Bankruptcy is a legal process used when a business or individual can no longer pay its debts as they fall due. The purpose of bankruptcy is to ensure that the business or individual's assets are distributed fairly among creditors according to the rules of bankruptcy law.

What is bankruptcy?

Bankruptcy is regulated by the Bankruptcy Act and involves:

• Termination of the company's activities.
• Realization of assets for the benefit of creditors.
• A structured process to ensure that creditors' claims are handled correctly.

Bankruptcy is typically declared when a company or individual is insolvent. Insolvency means that there are insufficient funds to pay all debt obligations.

When is bankruptcy relevant?

Bankruptcy may be necessary when:

1. The company or person is insolvent.
2. It is not possible to make a voluntary agreement with the creditors.
3. There is no prospect of a successful reconstruction.

Bankruptcy can be filed by either the company itself, a creditor or, in some cases, a public authority.

How does bankruptcy proceedings take place?

The bankruptcy process begins with a bankruptcy petition being filed with the bankruptcy court. The following then happens:

1. Bankruptcy decree

The bankruptcy court assesses whether there are grounds to declare bankruptcy. If the conditions are met, a bankruptcy decree is issued and a trustee is appointed to manage the process.

2. The role of the curator

The curator is responsible for:

• Calculate the company's assets and liabilities.
• Sell the assets to create funds for the creditors.
• Distribute the proceeds among the creditors according to the bankruptcy order.

3. Distribution of assets

The distribution of funds is done in order of priority:

1. Costs for processing the bankruptcy estate (including trustee's fees).
2. Secured creditors, e.g. mortgagees.
3. General creditors.
4. Subordinated creditors.

4. Closing of the bankruptcy estate

When all assets have been realized and the funds have been distributed, the bankruptcy estate is closed. This is marked by a final settlement to the creditors.

What are the consequences of bankruptcy?

Bankruptcy has significant consequences, including:

• The company ceases to exist.
• Owners and management lose control of the company.
• Any employees will be dismissed.

For individuals, bankruptcy can result in:

• Loss of assets.
• Limitations on future career opportunities, e.g. certain management roles.

Advantages of bankruptcy

Although bankruptcy can be a difficult process, it can also have advantages:

• An end to incalculable financial problems.
• Creditors are given the opportunity to receive a share of their receivables.
• Opportunity for a new start for owners or private individuals after bankruptcy.

How can we help?

As experienced lawyers, we can help with:

• Assessing whether bankruptcy is the right solution.
• Advising on alternatives to bankruptcy, e.g. reconstruction.
• To represent you or your company throughout the bankruptcy process.

Contact us for a confidential conversation about how we can help you through a difficult time with professional and empathetic advice.