Corporate Bankruptcy (Company Bankruptcy)

When Corporate Bankruptcy May Be Necessary

Corporate bankruptcy becomes relevant when a company has financial obligations that it can no longer properly fulfill and ordinary debt settlement methods do not allow it to restore solvency.

Financial problems may arise due to external factors — loss of market, insolvency of counterparties, economic changes — as well as internal factors such as a shortage of working capital, accumulation of accounts payable, an ineffective financing structure, or management decisions.

It is advisable to request a legal assessment if:

• the company is systematically unable to fulfill its monetary obligations;
• there is significant debt to counterparties;
• tax liabilities and other mandatory payments have accumulated;
• enforcement proceedings have been opened against the company’s assets;
• the company’s assets are insufficient to simultaneously satisfy creditors’ claims;
• the company has effectively ceased business operations but still has outstanding debts;
• a creditor is planning to initiate bankruptcy proceedings against the debtor;
• it is necessary to assess the possibility of rehabilitation or lawful termination of the company’s activities.

Corporate bankruptcy should be viewed not merely as a formal liquidation of a company, but as a comprehensive procedure for dealing with debts, assets, and creditors’ claims.

Who Can Initiate Corporate Bankruptcy

Bankruptcy proceedings involving a legal entity are considered by the commercial court. An application to open proceedings may be filed by either the debtor or a creditor in cases provided for by the Code.

For the company itself, timely action makes it possible to assess the financial situation before individual creditors begin actively using separate enforcement mechanisms.

For a creditor, bankruptcy proceedings may provide a way to submit claims within a single court procedure and participate in the process in accordance with the priority and rules established by law.

Before filing an application, it is important to review:

• the structure and supporting evidence of the debt;
• existing court decisions and enforcement proceedings;
• the company’s assets and accounts receivable;
• claims of other creditors;
• the company’s property transactions;
• the possibility of restoring solvency;
• potential risks for the company’s management and owners.

Benefits of Working with Prikhodko & Partners

In corporate bankruptcy, it is important to understand the company’s financial structure and the possible consequences of each scenario even before applying to court.

We help:

• conduct a preliminary assessment of the situation — we analyze debts, assets, creditors, and court proceedings;
• determine whether the procedure is appropriate — we assess bankruptcy, rehabilitation, and other possible scenarios;
• prepare documents for the commercial court taking into account the company’s specific situation;
• develop a legal strategy for the debtor, business owner, or creditor;
• support cooperation with the insolvency practitioner at the relevant stages of the case;
• represent interests in court and prepare the necessary procedural documents;
• analyze potentially risky transactions carried out by the company before bankruptcy;
• maintain confidentiality of the client’s commercial and financial information.

How the Corporate Bankruptcy Procedure Works

The procedure depends on the company’s financial condition and the decisions taken within the proceedings. The Bankruptcy Procedures Code of Ukraine regulates the restoration of solvency of a debtor that is a legal entity and the declaration of such debtor as bankrupt.

The general process may look as follows:

1. Analysis of the financial condition. Debts, assets, accounts receivable, creditors, and enforcement proceedings are reviewed.
2. Preparation of the application. A legal position and the required set of documents for the commercial court are prepared.
3. Opening of proceedings. The court verifies whether the grounds provided by law exist and determines the further course of the case.
4. Work with creditors’ claims. The composition and amount of submitted claims are determined within the procedure.
5. Assessment of the possibility of restoring solvency. If the necessary prerequisites exist, rehabilitation may be applied.
6. Liquidation procedure. If solvency cannot be restored and the court declares the debtor bankrupt, the procedure moves to liquidation.
7. Completion of the case. Actions provided by law are carried out in relation to assets, creditors’ claims, and termination of the legal entity.

Corporate Rehabilitation in Bankruptcy

Corporate rehabilitation is aimed at restoring the company’s solvency and financial and economic condition. The Code defines rehabilitation as a system of measures applied to restore the debtor’s solvency and fully or partially satisfy creditors’ claims.

