Bankruptcy and Rehabilitation - When a Company Can No Longer Pay Its Debts and Every Day Increases Someone's Liability
Insolvency is three different cases for three different parties. For the debtor: a choice between rehabilitation (saving the business with a plan and a moratorium) and bankruptcy (selling the assets and closing), and the director's duty to file in time, or the debts become personal. For the creditor: a race, to register the claim in time, rank, secure status, and often to recover assets the debtor "moved out". For the counterparty: goods already delivered and an advance already paid.
This page describes the mechanics of an insolvency case from all three positions: when a company is deemed insolvent and who must declare it, how the case starts and what the moratorium means, what the administrator and the creditors' meeting do, how assets are distributed by ranking, which transactions are clawed back into the estate, and how a lawyer defends a director whom creditors are pursuing personally.
Updated · Practice area: Corporate lawyer
Rehabilitation or Bankruptcy - Two Regimes and Which Is for Whom
An insolvency case serves either to save the business or to distribute its assets fairly. The choice is made on the company's real prospects and the creditors' position, not on preference.
An Insolvency Case - From the Signs to Distribution
Assessing the signs of insolvency
Non-payment of due debts, liabilities exceeding assets, an expected inability of cash flow. The lawyer checks the balance sheet and cash flow and fixes the date from which the director's duty to file begins; that date is later decisive in a director liability case.
Choosing the regime and filing
Whether rehabilitation is realistic (operating profit, creditor support, an investor) or bankruptcy; a petition to the court with a list of debts, creditors and assets and a reasoned financial position. For a creditor: a petition with a due claim and evidence of the debtor's non-payment.
Opening the case and the moratorium
The court opens the case, appoints an administrator, and the moratorium halts every individual enforcement: the bureau, attachments, penalties. For the debtor this is breathing space; for the creditor, the loss of individual levers and a move into a collective process.
Registering claims and the creditors' meeting
Creditors lodge claims within the deadline with documents; missing it means demotion in ranking or loss of the claim. The administrator draws up the register; disputed claims are decided by the court. The creditors' meeting votes by majority on the regime, the plan and the administrator.
The rehabilitation plan or realisation of assets
In rehabilitation: a plan restructuring the debts, approved by the creditors' meeting and confirmed by the court, performed under the administrator's control. In bankruptcy: valuation and auction of assets, collection of receivables, challenging transactions to recover assets.
Distribution and closure
Distribution by ranking: case costs and the administrator, secured creditors within their security, wages, tax, ordinary creditors pro rata. The remaining debts end with the company's striking off, except for the liability of those whose fault was established.
Assets "Moved Out" Come Back - Which Transactions Are Challenged in an Insolvency Case
One of the main tools of an insolvency case is challenging transactions the debtor made within a set period before the case opened: disposal of assets below market price or for free, selective satisfaction of one creditor to the detriment of others, transactions with related parties (a partner, a relative, a group company), granting security for an old debt, using company assets to pay a personal debt. The administrator and creditors seek the voidness of these transactions, and the asset or its value returns to the estate.
For a creditor this is often the only real source: an "empty" company on paper that "sold" its real estate to a relative the year before and performs its main contract through a new company. The lawyer for the creditor analyses the registry and bank history, identifies the transactions and raises them with the administrator or in court directly. For the debtor and its director it is the reverse: transactions made at market price, with a documented business purpose and without related parties withstand challenge; those made to "save the assets" come back and add to the director's liability.
Related parties are a separate matter: a partner's loan to the company may rank behind ordinary creditors in an insolvency case, and sums paid to a partner before the case are the first candidates for recovery. The lawyer explains these rules to partners as soon as signs of insolvency appear, before the decision "let us take ours first" is made.
Your Counterparty Went Bankrupt - How to Protect Delivered Goods, an Advance and Your Claim
- Lodging the claim in time
- Within the statutory period from publication of the case opening, a claim with documents: contract, invoices, acts, calculation. Delay demotes the ranking. The lawyer monitors counterparties' insolvency cases through the registry.
- Secured status
- A mortgage or pledge gives the creditor priority within the value of the security, ahead of ordinary creditors. A retention-of-title clause over delivered goods is a ground for recovering the goods, if it was in the contract.
- Advances and unperformed contracts
- An advance paid on an unperformed contract is an ordinary claim if there is no security; the administrator may choose to perform or reject the contract. The lawyer advises securing advances (a bank guarantee, escrow) with counterparties at risk of insolvency in advance.
- Set-off
- If you are both a creditor and a debtor of the insolvent company (mutual supplies), set-off is possible on statutory conditions and effectively gives the claim priority. The lawyer files the set-off declaration in the case in time.
