What does bankruptcy mean?
Bankruptcy means that companies or private individuals are no longer able to meet their payment obligations. As a rule, bankruptcy takes the form of debt enforcement proceedings, but bankruptcy proceedings can also be opened without prior debt enforcement. The purpose of bankruptcy proceedings is to liquidate all of the debtor’s assets in order to be able to pay off the creditors’ debts.
Who can file for bankruptcy?
If the amount of a payment order is not paid, creditors have the right from the 20th day after notification of the payment order to apply to the competent court and have the debtor declared insolvent. This is referred to as the opening of bankruptcy proceedings as a result of bankruptcy enforcement.
A debtor can also file for bankruptcy at their own request. Companies must file for bankruptcy themselves if they consider themselves to be insolvent.
The further procedure is as follows:
- Competent court initiates bankruptcy proceedings and requests creditors to report
- If debtor cannot prove debt repayment, bankruptcy is opened
- Information from the commercial register on bankruptcy
- Preparation of a list of attachable assets for realization by the bankruptcy office
- Realization proceeds go to the creditors
- If there are no assets, the bankruptcy proceedings are closed – exception: one of the creditors requests the continuation of the proceedings within 10 days.
Summary and ordinary bankruptcy proceedings
These two procedures, which must be completed one year after the opening of bankruptcy proceedings, are described in the Federal Debt Enforcement and Bankruptcy Act (SchKG) in Articles 221 et seq. and differ as follows:
Summary bankruptcy proceedings
- Most common procedure – fast and efficient
- is used for simple circumstances or low assets
ordinary bankruptcy proceedings
- is mainly used for major bankruptcies
- Convening two creditors’ meetings at which the creditors can monitor the proceedings
Averting bankruptcy
It is possible to avert bankruptcy by the debtor and creditor reaching a contractual agreement, i.e. a schedule for the repayment of the debt. To do this, the parties must apply to the court for debt restructuring proceedings and submit the draft agreement.
What does “delaying bankruptcy” mean?
In the case of delayed bankruptcy, the company continues to conduct business even though it is already over-indebted. This is usually done in the hope that the company’s economic situation will improve in the near future. Strictly speaking, however, a delay in filing for bankruptcy only exists if there is no objective evidence to support this hope and the measures taken to avert the economic difficulties are insufficient or unsuitable.
What are the consequences of bankruptcy for shareholders?
The good news for shareholders: if a company goes bankrupt, shareholders are only liable with the capital they have invested. There is no obligation to make additional contributions, i.e. shareholders are not liable with their private assets.
The bad news: the share price collapses with the bankruptcy. There is a risk of a total loss of the invested assets. In bankruptcy proceedings, the shareholders also have few rights as they are not among the creditors. Accordingly, they cannot make any claims in the proceedings and have no right to information.