This scenario may be relevant if the company has a viable business, assets, contracts, or other economic prerequisites for continuing operations but, due to accumulated debt, requires changes to the mechanism for fulfilling its obligations.

The procedure may involve analysis of:

• the company’s financial condition;
• the possibility of continuing business operations;
• sources of financing;
• the structure of accounts payable;
• the company’s property;
• possible measures to restore solvency.

The court approves a rehabilitation plan adopted in accordance with the established procedure and introduces the corresponding procedure.

Moratorium on Satisfaction of Creditors’ Claims

One of the important legal consequences of opening bankruptcy proceedings is the application of the moratorium regime on satisfaction of creditors’ claims provided by the Code.

The moratorium means a statutory suspension of the performance of certain monetary obligations and the suspension of specific measures aimed at their compulsory enforcement, within the limits and under the conditions established by law.

At the same time, it would be incorrect to interpret the moratorium as a complete and automatic “freezing of all company debts.” For each claim, it is necessary to determine its nature, the time it arose, and the rules applicable to it within the bankruptcy procedure.

Liquidation of a Company Through Bankruptcy

If the solvency of a legal entity cannot be restored, the court procedure may end with the debtor being declared bankrupt and the case proceeding to liquidation.

Within this procedure, the debtor’s assets and creditors’ claims are handled in accordance with the procedure established by the Code.

Bankruptcy may be relevant for a company that has effectively ceased operations but cannot complete ordinary voluntary liquidation due to significant outstanding debt.

At the same time, corporate bankruptcy does not mean automatic cancellation of all obligations immediately after proceedings are opened. First, the full court procedure must be completed, creditors’ claims must be determined, assets analyzed, and other actions required by law carried out.

Documents Required for Corporate Bankruptcy

The specific set of documents depends on who initiates the procedure — the debtor or the creditor — as well as on the company’s financial situation.

The following may be required for preliminary preparation:

• the legal entity’s incorporation and registration documents;
• financial and accounting documentation;
• information on accounts payable;
• information about debtors;
• agreements and documents confirming the origin of debts;
• information about bank accounts;
• information about the company’s movable and immovable property;
• court decisions and enforcement proceeding documents;
• information about pledges and other encumbrances on assets;
• other materials depending on the circumstances of the particular case.

Before filing the application, the lawyer reviews the documents and determines which additional materials must be prepared.

Stages of Cooperation with a Corporate Bankruptcy Lawyer

1. Initial request. The client provides initial information about the company, debts, creditors, and assets.
2. Financial and legal analysis. The lawyer reviews the documents and assesses possible scenarios.
3. Strategy development. A course of action is selected taking into account the interests of the debtor, owner, or creditor.
4. Preparation of documents. The application and the required set of materials are prepared.
5. Court representation. The lawyer represents the client’s interests before the commercial court.
6. Support during the procedure. The lawyer participates in the necessary procedural actions and cooperation with other participants in the case.

Cost of Corporate Bankruptcy

The cost of corporate bankruptcy depends on the financial condition of the legal entity, the number of creditors, the amount and structure of debt, the number of assets and court disputes, as well as the stage at which the client engages a lawyer.

The scope of legal work is also affected by:

• the need for a preliminary analysis of the company;
• the number of creditors and debt obligations;
• the existence of enforcement proceedings;
• the complexity of the asset structure;
• the need for court representation;
• the existence of disputes regarding creditors’ claims or property;
• the selected procedure and duration of legal support.

The exact scope of work and cost can be determined after analyzing the company’s financial and legal situation.

Common Situations in Corporate Bankruptcy

Conclusion

Corporate bankruptcy makes it possible to resolve a situation in which a company is unable to fulfill accumulated financial obligations. Depending on the condition of the business and the outcome of the procedure, restoration of solvency or liquidation of the debtor may be considered. The earlier the company’s assets, debts, and creditors’ claims are analyzed, the more opportunities remain to develop a legally sound strategy.

Does your company have significant debts, or is a creditor unable to recover a debt from a legal entity? Submit a request on the Prikhodko & Partners Law Firm website. A lawyer will analyze the financial and legal situation and suggest a possible course of further action.