Support of the bankruptcy procedure of a legal entity

Corporate Bankruptcy Procedure

Corporate bankruptcy applies when a company is objectively unable to meet its monetary obligations and a court-supervised procedure is required to regulate relations with creditors, restore solvency, or complete the company’s activities. Signals that a preliminary analysis may be necessary include:

• systematic overdue debts to several creditors;
• significant tax debt;
• inability to perform contractual obligations;
• open enforcement proceedings;
• seizure of bank accounts or property;
• insufficient assets to satisfy all obligations;
• regular court disputes with creditors;
• risk of enforcement against key company assets;
• a critical decline in working capital;
• lack of realistic financial resources to restore ordinary business operations.

Bankruptcy is the debtor’s inability, recognized by the commercial court, to restore solvency and satisfy creditors’ claims otherwise than through the procedures provided by the Bankruptcy Procedures Code of Ukraine.

Benefits of Working with Prikhodko & Partners

We help:

• conduct a preliminary financial and legal analysis of the company;
• review the debt structure;
• analyze assets and liabilities;
• assess risks for owners and management;
• prepare the application and procedural documents;
• represent the debtor or creditor before the commercial court;
• work with creditors’ claims;
• support the asset management stage;
• assess the possibility of rehabilitation;
• support the liquidation procedure.

Main Stages of Corporate Bankruptcy

Depending on the circumstances, the case may include several key stages:

1. preliminary analysis of the company’s financial condition;
2. preparation and filing of an application with the commercial court;
3. opening of bankruptcy proceedings;
4. asset management;
5. formation and review of creditors’ claims;
6. analysis of the possibility of restoring solvency;
7. transition to rehabilitation or liquidation;
8. implementation of the relevant plan or realization of assets;
9. completion of the court procedure.

The specific sequence depends on the company’s financial condition, creditor structure, assets, and decisions made within the proceedings.

Asset Management of the Debtor

The Bankruptcy Procedures Code defines asset management as a system of measures for controlling the management and property of the debtor, aimed at preserving assets, analyzing the financial condition, and determining the next procedure — rehabilitation or liquidation. At this stage, it is important to establish the company’s actual condition:

• which assets belong to the company;
• their actual value;
• which liabilities exist;
• which creditors have filed claims;
• whether there is pledged property;
• which enforcement proceedings are open;
• which court disputes are ongoing;
• which agreements are materially important;
• whether there are indications that solvency can be restored.

The asset manager is an insolvency practitioner appointed by the commercial court. For the owner or director of the company, it is particularly important at this stage to interact properly with the insolvency practitioner and provide the required information on time.

Creditors’ Claims in Bankruptcy Proceedings

Creditors submit their claims in accordance with the established procedure and confirm them with supporting documents. For the debtor, it is important to review:

• the legal basis of the debt;
• the amount claimed;
• the period in which the debt arose;
• the existence of court decisions;
• the accuracy of interest, penalties, or other charges;
• the existence of security;
• the priority of claims;
• the evidence provided by the creditor.

For the creditor, on the contrary, it is important to correctly formulate the claim and submit supporting documents within the required time.

Corporate Rehabilitation

The Bankruptcy Procedures Code defines rehabilitation as a system of measures aimed at restoring the debtor’s solvency and financial and economic condition, as well as fully or partially satisfying creditors’ claims. A rehabilitation plan may include various economic and organizational measures depending on the company’s situation. When assessing rehabilitation, the following are analyzed:

• whether the company can continue operating;
• the profitability of individual business areas;
• the structure of the debt;
• the creditors’ willingness to restructure;
• the possibility of attracting an investor;
• the possibility of selling non-core assets;
• cost optimization;
• changes to the management structure;
• the forecast for restoring solvency;
• the feasibility of implementing the rehabilitation plan.

Not every company should be liquidated from an economic perspective. If the business model remains viable, rehabilitation may be more beneficial for both the owners and the creditors.

