Bankruptcy is the circumstance of not being able to pay the money owed, by a person or company, on time; those who are in a state of bankruptcy are said to be bankrupt . There are two forms: the bankruptcy of cash flows and the insolvency of the balance sheet.
Cash-flow incentives is when a person or company has enough assets to pay what to pay but does not have the appropriate form of payment. For example, a person can own a large house and a valuable car, but does not have enough liquid assets to repay debt when it matures. Bankruptcy cash flows can usually be resolved through negotiations. For example, bill collectors can wait until a car is sold and the debtor agrees to pay a fine.
Sheet-sheet insolvency is when a person or company does not have enough assets to pay all their debts. The person or company may go bankrupt, but not necessarily. Once the losses are accepted by all parties, negotiations are often able to resolve the situation without bankruptcy.
A debt-laden company may still have enough money to pay the next bill on time. However, most laws will not let companies pay the bill unless it will directly help all their creditors. For example, a bankrupt farmer may be allowed to hire people to help harvest crops, because not harvesting and selling crops will be worse for his creditors.
It has been suggested that the speaker or writer should say technical insolvency or actual insolvency to always be clear - where technical bankruptcy is a synonym for balance sheet insolvency, which means that his liability is greater than his assets , and the actual bankruptcy is a synonym for the first definition of insolvency ("Bankruptcy is the debtor's inability to pay their debt.").
While technical bankruptcy is a synonym for sheet-sheet insolvency, the bankruptcy of cash flows and bankruptcy are not actually synonymous. The term "cash-flow insolvent" has a strong (but perhaps not absolute) connotation that the debtor is the solvent of the balance sheet, while the term "completely bankrupt" does not.
Video Insolvency
Technical definition
Bankruptcy cash flows involve a lack of liquidity to repay debt when it matures.
The insolvency balance involves negative negative assets - where liabilities exceed assets. Bankruptcy is not a synonym for bankruptcy, which is the determination of bankruptcy made by the court by producing legal orders intended to resolve bankruptcy.
Accounting for bankruptcy occurs when total liabilities exceed total assets (net worth is negative).
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Consequences
The main focus of modern insolvency laws and the practice of business debt restructuring is no longer dependent on the liquidation and elimination of bankrupt entities but on the re-modeling of financial structures and debtor organizations that are experiencing financial difficulties thus enabling the rehabilitation and sustainability of their businesses. This is known as business rotation or business recovery . Implementing business turnover can take many forms, including maintaining and restructuring, sales as survival, or strong winds and exits. In some jurisdictions, it is a violation under insolvency laws for a company to continue business while bankrupt. In other countries (such as the United States with the provisions of Chapter 11), businesses may continue under the stated protection arrangements while alternative options for achieving recovery are resolved. Increasingly, the legislature has chosen an alternative to close the company for good.
It could be, in some jurisdictions, the reasons for civil action or even offense, to continue to pay some creditors in preference to other creditors after the bankruptcy is reached.
Debt restructuring
Debt restructuring is usually handled by professional insolvency and restructuring practitioners, and is usually cheaper and a better alternative than bankruptcy.
Debt restructuring is a process that allows private or public companies - or sovereign entities - to face cash flow problems and financial difficulties, to reduce and renegotiate its troubled debt to repair or restore liquidity and rehabilitate so it can continue its operations.
Government debt
Although the term "bankrupt" can be used in reference to government, sovereign states are not bankrupt. This is because bankruptcy is governed by national law; there is no entity to take over such a government and distribute assets to creditors. The Government can become bankrupt in the case of not having the money to pay the obligations when it matures. If the government does not meet the obligations, it is the "default". Since the government is a sovereign entity, the person holding the government debt can not seize the government's assets to repay the debt. An attempt to creditors is to ask to be paid at least a portion of the indebtedness. However, in many cases, debt in default is refinanced by further loans or monetized by issuing more currency (which usually results in inflation and may result in hyperinflation).
Legal
Bankruptcy regimes around the world have evolved in a very different way, with laws that focus on different strategies for dealing with bankrupt ones. The result of a bankrupt restructuring can be very different depending on the state law in which the bankruptcy proceedings are carried out, and in many cases, different stakeholders within a company can hold benefits in various jurisdictions.
Australia
In Australia Corporate bankruptcy is governed by the Corporations Act 2001 (Cth). Companies may be incorporated into Voluntary Administration, Creditors Voluntary Liquidation & amp; Court Liquidation. Secured creditor with registered fee may appoint Recipient and Receiver & amp; Managers depend on their costs.
Canada
In Canada, bankruptcy and bankruptcy are generally governed by Bankruptcy and Insolvency Act. Alternative regimes are available to large companies (or affiliated groups) under the Creditor's Regulatory Act, where total debt exceeds $ 5 million.
India
In India, bankruptcy and bankruptcy are generally governed by Insolvency and Bankruptcy Code 2016.
South Africa
In South Africa, business owners who, at any stage, trade insolvently (ie those with financial account insolvency) are personally liable for business debt. Trading in bankruptcy is often regarded as a normal business practice in South Africa, as long as the business is able to meet its debt obligations when it matures.
Switzerland
Under Swiss law, bankruptcy or foreclosure may lead to foreclosure and auction of assets (usually in individual cases) or to bankruptcy proceedings (generally in the case of a registered commercial entity).
