When a bankruptcy proceedings is carried out, there are a series of phases to follow the procedure in an orderly manner and taking the necessary steps to reach a successful outcome. But, What are the phases of bankruptcy?
Below we want to talk to you about it so that you can know what happens in each phase and have the necessary information so that, if at any time you find yourself in that situation, you know what is going to happen. Go for it?
What is a bankruptcy
Before talking to you about the phases of bankruptcy proceedings, it is advisable that you have an idea of ​​what we mean by bankruptcy proceedings. This is a legal procedure that is carried out when there are problems in a business related to solvency or lack of liquidity. The goal is to try to see how creditors can collect and, at the same time, try to keep the business going.
For this reason, it is very important to follow detailed steps, or phases, because they are what can help to fulfill the function of the bankruptcy proceedings.
Phases of bankruptcy
As we have told you before, a bankruptcy proceedings has a series of phases stipulated by law that must be complied with to maintain order and control, and also because it is the most efficient way to evaluate the situation and look for solutions that can serve both the creditors who want to collect as well as the owners of the business that wants to continue.
The phases are stipulated by the article 508 of the Bankruptcy Law (Royal Legislative Decree 1/2020, of May 5), That says so:
«Article 508. Sections.
1. The competition procedure will be divided into the following sections, organizing the actions of each of them into as many separate pieces as are necessary or convenient:
1. The first section will include matters relating to the declaration of bankruptcy, the precautionary measures, the conclusion and, where appropriate, the reopening of the bankruptcy.
2. The second section will include matters relating to the bankruptcy administration, the appointment and dismissal of the head or heads of this body and, where appropriate, the assistant delegate, the determination of the powers of this body, the exercise of the position, to remuneration, accountability and, where applicable, civil liability that the bankruptcy administrator or administrators may have incurred. This section will include in a separate piece the report of the bankruptcy administration with the accompanying documents and, where appropriate, the definitive list of creditors.
3. The third section will include matters relating to the determination of the active mass, incidents relating to which assets and rights are necessary for the continuity of the professional or business activity of the bankrupt, the lifting of embargoes, judicial authorizations and the credits against the estate. In this section each of the incidents related to the reintegration and reduction of the active mass will be included in a separate piece. This section will also include in a separate piece the executions that are initiated or resumed against the assets and rights of the active mass.
4. The fourth section will cover matters relating to the determination of the passive mass, the communication, recognition, grading and classification of bankruptcy claims and the payment of creditors. This section will include in a separate piece each of the incidents related to the inclusion or exclusion of bankruptcy credits, as well as the amount or classification of those recognized. This section will also include in a separate piece the declaratory judgments that are accumulated in the bankruptcy proceedings.
5. The fifth section will include in separate parts what is related to the agreement and the liquidation.
6. The sixth section will cover matters relating to the qualification of the competition, the purposes of the qualification and the execution of the ruling of qualification of the competition as guilty.
2. In the case of related contests, as many sections will be opened as contests have been declared jointly or have been accumulated, except for the third and fourth sections which will be common when the judge has agreed to accumulation of masses.
Based on this article we find that, by law, the phases are stipulated in six. But In practice, not all of them are carried out, but rather they are included in four, which are what we are going to see next.
common phase
The first phase of bankruptcy proceedings is also the most complex because it is the one that begins the entire process. It includes the application for bankruptcy proceedings, which may be voluntary or necessary, and the processing of this process.
At that moment it begins to Information about the company should be collected, such as its economic and financial situation of the debtor, the amount of money owed, what it pays, viability of the company, whether it is possible to pay those who owe it...
To do this, a bankruptcy administrator is appointed who will be in charge of managing this process and acting to protect the interests of creditors. In general, he will carry out an inventory of assets and rights (assets of the debtor); a list of creditors of the debtor (passive estate of the debtor); a list of claims accrued after the declaration of bankruptcy; and an analysis of the legal and economic memory of the debtor.
All this will help Set the ranking to know who will collect first. Namely:
- Privileged, such as Social Security and Treasury.
- Ordinary credits (banks).
- Subordinated (interest and surcharges).
This phase lasts approximately 15 days, at which point we move on to the next one.
Agreement phase
This is one of the phases of the bankruptcy proceedings that can obtain two results: that there is an agreement or that there is not.
And during the phase A solution is proposed to reach an agreement between the creditors and the debtor. In other words, a plan is carried out that could solve the problem and try to keep the company going and ensure that all creditors collect.
Now, the following can happen:
- That agreement is accepted, so the judge issues a sentence and it will have to be complied with by both parties.
- That the agreement is not accepted. In this case we move to the liquidation phase.
Liquidation phase
If there are no agreement proposals or they are not approved or complied with, then we move on to this liquidation phase. In this the bankruptcy administrator must manage all of the debtor's assets to establish a liquidation plan and help resolve debts with creditors. At the same time he must try to make the business move forward.
To do this, what is done is to convert the goods and assets into liquidity (by selling them). With these funds, debts are paid based on legislation (there will be creditors who have preference over others). The rest that is left over can be used to keep the business going if possible. Although we already warned you that normally, when this phase is reached, it is because the continuation of the company is unfeasible.
Qualification phase
To finalize the phases of the bankruptcy proceedings we have the qualification phase. In this case The conduct of the bankrupt is assessed, what the causes of this insolvency have been, and it is determined whether the bankruptcy has been fortuitous or culpable.
The qualification report is carried out by the bankruptcy administrator together with the Public Prosecutor's Office and, as you have seen, it has two results:
- If he is guilty, then the debtor or administrator is the cause of the situation that occurred, that is, the insolvency of the business and it has aggravated to that point.
- If it is fortuitous It means that the debtor has not caused this situation of insolvency, but rather that it has happened to him. In this case, within a month, a final liquidation report is prepared (explaining the liquidation operations carried out and the amounts obtained) that requests the conclusion of the procedure to a judge.
Have the phases of bankruptcy proceedings become clear to you?