Judicial reorganisation can be a solution if a company is temporarily unable to pay its debts or if the continuity of the company is in jeopardy. The aim here is to overcome the financial difficulties so that bankruptcy can be averted. A request for judicial reorganisation affords protection against creditors, in principle for a period of up to six months. As a result of this suspension of payments, old creditors do not have to be repaid and other creditors cannot enforce payment of their claims.
The objective of a judicial reorganisation can be threefold:
A distressed company can opt to negotiate an out-of-court settlement with one or more essential creditors under the supervision of a judge appointed by the court. The company can choose which creditors it will negotiate with, without having to involve all its creditors in the out-of-court settlement.
Where the company opts for a collective agreement, it will have to submit a reorganisation plan to its creditors, the aim being to repay all or part of its outstanding debts over a period of up to five years. The court will set a date for the approval of the reorganisation plan, which must be approved by the majority of the creditors representing at least half of the outstanding claims. Once approved by the creditors, the reorganisation plan will be ratified by the court. After ratification, the plan will be binding on all creditors, including those who abstained or dissented.
In order to give a financially distressed company the opportunity to transfer its divisions or activities that are still profitable, all or part of the company may also be transferred as part of a court-supervised reorganisation procedure. A crucial element here is that the debtor can sell the profitable activities of the company in order to rescue another part of the business. The transferee, for its part, is safeguarded against all risks associated with the transferor company.
In the case of the voluntary winding up and liquidation of a company, the governing body decides to discontinue the company’s operations. There may be several reasons for this course of action, such as an unfavourable economic outlook, restructuring, or disagreement between shareholders or partners. The voluntary liquidation of a company can be handled by a liquidator.
Liquidation involves a whole series of operations aimed at realising all the assets of the company in order to settle all outstanding debts. The plan for asset distribution to the creditors is submitted to the Commercial Court for approval, after which the assets can be divided among the shareholders or partners.
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