Turkish
Turkish bankruptcy law is governed by Law Enforcement and Bankruptcy (Code No: 2004, Original Name:? Cra ve? Flas Kanunu). The main concept of bankruptcy law is very similar to Swiss and German insolvency laws. The enforcement method is to realize the promised property, asset seizures and bankruptcy.
United Kingdom
In the UK, the term bankruptcy is reserved for individuals. Bankruptcy is defined both in terms of cash flows and in terms of the balance sheet in the UK Insolvency Act 1986, Section 123, which reads partially:
123.- (1) The Company is deemed unable to pay its debts ---
(A) if the creditor (by assignment or otherwise) to whom the company owes in excess of Ã, Â £ 750 then matures has served on the company, leaving it in the company's registered office, a written request (in the prescribed form) requires the company to pay the amount due and the company has for 3 weeks after it is negligible to pay the amount or to secure or compound it for it to the reasonable satisfaction of the creditor,... (2) The Company is also deemed unable to repay its debt if it is proved by court satisfaction that the value of the company's assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities...
Companies that go bankrupt can be put into liquidation (sometimes referred to as closing). Directors and shareholders may incite the liquidation process without court involvement by shareholder resolution and the appointment of a licensed Insolvency Practitioner as a liquidator. However, liquidation will not be legally effective without holding a creditor meeting that has the opportunity to appoint a liquidator of their own choice. This process is known as a voluntary liquidation creditor (CVL), as opposed to a voluntary liquidation member (MVL) which is for a solvent company. Alternatively, the creditor may petition the court for a closing order which, if awarded, will place the company into what is called a compulsory liquidation or a closure by the court. Liquidators realize the assets of the company and distribute the realized funds to creditors according to their priorities, after deducting fees. In the case of Sole Merchant Bankruptcy, bankruptcy options include Individual Voluntary Arrangements and Bankruptcy.
This could be civil and even a criminal offense for the directors to enable the company to continue trading while it is bankrupt. However, two new insolvency procedures were introduced by the Bankruptcy Act of 1986 aimed at providing time to save a company or, at least, its business. This is the Administration and the Company Voluntary Settings:
- Administration is a procedure to protect the company from its creditors in order to make significant operational or restructuring changes so that it can continue as a continuity, or at least to achieve better results for creditors than through liquidation. In contrast to Chapter 11 in the US where directors remain in control throughout the restructuring process, in the UK the Designated Administrator shall become a licensed Bankruptcy Practitioner to manage the affairs of the company to protect the bankrupt corporate creditors and balance each interest. Unless the company itself is saved by this process, the company is then put into liquidation to distribute the remaining funds.
- A Voluntary Adjustment (CVA) is a legal agreement between the company and its creditors, based on paying a fixed amount lower than the actual outstanding debt. This is usually based on monthly payments, and at the end of the agreed term, the remaining debt is written off. CVA is managed by Supervisor who must become a licensed Bankruptcy Practitioner. If the CVA fails, the company is usually put into liquidation.
One special type of Administration is becoming more commonly referred to pre-packaged administration (more information under administration (law)). In this process, as soon as the appointment of an administrator completes the sale of a pre-arranged business enterprise, often to the director or owner. This process can be considered controversial because the creditor does not have a chance to vote against selling. The rationale behind the device is that quick business sales may be necessary or beneficial to enable the best price to be achieved. If the sale is delayed, the creditor will eventually lose because the price earned for the asset will be reduced.
In addition to the above mentioned corporate bankruptcy procedures, creditors holding security in the assets of the company may have the power to appoint a bankruptcy practitioner as an administrative recipient or, in Scotland, the recipient. The process, later known as the administrative curator or, in Scotland, the curator, has been around for many years and often results in a successful rescue of the company's business through sales, but not from the company itself. Since the introduction of the collective bankruptcy procedure Administration in 1986, legislators have decided to organize shelf life on administrative curators or, in Scotland, curatorial procedures and are no longer likely to appoint the recipient administrations or, in Scotland, the recipients below security made after September 15, 2003.
In individual cases, estate bankruptcy is handled by an authorized recipient, appointed by the court. In some cases, the files are transferred to an RTLU (OR Regional Trustee Liquidator Unit) that will assess your assets and earnings to see if you can contribute to paying for bankruptcy fees or even paying off some of your debt.
United States
Under the Uniform Commercial Code, a person is considered bankrupt when the party has stopped paying its debts in ordinary business, or can not pay its debts when matured, or goes bankrupt in the sense of the Bankruptcy Code. This is important because certain rights under the code may apply to non-paying parties that are otherwise unavailable.
The United States has established an insolvency regime aimed at protecting bankrupt individuals or companies from creditors, and balancing their respective interests. For example, see Chapter 11, Title 11, United States Code. However, some state courts have begun to find individual officers and individual directors responsible for pushing companies deeper into bankruptcy, under the legal theory of "deepening bankruptcy".
In determining whether a gift or payment to a creditor is an unlawful preference, the date of bankruptcy, not the date of bankruptcy declared legally, will usually be a major consideration.
See also
- Solvency
References
Further reading
- Ma? ko, Rafa ?. "Transboundary bankruptcy law in the European Union" (PDF) . Library Direction . European Parliament Library . Retrieved February 21 2013 .
External links
- Business Insolvency Worldwide - Euler Hermes Report
- Worldwide Infographic Business Insolvency Prospects in 2015 - Euler Hermes foresaw
Source of the article : Wikipedia
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