THE bankruptcy and liquidation proceedings are often understood in the same way in common parlance, although in reality the two proceedings are completely different. In the following article, we will explain to everyone what the difference is between these two procedures and why a company that has “gone bankrupt” in common parlance has not yet gone bankrupt.
Comparison of insolvency proceedings
Bankruptcy proceedings: Bankruptcy proceedings are a reorganization procedure aimed at reaching an agreement between the debtor and the creditors. In a successful bankruptcy proceeding, therefore, the creditors receive their claim or, if part of the debt is waived during the settlement, part of it. To this end, the debtor receives a deferral of payment and during this time attempts to enter into a bankruptcy settlement with creditors.
The purpose of this procedure is therefore to keep the company alive and to continue to operate in the market. Often, creditors prefer bankruptcy (although there are a number of disadvantages) because they are more likely to get their claim than in a liquidation proceeding.
Liquidation proceedings: Liquidation proceedings, as opposed to reorganization bankruptcy proceedings, are insolvency proceedings for liquidation purposes . The purpose of liquidation proceedings is to wind up an insolvent business without a legal successor and to satisfy creditors in accordance with certain rules. Liquidation proceedings can be contrasted with bankruptcy proceedings on the grounds that while an important element of a successful bankruptcy proceeding is the settlement and the satisfaction of creditors and the continuation of the company’s operations, in the liquidation proceedings we do not generally agree on an unavoidable element.
In liquidation proceedings, creditors’ claims “compete” for satisfaction.
What is a deferred payment? It is essential to talk about deferral of payment when comparing insolvency proceedings. Deferral of payment is otherwise called a moratorium. There are basically three types of moratorium in bankruptcy proceedings. The first is a temporary moratorium, which, with a few exceptions, is owed to the debtor entity in almost all cases. The temporary moratorium lasts from the submission of the application to the examination of the application by the court. The second type of moratorium is the ordinary moratorium, which applies to the business organization after the bankruptcy proceedings have been ordered. The third type of moratorium is the extended moratorium, which also requires the consent of creditors. The main feature of the moratorium is that most claims do not have to be settled temporarily during this period. In bankruptcy proceedings, the amount of deferral of payment can be up to 365 days, depending on the creditors’ consent.
Is there a deferral of payment in the liquidation proceedings? There is no mandatory deferral of payment in liquidation proceedings, however, the court may grant a moratorium on payment at its discretion.
The role of negotiation and settlement with creditors: When comparing insolvency proceedings, the role of settlement cannot be ignored. If you are a lender, it may be important to know what role you may have in each procedure. In winding-up proceedings, the agreement is not one of the essential and typical elements of the proceedings. Liquidation proceedings are proceedings in which creditors are satisfied in the manner prescribed by law during liquidation without a legal successor, while in bankruptcy proceedings, creditors are given a greater say and more flexible regulation.
Should we talk about litigation or non-litigation? In both cases, the court is acting in a non-litigious manner. The non-litigious nature of the proceedings in bankruptcy and liquidation proceedings is, by default, clear accordingly. However, it can cause problems in dealing with objections and disputed creditor claims, where the judge may engage in activities that also require classic bilateral proof.
How can the tube procedure and the liquidation procedure be linked? As we can see, the two methods have completely opposite purposes, yet there is a point of connection between them. Among other things, the most important thing is that unsuccessful bankruptcy proceedings lead to the opening of automatic and ex officio liquidation proceedings.
Who can initiate a pipe proceeding? Bankruptcy proceedings are always initiated by the company against itself. So a bankruptcy lender cannot file a lawsuit against a company.
Who can start liquidation proceedings? Liquidation proceedings can be initiated ex officio or initiated by the creditor, the liquidator and the company itself.
The article Comparing Insolvency Proceedings does not intentionally discuss the winding-up proceedings, as the company remains solvent throughout the winding-up. If you are unable to maintain your solvency, liquidation proceedings will be initiated.
You can access the Bankruptcy Act by CLICKING HERE .
If you have any questions regarding the comparison of insolvency proceedings or any of the proceedings, click HERE .