Liquidation Procedure in Bankruptcy

If solvency cannot be restored and the court declares the debtor bankrupt, the case may proceed to liquidation. In this case, the key role is performed by the liquidator — an insolvency practitioner — rather than the ordinary liquidation commission typically used in a voluntary termination of a legal entity. During liquidation, the following is carried out:

• inventory of the property;
• formation of the liquidation estate;
• analysis of the company’s assets;
• work with accounts receivable;
• realization of property in accordance with the established procedure;
• settlement with creditors according to statutory priority;
• analysis of individual transactions of the debtor;
• resolution of issues relating to property and liabilities;
• preparation of documents required to complete the procedure.

Review of Company Transactions Before Bankruptcy

Particular attention should be paid to:

• sales of assets before the case is opened;
• transfers of property to related parties;
• repayment of claims of selected creditors;
• transactions at prices materially different from market value;
• transfers of property without an apparent economic reason;
• changes in the asset structure shortly before bankruptcy;
• agreements with interested or related parties;
• other transactions that may affect the debtor’s financial position.

That is why, before initiating bankruptcy, it is advisable to conduct a separate audit of the company’s transactions rather than waiting for questions about them to arise during the court procedure.

Preparation for bankruptcy should begin not with filing an application with the court, but with a comprehensive analysis of assets, debts, transactions, and potential risks for the company and its management.

Role of the Insolvency Practitioner

Depending on the stage of the case, the insolvency practitioner may perform the functions of:

• asset manager;
• rehabilitation manager;
• liquidator.

At the same time, the insolvency practitioner is not the lawyer of the debtor or creditor. That is why the company and other participants in the case may need their own legal representative who:

• protects the interests of a specific participant;
• reviews actions taken within the procedure;
• prepares procedural documents;
• responds to creditors’ claims;
• participates in court hearings;
• challenges decisions or actions where there are legal grounds;
• monitors the legal consequences of each stage.

Stages of Legal Support

The general workflow is:

1. Initial analysis. We review debts, assets, court cases, and enforcement proceedings.
2. Risk assessment. We review transactions, obligations, and potential problem areas.
3. Strategy selection. We determine whether rehabilitation is possible or liquidation is more appropriate.
4. Document preparation. We prepare the application and procedural position.
5. Court representation. We represent the client before the commercial court.
6. Work with creditors. We analyze and challenge claims where there are legal grounds.
7. Procedure support. We monitor legal matters at the relevant stage.
8. Completion of the case. We support the procedure through to its procedural completion.

Risks and Mistakes in Bankruptcy Proceedings

Potential problems include:

• incomplete information about assets;
• errors in documents;
• failure to respond to creditors’ claims in time;
• unreviewed transactions from previous periods;
• the existence of related parties and conflicting transactions;
• an incorrect strategy for interacting with the insolvency practitioner;
• unrealistic expectations regarding rehabilitation;
• loss of key assets without prior assessment of the consequences;
• procedural mistakes;
• lack of a unified legal strategy.

Therefore, the lawyer’s task is not merely to oversee formal progression through the procedure, but to monitor the legal consequences of each stage.

Cost of Legal Support for Corporate Bankruptcy

The cost is affected by:

• the amount and structure of debt;
• the number of creditors;
• the volume of assets;
• the existence of pledged property;
• the existence of court and enforcement proceedings;
• the number of disputed creditors’ claims;
• the need to review previous transactions;
• the possibility of rehabilitation;
• the complexity of the liquidation procedure;
• the number of court hearings;
• the required scope of legal support.

In one case, preliminary analysis and preparation of procedural documents may be sufficient. In another, the procedure may involve lengthy work with creditors, assets, rehabilitation, or liquidation of the company.

Common Corporate Bankruptcy Situations

Conclusion

Corporate bankruptcy is a court-supervised mechanism for dealing with a company’s insolvency and may involve asset management, rehabilitation, or liquidation. The appropriate scenario depends on the debt structure, assets, the company’s financial condition, and whether solvency can be restored. A preliminary legal and financial analysis makes it possible to assess risks in advance and develop a strategy for the procedure.

Can your company no longer meet its obligations to creditors? Submit a request on the Prikhodko & Partners Law Firm website. A lawyer will analyze the debts, assets, and litigation risks, determine possible bankruptcy scenarios, and propose the next steps.