Can every company file for bankruptcy?

One of the main conditions for a bankruptcy is to have at least two creditors. An important premise for the Court is, of course, also the loss of financial liquidity. However, the court may dismiss a bankruptcy petition if the delay in performance of the obligations does not exceed three months.

A strong argument for bankruptcy proceedings is, however, a situation in which the amount of financial liabilities exceeds the value of the company’s assets. Such a state must last for over two years – explains Szymon Mojzesowicz from the consulting company Lege Advisors.

The debtor or the creditor submits a petition for bankruptcy to the court. Then, a temporary court supervisor is appointed to examine the company’s situation (whether there are sufficient funds to declare bankruptcy and insolvency). With the declaration of bankruptcy, the receiver goes into liquidation of the property. All enforcement proceedings are also closed, even if the bailiff has already put the item up for sale. Monitor Sądowy i Gospodarczy informs about the declaration of bankruptcy. Creditors now have 30 days to file claims if they wish to recover amounts from the proceedings.

Filing a bankruptcy petition does not relieve the entrepreneur from liability. Its purpose is to guarantee the effective conduct of bankruptcy proceedings, which will cover the costs of these proceedings and satisfy creditors (as far as possible). Practice shows that courts do not open proceedings in which there is no chance of satisfying the creditors, even if only to the slightest degree. – For this reason, assets are needed to cover the costs of: securing the enterprise, payment of employees’ salaries and remuneration of the trustee, etc. It happens that assets worth millions of zlotys may turn out to be insufficient to allocate the amount to pay off creditors, costs related to securing assets and ongoing service until sale – explains Przemysław Furmanek from Lege Advisors.  

A good example is a failing trading company that has “troublesome” goods purchased for several hundred thousand zlotys at the time of filing for bankruptcy. By the time of bankruptcy (1-3 months), the goods lost their value or the season for their sale has passed. After the declaration of bankruptcy, the trustee will have to secure the goods, e.g. hire a security company or transport them to a safe place where they will not be exposed to adverse weather conditions. In addition, there will be storage costs until the sale, which can take place even after many months. Together with other costs of the proceedings, it reduces the chance of satisfying the creditors to a minimum. The chances of opening and closing bankruptcy proceedings are also decreasing. Declaration of bankruptcy is therefore not only a question of insolvency, but also of adequate property to conduct the proceedings.

 

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