Bankruptcy of a debtor company

What is happening

A major customer has not paid, the bank has called in its loan early and the accounts have been frozen over a tax demand. The director realises the company cannot pay everyone, but fears that filing for bankruptcy will itself become a problem for him.

The owners decided to close a loss-making line of business and wind the company up, but during liquidation it emerged that the assets will not cover the creditors. A voluntary liquidation cannot be completed in that situation.

A creditor has already published notice of its intention to petition for bankruptcy. The company has a few weeks to decide whether to negotiate, pay or prepare for a procedure on its own terms.

What the law says

• Federal Law No. 127-FZ of 26 October 2002 "On Insolvency (Bankruptcy)" (the Insolvency Law) requires the chief executive to file a debtor's petition with the commercial court in the cases it lists, including where paying some debts would make it impossible to meet others. This must be done within one month of those circumstances arising.
• Breach of this duty can make the chief executive subsidiarily liable for obligations incurred after the deadline for filing expired.
• If it emerges during liquidation that the assets are insufficient to pay creditors, the liquidator must file for bankruptcy; for this case the Insolvency Law provides a simplified procedure for a debtor in liquidation.
• The Insolvency Law provides for supervision, financial rehabilitation, external management and bankruptcy proceedings, as well as a settlement with creditors. Which applies depends on the debtor's financial position and on the creditors' stance.
• The procedure has to be funded. If the debtor's assets are insufficient and nobody agrees to cover the costs, the case may be terminated, which is not always in the director's interest.
• Striking a dormant company off the register without bankruptcy does not release its controlling persons from liability: the Civil Code allows creditors to bring claims against them even after the company has been removed.

What we do

• We analyse the financial position: the debt structure, the assets, the receivables and when signs of insolvency first appeared.
• We pinpoint when the duty to file arose and assess the director's exposure linked to that date.
• We review transactions over the past three years for possible challenge and prepare explanations of their business rationale in advance.
• We prepare the debtor's petition and supporting documents: accounts, lists of creditors and debtors, and details of the assets.
• We support the company through the procedure: dealing with the officer, handing over documents, attending creditors' meetings and objecting to unfounded claims.
• We consider alternatives: restructuring debts with key creditors, a settlement agreement or selling the business as a going concern.

What we will need from you

• Financial statements for the last three years and trial balances at the latest date.
• A list of creditors with amounts and the basis of each debt, together with judgments and enforcement proceedings.
• Details of assets, pledges and receivables, and how realistically the receivables can be collected.
• Major transactions over the past three years: asset sales, loans, guarantees and settlements with related parties.
• Details of the directors and participants over that period and how key decisions were taken.