be brought to criminal responsibility under Article 196 of the Criminal Code of the Russian Federation with punishment in the form of a fine of 200,000 rubles or real imprisonment.

Debts as the main risk of bankruptcy

The write–off or restructuring of debt obligations is the main goal pursued by debtors when initiating bankruptcy proceedings. However, there are situations that worsen the already precarious position of the debtor and lead to serious consequences – the refusal of the court to write off the debt. This leads to the collapse of the business and an even bigger debt hole. Under what circumstances can you get into such a situation?

  • An attempt to sell assets at a price below the market. Such a situation is possible if the manager foresaw the possibility of bankruptcy and decided to sell assets at a value lower than the market average. In fact, the debtor receives the difference in value personally on his hands, which allows hiding funds from bankruptcy managers.

This situation directly indicates the bad faith and malicious intent of the head or owner of the company. The property sold in this way can also be returned to the bankruptcy estate on a general basis.

  • Repayment of debts of one of the creditors to the detriment of others. If there are debt obligations to several banks or counterparties, the procedure for debt payment is determined by a bailiff or an appointed arbitration manager. An attempt to repay debts independently and not in equal proportions will lead to retaliatory actions on the part of other creditors. This increases the risks of a court decision to refuse to write off or restructure debts.
  • Obtaining new loans in the bankruptcy process. Making loans or debt receipts during the start of the procedure will negatively affect the outcome of the case.

In the event of a pre-bankruptcy situation or when the process has already begun, the qualified assistance of lawyers is of great importance. VALEN specialists have extensive experience in conducting such cases.

Author of the article
Bankruptcy risks for business. How not to aggravate the situation in case of formation of a large debt?
Valentina Khlavich
Managing Partner
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