Corporate bankruptcy is a major concern for companies as it brings financial and operational difficulties that impact both the business and its stakeholders.
This text examines bankruptcy, including its operation, phases, and especially, methods for anticipating it using successful strategies.
What does corporate bankruptcy entail?
Corporate failure is the legal declaration that a company is unable to settle its debts.
This occasion typically signifies the end of the organization’s operations, involving the sale of its assets to pay off debts.
Bankruptcy can result not only from financial crises but also from ineffective management, inadequate planning, or external events like pandemics and recessions.
How does the process of bankruptcy in the company operate?
The Laws of Falence and Judicial Recovery, under Law No 11.101/2005 and Law No 14.112/2020, oversee the bankruptcy process to protect creditors’ rights and provide a just resolution for the financially troubled company.
It generally operates as described:
- Bankruptcy application can be filed by the company or by creditors experiencing payment delays.
- The court examines the company’s finances to determine if bankruptcy is warranted.
- An administrator is appointed to oversee the process and guarantee that creditors are paid fairly based on the funds available.
- Company assets are sold to settle debts, with priority given to labor and tax creditors in the payment order.
What are the three stages of bankruptcy?
Corporate insolvency can be categorized into three primary phases.
1. Phase of prevention
Before filing for bankruptcy, companies might try to improve their situation by utilizing various strategies like renegotiating debts with creditors, reducing costs significantly, or restructuring the organization.
It is important during this period to determine if it is possible to restore the financial well-being of the company, and seeking assistance from specialized consultants or mediators can be beneficial.
legal or non-legal retrieval
The judicial recovery is a formal option to prevent bankruptcy.
The company introduces a recovery proposal that requires endorsement from the creditors and the judge in order to restructure the debts and enable the business operations to continue.
Law No. 14.112/20 promoted the resolution of disputes through mediation and conciliation, broadening extrajudicial recovery options.
Negotiation occurs directly between the parties in these instances, bypassing the need for court involvement, leading to quicker and more cost-effective resolutions.
This solution relies on trust between lenders and borrowers, along with positive circumstances for honoring the deal.
To learn more about credit recovery strategies in businesses, refer to our comprehensive article.
Settlement is the process of reaching an agreement or resolution.
If the efforts to recover are unsuccessful, bankruptcy is declared. The attention then shifts to selling the company’s assets to settle debts.
The law sets a payment hierarchy, with workers being paid first, followed by taxes, and then other creditors.
This procedure concludes the organization’s operations and eliminates debts that cannot be settled.
How to prevent a company from going bankrupt?
Bankruptcy may be unavoidable in specific situations, but there are several measures that can anticipate it.
Effective management of finances
Monitor cash flow closely, tracking expenses, income, and due dates for payments.
Identify and address financial obstacles proactively to prevent them from becoming unmanageable. Efficient monitoring helps you foresee issues and take preventive actions.
Strategic planning involves developing long-term goals and strategies.
Set specific and measurable objectives for the company, using clearly defined performance metrics.
Analyze outcomes consistently and modify tactics based on market shifts, like evolving consumer needs or economic fluctuations.
3. Broadening sources of income
Diversify your sources of income by expanding your range of products or services and exploring new markets.
This approach minimizes the effects of sector-specific crises and boosts the ability of businesses to bounce back.
Financial aid
Establish a reserve fund that can support the business during challenging times.
Dealing with sudden decreases in income, higher expenses, or delays in customer payments may be crucial.
Investing in technology is the fifth priority.
Utilize integrated management systems like ERPs and data analytics tools to enhance operations, lower expenses, and forecast trends.
Technology is a useful partner in enhancing effectiveness and minimizing operational hazards.
Planning and being resilient can lead to successful outcomes.
Good management and planning practices can help prevent corporate bankruptcy, which is a difficult situation.
The priority should be developing a strong, flexible, and well-prepared business to tackle challenges in the market, instead of just avoiding financial issues.
Sources cited:
The provided text contains a link to a Brazilian government website.
The website link is: https://www.planalto.gov.br/ccivil_03/_ato2019-2022/2020/lei/l14112.htm