What is a competition of creditors? Frequent questions

What happens when a company is in bankruptcy? In this guide we explain what is a competition of creditors, and what purpose has. In addition, the ways to start it and the consequences of the intervention of the bankruptcy trustee in the judge’s final decision.

What is a competition of creditors?

Competitions of creditors have advantages and disadvantages for both parties, therefore it is important to know its operation. When a company cannot pay its debts, it is in a situation of insolvency, then it’s time to declare the contest. In this case, the judge must be who, after reviewing the application filed by the employer (volunteer contest) or by creditors (competition required), declares the company in bankruptcy.

From the Declaration of insolvency by the judge, the powers of the Manager(s) of the company are limited, among other consequences, requiring the supervision of a bankruptcy administrator.

When should I apply for it?

After meeting the creditors contests, we’ll talk about the ideal time to apply. From the administrators of a society aware of the inability to pay their debts in a generalized manner continued, they will have the professional duty of inform a judicial authority within two months, for necessary to the opening of the competition. Requested by the debtor company initiative, we can say that we have a voluntary insolvency competition.

If on the other hand, we have outstanding debts that charge to a company that is taking by habit not to pay us, we will have to consider the possibility of starting a competition of creditors required to pay off the debt.

What effects does seeking this contest have for my company?

If you decide to present it, you should know that the effects of the Declaration of the voluntary competition are varied. Among others, it allows the company to have certain advantages and disadvantages against the declaration of the needed contest, due to the fact that the company will be who presents its own proposal for a Convention to continue the activity.

Adventages

• A paralysis on claims already filed by creditors and inability to bring new claims against the bankrupt company.
• Debts shall not accrue interest on late payments.
• Prevents sell off the heritage at the request of one of the creditors, because it must deal with all debt, equally .
• Does not imply the automatic disappearance of the company. In fact, the voluntary insolvency contest is intended to maintain the continuity of the Company.

Disvantages

• Limitation of the powers of the bankrupt, due to the intervention of the bankruptcy administrators.
• Deadline to repay debts is reduced to five years since the approval of the presented agreement. It will be proposed in it the payment plan to creditors of the 50% of the amount of their claims and the viability of such payments.
• There are certain costs (remuneration of insolvency administration, costs of a long and complex process…).
• The image generated is not usually too positive face to the public.

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How does a bankruptcy procedure starts?

Before requesting it, we recommend you to make or purchase a study of the feasibility of the insolvency proceedings and to get informed well of all its features. With it, you can assess whether it is really essential to the procedure. After doing this, the guidelines to start are:

1. application for bankruptcy. This is presented to the courts of the commercial law of the province where the debtor is domiciled.

2. nomination: is necessary the presence of Attorney and paralegal.

3. the application must be filed within two months since you had knowledge of the insolvency.

How long does it take to study the feasibility in the competitions creditors?

The duration of the study depends on the complexity of the issue and the economic difficulties that has the company, being usually less than three months.

What is the maximum period that a company could be under this bankruptcy administration?

There is not a maximum period that a company may be under the State’s creditors. A competition of creditors has two possible forms of finishing:

• By the adoption of the proposed Convention. The creditors and bankrupt reach an agreement on the amounts to pay off and the payment plan.

• By liquidation, selling assets to pay creditors in an order established by the Bankruptcy Act

The bankruptcy administration period will depend on the circumstances and needs of the specific case. The voluntary competition is characterized by the presentation of the proposed agreement by the company. If the proposed agreement is accepted by the creditors and there is no opposition, the judge will issue a ruling approving the Convention, which should be published in newspapers and edicts.

If the agreement is rejected, a liquidation phase to sell assets and pay off the debt according to the settlement plan it’s opened. It is a last appeal since the law prefers to maintain the activity of the company

What happens if in the liquidation phase one of my creditors is the IRS or Social Security?

Since the Social security or tax credits are considered privileged, his credits with the society will be charged previously, rather than ordinary loans.

After the sentence is defininite, the effects of competition will cease and will also cease the bankruptcy administrator.

 After knowing the characteristics of the insolvency proceedings, do you still have anymore questions? Contact our lawyers and we will answer them all