Protect and preserve assets.
A bankruptcy petition offers effective and early protection for the assets of debtors and (future) claimants/creditors. This process offers protection against access by the debtor, creditors, and third parties, whereby the bankruptcy court has a host of options at its disposal.
For instance, the court can issue interim injunctions or ban specific execution measures such that no single creditor can seize the debtor’s assets. This provides room for reorganization to proceed and ensures that the assets remaining at the end are distributed justly and uniformly. For example, a third party may be prohibited from seizing assets like leased machinery. Often, securing measures encompass the setting up of an interim administration during which the bankruptcy administrator is granted authorization to operate bank accounts and cash balances. It also covers official sealing of assets, seizure of documents, or – upon suspicion of shifting of assets – blockage of mail or even apprehension of the debtor.
Securing does not imply a standstill state. Courts and the (interim) bankruptcy administrator naturally make sure that business critical expenses continue to be undertaken or that particularly those payments are made, which in the end help boost the debtor’s assets in the interests of all creditors.
Reinstate clear structures.
Things can easily go out of whack in a crisis and those responsible can lose track of what’s happening.
Hence, during bankruptcy one first needs to sort out the situation to regain a clear picture. Of most significance is the status of assets such as bank accounts/cash balances, inventory, receivables and their collateralization and related claims. The liabilities are addressed thereafter.
However, following a crisis that typically manifests itself over several years, the company’s workflows, staff, cost structures, decision paths, or responsibilities are generally neither clearly organized nor efficient and economical. Frequently, financial controls or current and sound accounting records no longer exist and one cannot measure key performance indicators or corporate goals.
As far as possible during the bankruptcy process, one needs to reinstate structures that have ceased to exist. One must compile and analyze documents that enable an assessment of what underlies the crisis. If in fact no relevant figures are available, it may be crucial to get at least the initial data.
This is the only way to face pending decisions during the bankruptcy process and take the right positions.
Full throttle ahead.
Germany’s bankruptcy code (InsO) is designed to help reorganize companies. This is evident in §1 of InsO, which states that the regulations can be applied to “Especially continue the concerned company.” Reorganizing a company is not just an end in itself, because it also serves to satisfy creditors as best as possible. Generally, through future profits company creditors can count on much higher shares of their claims if the company is restructured rather than unbundled.
The most common form of reorganization under bankruptcy is called reorganization transfer, whereby the valuable assets of a company (e.g. machinery, patents, customer relationships, contracts, company name, etc.), are sold and transferred over to another legal entity/trustee, like an investor or a company newly established by the investor. Such a legal entity/trustee is often one of the competitors who can use this method to take over the bankrupt company and utilize synergies. A reorganization transfer offers several advantages, because liabilities are not assumed – as opposed to that in a buyout outside of a bankruptcy. Only contracts that are economically beneficial to the investor are taken over and pursued, which empowers the company to quickly proceed again at full throttle.
A successful bankruptcy reorganization also offers multifaceted options, in that the debtor company can continue and the creditors, for instance, can be satisfied through current or future profits.