If your company has a large amount of losses, it is likely that the only solution is to dissolve and liquidate it. If you elect this procedure, you will need to start insolvency proceedings. A company enters insolvency proceedings when it can not pay for debts, and thus avoiding that debts be collected preferentially over others and distributing them equitably among creditors on account of the lack of assets of the bankrupt company.
When does a company start insolvency proceedings?
A declaration of bankruptcy will be necessary upon insolvency of the debtor. Insolvency means the condition of the debtor who cannot meet the liabilitiesthey enteredintowith their creditors.
The debtor must justify all of their debts, as well as its insolvency.
Effects of the Declaration of Insolvency
The debtor has a series of obligations upon insolvency proceedings.
Assets- they will have the obligation to manage efficiently their assets in order to guarantee the rights of their creditors.
Share of responsibility- loans from creditors during insolvency proceedings shall be established in an initial share of responsibility corresponding to each of them.
Steps to follow in insolvency proceedings
The first step once started insolvency proceedings consists of defining the assets of the debtor´s state.
Estate assets mean property and interests belonging to the debtor to the declaration date, save any assets or interests which are not subject to seizure.
Estate liabilities are those liabilities created prior to declaration of insolvency.
How insolvency proceedingsend
Insolvency proceedings may end in three different ways
Early proposal of agreement- it is a very exceptional case, where the company has not yet been liquidated or signed the agreement and an early proposal of agreement is submitted in court.
Agreement- the judge, within 15 days following expiry of objection period of the inventory and list of creditors, issues an order to end the common phase of the proceeding and the agreement phase starts.
By liquidation- the debtor may request to enter liquidation phase at any time. Once requested, the judge shall declare it wihin 10 days. The debtor must declare liquidation when he cannot comply with the obligations performed subsequently to the implementation of the agreement.