The Consequences of Declaring a Debtor Bankrupt

The Consequences of Declaring a Debtor Bankrupt

There is a common belief that the successful end of the bankruptcy procedure is the recognition of the debtor as such by the court and the liquidation of the company. However, this is not quite true.

According to the law, the court makes a decision on declaring the debtor insolvent (bankrupt) when going to the last stage of the bankruptcy procedure – liquidation procedure. Thus, the lawsuit continues, the company is still formally acting.

At the same time, with the opening of liquidation procedure, certain consequences occur for the debtor, namely:

-       the powers of the head of the debtor, other management bodies and the owner of the property are terminated;

-       the head of the debtor is obliged to transfer all documentation (primarily accounting) to the insolvency practitioner within 3 days;

-       the deadline for the fulfillment of monetary obligations is deemed to have arrived;

-       the accrual of interest, penalties (fines, penalties) and other sanctions is terminated;

-       information about the financial condition of the debtor is no longer considered confidential or constituting a commercial secret;

-       execution according to writs of enforcement is terminated;

-       the arrests and other restrictions on the disposal of the debtor's property previously imposed on the debtor's property are removed.

At this stage, the most active and significant actions take place to find the assets of the debtor and repay the claims of creditors. This is due to the powers vested in the bankruptcy commissioner. It forms the bankruptcy estate, and creditors have the last chance to be included in the register to get their claims satisfied.

Liquidation procedure takes 6 months and can be extended at the request of any participant in the proceedings for the same period, if the court deems it appropriate.

If, according to the results of the work carried out, insolvency practitioner has sufficient grounds to believe that the debtor's solvency can be restored, he/she is obliged to convene a meeting of creditors, at which a majority of votes will decide on the need to return to the stage of financial recovery and (or) external management, if earlier they were not held. The final decision on this issue, as always, is made by the commercial court.

Based on the report drawn up by the insolvency (aka bankruptcy) practitioner, the court makes one of the two decisions:

-       either on termination of bankruptcy proceedings - in case of repayment of creditors' claims,

-       or on the completion of liquidation procedure, that is, on the completion of the trial - if it is impossible to pay off all the creditors' claims.

Based on the latter, an entry is made in the Unified State Register of Legal Entities on the liquidation of a legal entity, and the company ceases to exist.


TEAM lawyers are always ready to provide qualified assistance at any stage of the bankruptcy procedure or to carry it out from the very beginning to successful completion.