What is the definition of insolvency? What are its main criteria and reasons? How does the insolvency process work and what are the disadvantages of such a provision?
Views of different countries
Now more and more often you can hear this term not only in the media, but also in everyday life. What does he mean? Insolvency is the inability of the debtor to pay his debts to creditors. It is noteworthy that different countries treat debtors differently. For example, in the USA and France there is a special system that allows an insolvent person to get rid of debt obligations and create a new business. In other European countries, there is a different system in which the debtor is obliged to satisfy creditor claims to the maximum.
In Russia, however, this process is approached ambiguously: somewhere debts are allowed to be written off, and somewhere they are forced to pay. However, if insolvency, bankruptcy was declared fictitious, then this is already a serious crime and, accordingly, is punishable by law.
Statementabout bankruptcy
How is the bankruptcy process going? Who can apply for such status? It is worth mentioning right away that both a legal entity and an individual can be declared bankrupt. However, in the current legislation, certain regulatory procedures are poorly developed and therefore there is practically no talk of insolvency, bankruptcy of individuals. In other words, the ability of individuals to report such a condition does not really work.
In Russia, only an arbitration court can declare bankrupt. Therefore, the primary action is to file for bankruptcy. This application can be submitted by both the debtor and the creditors. Such a status must be proved: a bankrupt must have certain signs of such a situation. The result in this process is either the liquidation of the enterprise, or the full reimbursement of financial obligations to the creditor.
Signs of failure
What signs can determine the insolvency of the debtor? Firstly, this is the presence of debt to creditors; secondly, the inability to pay mandatory payments or debts; thirdly, the presence of debt obligations of more than 10 thousand rubles for an individual and more than 100 thousand rubles for a legal entity; finally, declaring the debtor bankrupt by the relevant court.
In fact, the bankruptcy procedure is one of the most difficult, and the help of specialists is needed to implement it. It requires a careful approach and a lot of time, since it is the court that establishesmonitoring the activities of the enterprise in order to exclude the option of fictitious or deliberate bankruptcy. However, observation is not the only method of establishing insolvency status; there are many more options for checking this information.
Financial Restoration Procedure
Financial insolvency is not just recognized as a fact, it can also be tried to be restored with the help of certain measures. The supervision procedure involves the appointment of an interim manager through whom all transactions related to the debtor's property take place. This is required in order to preserve the property until the verdict of the arbitration court is issued, as well as to identify the real state of the financial situation of the debtor.
Financial recovery is carried out with the help of an administrative manager. The main objective of this procedure is the rehabilitation of the solvency of a bankrupt. If in both these cases the management of the enterprise is not removed, then the external management procedure implies such a removal. For the duration of this procedure, all pen alties and other accruals of creditors are canceled, but the manager is obliged to create a plan to restore financial and material well-being and provide it to creditors.
New manager
The concept of insolvency includes a lot of different procedures. And how is the manager appointed in the procedures of supervision and financial recovery? A citizen who is a member of the representatives of one of the organizations is selected for such a responsible position.arbitration managers. It is only possible to appoint a manager who does not have any direct benefits from the bankrupt. In parallel with the financial recovery of the debtor, the new manager may engage in other activities, but only if they do not interfere with the bankruptcy case and completely exclude any conflicts of interest.
Mandatory conditions are: higher specialized education, experience in a managerial position for at least one year, passing a specially compiled exam. The insolvency practitioner must also not have a criminal record.
Competitive method
The meaning of insolvency carries many problems, therefore, along with financial recovery and other cardinal methods, the competition method is also used.
The purpose of the competition is to resolve problems associated with the debtor's debt obligations, and more specifically, to put his property up for sale. After the sale of the property, the moment comes for the payment of debts to creditors in the order of priority. Such a competition can be carried out both forcibly and voluntarily. Not necessarily the property of a bankrupt is sold, it is also distributed among creditors, but only exclusively in compliance with the competitive procedure. This method can be applied to both legal entities and individuals. Insolvency is a status that can be assigned to different categories of citizens and businesses.
Mutual agreement
There is also another method of dealing withbankruptcy, referred to as a "settlement agreement". This is an agreement between the debtor and the creditors. It is used to resolve all debt restructuring issues. Insolvency is a situation that will definitely need to be proven in court. And only after this procedure, the debtor has the right to claim the conclusion of an agreement.