- Participation in the creditors' meeting
- Voting rights in proportion to the claim: on the regime, the plan, the administrator and the realisation of assets. A large creditor effectively steers the process; small ones, through a coalition.
- Director and partner liability
- If the estate does not cover the claim: a claim against the director for debts increased by late filing, voidness of transactions, piercing the corporate veil on abuse. The creditor's last, but often only real, lever.
What Protects a Director From Personal Liability in an Insolvency Case
- Evidence of monitoring the financial position: cash flow forecasts, the accountant's opinions, partners informed in writing of insolvency signs.
- Timely filing: within the statutory period from the onset of insolvency, or a reasoned partners' resolution to attempt rehabilitation.
- Transaction discipline after the signs appear: at market price, without related parties, with equal treatment of creditors, not "let us repay the relative first".
- Suspension of dividends and bonuses at risk of insolvency: a distribution after which the company cannot pay comes back personally.
- Full cooperation with the administrator: handover of documents, information, a list of assets; refusing to cooperate is a liability and criminal risk.
- A list of personal guarantees and security: what is already personal liability and what the case adds.
Three Insolvency Cases
A rehabilitation that saved the business
A manufacturer was operationally profitable, but due loan repayments and supplier debts exceeded cash flow; the bank began enforcement. Lawyer for the debtor: a rehabilitation petition with a moratorium, a plan with a 4-year deferral, partial write-off and a new investor, support won at the creditors' meeting. The plan was confirmed; the manufacturer trades on and the bank is paid in full on schedule.
A creditor and a warehouse "sold" to a relative
A supplier had a 240,000 lari claim and the debtor had nothing on its balance sheet: the warehouse had been "sold" to the director's brother at half the market price 8 months before the case. Lawyer for the creditor: the claim registered, the transaction challenged together with the administrator, attachment of the warehouse. The transaction was voided and the warehouse sold at auction; the supplier recovered 70% of its claim.
A director pursued by creditors for 500,000
The company went bankrupt and creditors demanded personal payment of the debts from the director on the ground of late filing. Lawyer for the director: cash flow forecasts showing insolvency arose later, letters informing the partners, the petition filed within the period from the onset of the signs, no related-party transactions. The claim was dismissed; liability remained only on the personal guarantee.
Questions About Bankruptcy and Rehabilitation
The company can no longer pay its debts. Do I really have to file?
Yes: on the onset of insolvency signs the director must apply to the court within the statutory period; debts that arise or grow during the delay ground the director's personal liability to creditors. The petition can seek rehabilitation, which does not mean closing the company. See a lawyer as soon as the signs appear, not after the creditors sue.
My counterparty went bankrupt holding my advance. Have I lost it?
Without security an advance is an ordinary claim, satisfied by ranking and pro rata, often in part. Register the claim within the deadline without fail, take part in challenging transactions and check whether set-off is available. For future contracts: an advance only against a bank guarantee or escrow with a risky counterparty.
I am a partner and have lent money to the company. How do I get it back in insolvency?
A partner's loan in an insolvency case generally ranks behind ordinary creditors (is subordinated), and a loan repaid to a partner before the case is a challengeable preferential payment. In practice a partner's loan often does not come back. The lawyer advises partners to document company funding correctly in advance, as capital or as a secured loan.
After a bankruptcy, is the director or partner barred from founding a new company?
There is no general bar: bankruptcy closes the company, it does not punish the person. But if the director's fault was established in the case (delay, asset stripping, false accounts), personal liability and in some cases criminal liability follow them, and the new company's bank compliance checks for it. A "clean" bankruptcy does not prevent a new business.
How long does an insolvency case take?
Rehabilitation lasts the term of the plan, often 2-5 years under the administrator's control; bankruptcy depends on the size of the estate and the disputes, typically 1-2 years. For a creditor the length matters less than the estate: challenged transactions and director liability often prolong the case but double the recovery rate.
Lawyers for Insolvency Cases
An insolvency case is won on deadlines, ranking and the history of transactions, along different lines for the debtor, the creditor and the director. Within 15 minutes the coordinator connects you with a lawyer who handles rehabilitation and bankruptcy cases on any side.
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Call: 568 330 318The Company Cannot Pay, a Counterparty Went Bankrupt, or Creditors Are Pursuing the Director Personally?
In a free consultation the lawyer tells you whether insolvency has set in and what deadline you have, whether rehabilitation is realistic or bankruptcy is the route, how to register and protect your claim, or what protects a director from personal liability. The coordinator gets back to you in 15 minutes.