Insolvency liquidation is the phase of insolvency proceedings in which the assets of the insolvent company are converted into cash and used to pay creditors in the order established by law. In this post, we explain who can request insolvency liquidation, how it is done, within what time frame, and what effects it has on creditors and the insolvent party.
Who can apply for bankruptcy liquidation?
The opening of the insolvency liquidation phase may be requested by:
- The debtor at any time. The liquidation requested by the debtor must be approved by the judge by means of an order.
- The insolvent party from the moment they become aware of the impossibility of meeting the payments agreed in the agreement. If the debtor does not do so, any creditor who can prove the existence of the facts supporting the declaration of insolvency may do so. In this case, the judge will also decide by order.
- The insolvency administrator may request the opening of the liquidation phase in the event of total or partial cessation of business activity. In this case, the judge must also issue an order.
- Finally, the judge may open the liquidation phase ex officio in the following cases:
- If the proposal for an agreement has not been submitted within the legal deadline or if those that have been submitted have not been accepted for processing.
- If no proposal for an agreement has been accepted at the creditors’ meeting or in the written proceedings.
- If the agreement accepted by the creditors’ meeting or the one processed in writing has been rejected by a court ruling.
- If the agreement approved by the judge or the breach of said agreement is declared null and void by a final court ruling.
What are the effects of bankruptcy liquidation?
Insolvency proceedings have various effects on the insolvent party and the claims, among others. We highlight the following:
- The judge will appoint a new insolvency administrator or reinstate the existing one.
- The insolvent party will find itself facing the suspension of its powers of administration and disposal of the assets. The court ruling initiating the bankruptcy liquidation will contain a declaration of dissolution of the legal entity and the removal of the administrators or liquidators.
- The early maturity of deferred bankruptcy claims and the conversion into cash of those consisting of other benefits.
All these effects are intended to prepare the bankrupt company for the sale of its assets.
How is the bankruptcy settlement carried out?
The procedure for conducting a bankruptcy liquidation is set out in a document called a liquidation plan, which is drawn up by the bankruptcy administrator and submitted to the judge for approval. In drawing up the plan, the interests of the bankruptcy proceedings and the satisfaction of creditors must be taken into account. If possible, the liquidation plan should be geared towards the sale of the establishment, operations and other productive units of the estate as a whole.
Once the liquidation plan has been submitted to the insolvency judge, creditors and employee representatives may submit comments and proposals for amendments within a period of 15 days. Once this period has elapsed, the insolvency judge will approve the liquidation plan with an order containing any amendments deemed appropriate.
When the judge approves the plan, the insolvency administrator can begin to take steps to sell the assets of the insolvent company, in accordance with the approved plan. In order for the judge to monitor the process, the insolvency administrators must submit reports every three months detailing the operations carried out and the list of claims against the estate.
The bankruptcy liquidation phase may take a few months in some cases, or years in others, depending on the characteristics of the bankrupt company and the type of assets it holds.
Liquidation plans may be modified if requested by the insolvency administrator and approved by the judge. The request for modification must specify the rules of the plan that are to be modified and those that are to be eliminated or introduced. The judge, in the order issued, may accept the proposed modifications, in whole or in part, introduce new modifications or deny the request. Interested parties may file an appeal against the judge’s order.
In short, the liquidation of a company involves the sale of its assets and rights in order to convert them into cash and pay the company’s creditors in the legally established order. To do this correctly, it is essential to have the help of a commercial consultancy firm that is an expert in insolvency law, such as LEIALTA, which has in-depth knowledge of the procedure and the rules to be applied in order to avoid delays or legal breaches.
