Have you ever wondered what you would do if your business went bankrupt? Your company may have been going through some financial difficulties recently, and if this is the case we hope it´s just a temporary setback. Nevertheless, we would like to dedicate today’s blog to explaining what can be done in this type of situation.
In this case, if your company goes bankrupt, you can take advantage of the Second Chance Law. In the event of a lack of funds, the bankrupt company is incapable of meeting its debts and can therefore be declared insolvent.
The company will then file for bankruptcy and can benefit from the Second Chance Law. However, different requirements need to be met.
A bankrupt company deserves a second chance
Although you may not be aware of it, companies go bankrupt on a regular basis. When this happens, the first step involves insolvency proceedings, which occurs when the company can no longer meet its basic obligations such as treasury, social security and payroll payments.
There are two types of bankruptcy, voluntary bankruptcy and involuntary bankruptcy, the latter of which applies when there is no other option left.
In the former case, an entrepreneur may voluntarily file for bankruptcy when their company has no more liquid assets. However, the current legislation allows companies to default for up to three months without having to file for bankruptcy, whereby the debts in question are suspended and don´t generate any interest.
In the latter case, bankruptcy is filed for by a partner or creditor that has ascertained that the company is insolvent. The advantage here is that 25% of the company´s debts will be regarded as privileged when the accounts are settled.
Pre-insolvency, the option for companies on the verge of bankruptcy
There is an alternative known as pre-insolvency for companies on the verge of bankruptcy. Pre-insolvency enables the company to obtain a period of three months before officially filing for insolvency.
How can pre-insolvency benefit your company? Well, it means you can use those three months to start negotiations with your creditors, which can be of great assistance, particularly in the case of banks.
If the negotiations prosper, the bankruptcy administrator may be called on to examine all the activity conducted in the last two years to ascertain whether or not any situations have arisen that are against the company´s interests.
We at the law firm González Sánchez & Partners hope that this post has been of use to you, and please do not hesitate to contact us if you require legal representation, as we will always be willing to defend your case.