What is Personal Bankruptcy and How to Avoid It
Personal bankruptcy is a procedure that any leader dreads. What is personal bankruptcy? In which cases does the entrepreneur find himself in personal bankruptcy? What management errors can be taken into account to initiate personal bankruptcy proceedings? What are the consequences of personal bankruptcy? How to avoid it? Here we RKillen associates are going to discuss all these things in detail.
What is Personal Bankruptcy?
A personal bankruptcy is a professional sanction against a company director. This sanction entails the prohibition to direct, manage, administer or control, directly or indirectly, any commercial or craft enterprise, any agricultural operation or any enterprise having any other independent activity and any legal person.
This procedure takes place within the framework of a collective judicial reorganization or judicial liquidation procedure.
Conditions that leads to Personal Bankruptcy
Personal bankruptcy may concern the manager who has
- Disposed of the company’s assets as well as its own assets
- Used the company’s property or credit in a way that is contrary to its interests
- Carried out commercial acts in a personal interest
- Pursued abusively and in a personal interest a loss-making operation
- Maintained his remuneration at a very high level and did not take any restructuring measures despite the company’s results showing a loss and turnover deteriorating
- Has committed a lack of supervision which has allowed an embezzlement of funds by an employee
- Misappropriation / concealment of assets or fraudulently increased liabilities of the company
- With held a sum from the profits in advance, the amount of which, in excess, resulted in the suspension of payments.
- Exercised an activity despite a ban
- Made purchases to resell them below the price in order to avoid / delay the opening of a procedure
- Used ruinous means to raise funds to delay the initiation of proceedings
- Makes commitments that are too large to the detriment of the company or its situation,
- Eliminates accounting documents
- Not to have kept accounts or to have kept fictitious, incomplete or irregular accounts
- Hinders the smooth running of a procedure
- Paid a creditor to the detriment of others despite a known state of insolvency.
The list is not exhaustive. The mismanagement must have contributed to revealing a shortage of assets or have worsened it.
Personal bankruptcy can be declared against:
- Physical persons
- Traders
- Craftsmen
- Farmers
- Corporate officers, whoever they are (manager, general manager, administrator, etc.)
- The de facto directors of a legal person
Consequences of Personal Bankruptcy
When a manager is in personal bankruptcy, a number of sanctions can be imposed:
- The leader may be prohibited from exercising an elective public office;
- He can no longer manage, administer or control a business;
- The shares or shares can be sold in order to repay the debts of the company;
- Personal bankruptcy is mentioned in the manager’s criminal record as well as in the trade and company register.
The maximum duration of personal bankruptcy is 15 years. A judgment closing the insolvency proceedings for the extinction of liabilities may terminate the sanction of personal bankruptcy.
How to Avoid Personal Bankruptcy?
It is strongly recommended that you be defended by a specialist lawyer if, as a business manager, you are in difficulty.
In order for a personal bankruptcy to be established, the management errors must have been committed before the opening of the judicial liquidation procedure. Thus, if there is no link between the mismanagement and the appearance or worsening of insufficient assets, the mismanagement cannot engage the responsibility of the manager.
There is also the personal recovery procedure. The personal recovery is a measure taken by the debt commission when a person is unable to pay its debts and that its financial situation is irremediably compromised.
This procedure is implemented with the consent of the applicant. The latter must hold sizable movable and immovable property, the sale of which can help repay its debts. The over-indebtedness commission seizes the judge to pronounce the opening of the procedure.
The judge will summon the debtor and the creditors at least one month before the hearing. He must verify the good faith of the debtor and the seriousness of the situation. A judicial representative is appointed. The debtor can no longer give, bequeath or sell his property without the consent of the agent.
Creditors have a period of 2 months to declare their claims to the agent. The agent has 6 months to establish an economic and social report. This report will be sent to the court and then to the debtor and creditors.