Can bankruptcy be postponed?

Can bankruptcy be postponed?

"I run a limited company whose financial situation has deteriorated recently. I've heard about adjournments of bankruptcy.

How does it work?"

There are various ways of helping companies threatened with bankruptcy to recover or even survive. The Federal Law on Debt Collection and Bankruptcy provides for the deferment of bankruptcy and the debt-restructuring moratorium for endangered companies that are unable to negotiate facilities or a payment plan with their creditors.

In practice, when the balance sheet of a public limited company shows that it is over-indebted, i.e. that the company's debts are not covered either when the assets held by the company are valued at their going concern value or when they are valued at their liquidation value, the Board of Directors must notify the judge. In the light of the notice, the judge may declare the bankruptcy, but he may also adjourn it if a request to that effect has been made by the board of directors or by a creditor and if the reorganisation of the company seems possible. In this sense, an adjournment is not a compulsory execution measure and gives the company additional time to recover financially by avoiding the consequences of bankruptcy. The judge takes the appropriate measures to preserve the company's assets, in particular by appointing a trustee in most cases. Bankruptcy is generally adjourned for a renewable period of six months and is only published if the protection of third parties so requires.

A plan to reorganise the over-indebted company must be attached to the request for postponement of bankruptcy. This will contain a description of the measures to be taken, such as an agreement with the company's main creditors, the conversion of claims into shares or the establishment of guarantees. The plan will also mention the timeframe within which the overindebtedness can be eliminated. To enable the judge to make a true assessment of the chances of success, the interim balance sheet and documents establishing the company's actual situation must be appended to the plan. The law is silent on the criteria to be used by the judge, but a vague prognosis of success is insufficient according to case law. On the contrary, the company must demonstrate that it has a sound financial basis and can emerge stronger from the reorganisation process.

If, however, the bankruptcy is not adjourned or if, during the adjournment, the liquidator or the company's organs consider that it will not be possible to achieve a restructuring, it is possible to ask the judge to grant a debt-restructuring moratorium for a period of four to six months in general, with the aim of proposing a solution negotiated with all the company's creditors.