This agreement is also being litigated and only an arbitral tribunal can satisfy it. A mandatory aspect when concluding a settlement agreement is the consent to this procedure of both parties. After the conclusion of such an agreement, the process of restructuring the loan structure begins (installment payments, revision of interest, deferred payments).
Absolute and relative insolvency
This direction in legal practice is considered definitely new, because the status of bankruptcy has appeared much recently. The very term of insolvency rests on the term "insolvency". The latter, in turn, is divided into relative and absolute.
Absolute insolvency is called bankruptcy, and relative insolvency implies overcoming insolvency through agreements between the debtor and creditors, installment payments.
The legal definition of insolvency is described in the Federal Law “On Bankruptcy”; it is the inability of the debtor to fully compensate for losses on monetary obligations to creditors or to fulfill the requirements forpayment of mandatory payments, which is recognized by the arbitration court. However, do not forget that insolvency and bankruptcy are used as synonyms.
Individuals
More and more often various organizations have become bankrupt. And there are really many reasons for this. But insolvency is a term that applies to individuals as well. In order for a citizen to be declared bankrupt, several factors must be taken into account: his debts must be more than half a million rubles; no payment on payments must be more than 3 months. When these criteria are present and a citizen is declared bankrupt, then certain restrictions and prohibitions are imposed.
For several years, this citizen will not be able to carry out entrepreneurial activities, will not have the right to secure leadership positions, will not take loans from any bank. Until the bankruptcy procedure is terminated, a citizen will not be able to travel abroad. And this is not the whole list of restrictions.
Regulatory aspects of insolvency
Legal insolvency is well developed for all categories that fall under bankruptcy. To be more precise, legal regulation carries a lot of comprehensive measures to exit bankruptcy status, as well as to close all debts of the debtor. Of course, as a result of these measures, all the property of the enterprise can be sold, but no one will take more than it should be. Since the start of bankruptcyenterprises, individual entrepreneurs, individuals stops any accrual of interest, pen alties or delays.
Insolvency is a provision that falls under various categories of persons. Are there categories that cannot fall under the concept of bankruptcy? Yes, there are. These include state-owned enterprises, religious organizations, political parties.
Fictitious bankruptcy
Often, when starting their own business, entrepreneurs cannot clearly calculate the entire plan for doing their business, thereby increasing the chances of bankruptcy. However, insolvency is not only a real danger, but also a certain way of deception, which unscrupulous entrepreneurs take. This step is taken for many reasons. For example, in order not to pay monetary obligations both to creditors and to individuals or even government agencies.
Nevertheless, proving fictitious bankruptcy is quite realistic, and the punishment for this fraud is quite serious. The deceiver will receive either a fine in the amount of 80,000 to 300,000 rubles, or a ban on doing this business for a period of 12 to 36 months, or real imprisonment for up to 72 months. Therefore, it is worth considering the need for such a deception and understand that you will definitely have to bear responsibility for it.
How to Avoid Bankruptcy
Don't think that failure is an inevitable process. It's a delusion. Bankruptcy is possibleto avoid if certain measures are followed: to have certain cash reserves for the organization, to increase income from transactions or sales (sales should be increased not by lowering prices, but by means of promotions, increasing the number of buyers, etc.). Try to convince your customers of the need to pay an advance on transactions, control the process of delayed payments and unpaid invoices, monitor the timely processing of invoices, try to optimize the system for selling goods and services, reduce staff if you do not need any of them at all. Naturally, it is not necessary to fire all employees or through one, otherwise there will be no one to help develop the business, but just talking about the possibility of layoffs will make the team work more efficiently.
Bankruptcy as a continuation of the path
Despite the fact that the mention of bankruptcy causes unpleasant thoughts for many, this is far from the end. Insolvency, bankruptcy is a definition that can give a second chance to a firm or organization. Sometimes an enterprise does not collapse, dozens or even hundreds of people do not quit, but the leader changes. Yes, it is possible to lose investments, money, property, but at the same time a second chance is acquired. Many were able to rise from scratch once, and will not give up a second time.
It is one thing when an enterprise or organization becomes bankrupt. And how does a bankrupt, who is an individual, feel? On insolvency, bankruptcy in such a casetalking is doubly scary. Only the law here is on the side of the citizen and is aimed precisely at ensuring that his property remains safe and sound, and the person does not remain ruined. Of course, no one will become richer from bankruptcy, but it is absolutely not worth considering this the end of the road.