Bankruptcy

Bankruptcy is a situation where a company is insolvent and no longer able to service its debts. Pursuant to bankruptcy proceedings, remaining assets of the company are distributed between the company’s creditors. For the bankruptcy proceedings to begin it is generally required that the debtor is insolvent. Most often, the creditors of the company file the application for bankruptcy, but the Board of Directors may also place the assets of the company into the possession of a so-called bankruptcy estate.

Upon initiation of the bankruptcy proceedings, all assets of the company will become subject to the authority of the creditors, the so-called bankruptcy estate and the debtor no longer has the right to control their assets. All assets that are already in the debtor’s possession or are recovered to the debtor’s possession are a part of the bankruptcy estate.

The court will appoint an estate administrator for the bankruptcy estate. The estate administrator’s tasks are to take control of the estate’s assets, draw up an estate inventory and a debtor’s account, and take care of all other regulated tasks. Creditors hold the decision making power when something does not belong to the regulated powers of the estate administrator. The creditors use their authority in the creditors’ meeting.

In bankruptcy proceedings the assets of the debtor are liquidated and the funds are distributed to the creditors in relation to the size of the claim, taking into account the precedence ranks of the claims. A company is considered to be dissolved after the final accounts of the bankruptcy are approved in the creditors’ meeting. The final accounts contain an account of the administration of the bankruptcy estate and the assets that are to be distributed to the creditors.