Entrepreneur’s Bankruptcy

Running a business comes with responsibility for liabilities and the concept of insolvency. At the same time, an entrepreneur is required to make timely payments and monitor the company’s financial condition, as a petition for bankruptcy must be filed within the prescribed timeframe. The basics, obligations, and consequences will be explained further in this article.

Purpose of Bankruptcy Proceedings

The purpose of bankruptcy proceedings is to satisfy the creditors’ claims to the greatest extent possible and, if feasible, to maintain the functioning of the business. According to the Bankruptcy Law, bankruptcy is declared in relation to an entrepreneur who has become insolvent. Insolvency is understood as the inability to settle liabilities on time.

The statutory assumption is that insolvency occurs when an entrepreneur fails to meet payment obligations for a period exceeding three months. In the case of a legal person or an “imperfect legal person,” insolvency also exists when its financial liabilities exceed the value of its assets and this condition persists for more than twenty-four months.

Who Can File a Bankruptcy Petition?

Bankruptcy proceedings for entrepreneurs are initiated by filing a petition—either by the debtor (who is obliged to file within 30 days from the onset of insolvency) or by any of the entrepreneur’s personal creditors (who are entitled to file such a petition).

After a petition is filed, the court reviews the business’s situation. If no negative prerequisites exist, the court issues a decision declaring bankruptcy. The main objective is to satisfy the creditors as much as possible and—if reasonable—to preserve the enterprise.

Formalism in Bankruptcy Proceedings for Entrepreneurs

Bankruptcy proceedings for entrepreneurs, governed by the general provisions of the Bankruptcy Law, are longer and more formalized than proceedings concerning individuals who do not conduct business activity (i.e., consumer bankruptcy).

A list of claims is compiled, which includes all creditors who submitted their claims during the proceedings along with the amounts they claimed. This list also includes claims that must be listed ex officio (e.g., those secured by a mortgage, pledge, or maritime lien). The receiver (syndyk) also prepares a distribution plan for the bankruptcy estate funds acquired through the sale of the business’s assets.

Each of these elements will be discussed in detail in upcoming articles. It’s important to note that both the list of claims and the distribution plan may be contested.

Our law firm assists in drafting objections—for example, objections regarding the list of claims in bankruptcy proceedings.

Employee’s Situation in a Bankrupt Company

In the next article, we will discuss the consequences for employees whose employer has declared bankruptcy. We will cover the Employee Benefits Guarantee Fund and the procedure for claiming benefits from the fund when an employer is insolvent.

Frequently Asked Questions (FAQ)

How long do bankruptcy proceedings take?

Bankruptcy proceedings may last from several months to several years, depending on the complexity of the case.

What are the costs of bankruptcy?

Bankruptcy costs include court fees, the receiver’s remuneration, and other costs related to the proceedings, all of which are covered from the bankruptcy estate.

What should I do if my company goes bankrupt?

If your company becomes insolvent, you should file for bankruptcy as soon as possible to avoid liability for future debts.

Summary

Entrepreneur’s bankruptcy is a complex process that requires a professional approach. Our law firm offers support at every stage of bankruptcy proceedings, assisting both with the preparation and submission of the bankruptcy petition and during all subsequent phases of the procedure.