Your Company Cannot Pay Its Debts? Your Legal Options Before Creditors Act

The Bankruptcy Law gives a debtor who takes the initiative tools that a debtor who waits does not have. We assess your position confidentially within days, identify the right route, and prepare what the court and the creditors will need.

Where does your company stand under the law?

Article 1 of the Bankruptcy Law distinguishes the defaulting debtor (one who has stopped paying a debt claimed on its due date) from the insolvent debtor (one whose debts exhaust all of its assets), and adds a third, earlier state: a debtor likely to suffer financial difficulties that threaten default. That third state is the most important one in practice. It lets you apply for a protective settlement (Article 13) or financial restructuring (Article 42) before you actually stop paying, while the decision is still yours.

Once you are in default or insolvent, a creditor may apply to open liquidation against your company (Article 92) or financial restructuring (Article 42), and does not need your consent. And if your company is a limited liability company whose losses have reached half of its capital, the manager must call a general assembly within 60 days of learning of it to decide whether the company continues or is dissolved (Article 182 of the Companies Law).

The options available to you

The first step is the same in every case: a realistic thirteen-week cash-flow forecast that shows whether the problem is temporary liquidity or a business that cannot continue. The answer determines the route:

  1. Out-of-court negotiation: rescheduling with the bank and key suppliers on the basis of a documented cash-flow forecast. Fastest and cheapest, but it does not stop a creditor who refuses, and it does not protect you from a liquidation application.
  2. Protective settlement: management stays in your hands, you put a settlement proposal to the creditors for a vote, and you may ask the court to stay claims for up to 90 days, extendable by 30 (Article 18), provided the application is accompanied by a report from a trustee on the bankruptcy trustees list finding it likely that creditors will accept the proposal and that it can be implemented (Article 17). It is not available if you were subject to the procedure in the preceding twelve months (Article 13/2).
  3. Financial restructuring: the court appoints a trustee who supervises the procedure and the implementation of the plan while you continue to run the business (Article 57), and filing the application automatically stays claims (Article 46). Suited to situations that need immediate protection or involve more complex creditors.
  4. Orderly liquidation: if the business cannot continue, liquidation on your own initiative under the Bankruptcy Law, or liquidation under the Companies Law if your assets are sufficient to pay your debts, is better for you and the partners than a liquidation opened by a creditor.

What not to do at this stage: paying a related creditor ahead of the others, transferring assets or selling them below value, or new borrowing to repay old debt without a plan. These transactions are examined later and weaken your position before the court and the creditors.

How we help

  • A confidential assessment within days: a thirteen-week cash-flow forecast, a viability test, classification of debts and security, and a written recommendation of the most suitable route.
  • The trustee’s report required for a stay of claims in a protective settlement (Article 17), in our capacity as a bankruptcy trustee licensed by the Bankruptcy Commission, within our bankruptcy trustee service.
  • Preparing the settlement proposal or the restructuring plan with figures that withstand creditor scrutiny: sources of repayment, the timetable, and the treatment of each class of creditors.
  • A bank negotiation file where the route is out of court: financial statements, the cash-flow forecast, and rescheduling scenarios.
  • Acting as trustee in financial restructuring or liquidation when appointed by the court.

Frequently asked questions

Do I have to actually stop paying before applying for a protective settlement?
No. Article 13 allows the application where you are likely to suffer financial difficulties that threaten default, which is before you stop paying.

Will I lose control of my company?
In a protective settlement, management stays with you. In financial restructuring you continue to run the business under the trustee’s supervision (Article 57), with the trustee’s written approval required for specified transactions until the proposal is ratified (Article 70).

Can a single creditor apply to liquidate my company?
Yes, if you are in default or insolvent (Article 92), provided the debt is due and of a determined amount (Article 93). The application is not registered if you disputed the debt before it was filed (Article 94), and the court notifies you of the application so that you can object or apply to open a different procedure (Article 95).

What is the difference between liquidation under the Companies Law and liquidation under the Bankruptcy Law?
The first is for a company whose assets are sufficient to pay its debts and which decides to end its business; the second is for a defaulting or insolvent debtor. See our detailed guide on the difference between them.

Related detailed guides

Every week of delay narrows your options and widens your creditors’. Talk to us before the first application is registered against your company.