DCO LLC

Both the debtor himself and the creditor planning to initiate the debtor’s bankruptcy with the purpose of collecting the debt should conceive a well-weighed strategy of conducting the bankruptcy proceedings already before their beginning, understand the level of risks as well as the volume of necessary resources needed for conducting the proceedings. If a creditor whose main purpose is collecting a debt needs only trustworthy information of assets and valuation of the current economic position of the debtor then preparation of the debtor himself for bankruptcy requires much effort as it includes several necessary stages. In the course of before-bankruptcy analysis of the debtor’s position it is very important to understand the real situation. Stock-taking and structuring of the debtor’s assets and liabilities gives the opportunity of providing control over the bankruptcy proceedings and determining sources of financing. Special additional measures in the course of preparation for bankruptcy allow minimising risks connected with personal (subsidiary) liability of the manager and owners of the debtor’s company.

Observation is a bankruptcy procedure applied to the debtor for the purpose of securing the debtor’s safety, performing the analysis of the debtor’s financial position, composing the list of the creditors’ claims and holding the first meeting of the creditors. Observation is a preparatory procedure; collecting necessary documentation, informing interested persons, analysis of the debtor’s financial position are carried out in the course of it. Observation is an obligatory procedure unlike such bankruptcy procedures as financial recovery, external administration or amicable agreement that are not always used in bankruptcy cases. Introduction of observation is not a basis for dismissal of the debtor’s manager and termination of activity of other bodies of the debtor’s management that exercise on their powers with certain limitations. Along with introduction of observation in a bankruptcy case an acting administrator is appointed; he is approved by the arbitration court and exercises his powers simultaneously with the debtor’s manager. On the termination of observation the acting administrator presents to the creditors’ meeting and later to the arbitration court the report of his activity including all information of the debtor’s financial position and a proposal of possibility or impossibility of recovering the debtor’s solvency.

External administration is a bankruptcy procedure applied to the debtor for the purpose of recovering his solvency. The purpose of introduction of the procedure of external administration is to put in order taking measures aimed at recovering the debtor’s solvency and maintaining his business. In the course of external administration the moratorium on satisfying the creditors’ claims, and the external administrator carries out actual administration of the debtor in accordance with the plan of external administration approved by the creditors’ meeting. However, activity of the external administrator should not be fully equated with functions of bodies of management as such bodies of the debtor retain a number of powers. Particularly, such powers include making decisions of entering changes and additions in the company’s statutes in respect of increasing the authorised capital, determining the number, nominal value of declared shares, of increasing the authorised capital of the joint stock company by issuing additional ordinary shares and some other powers. In the ideal case, on the results of external administration the external administrator makes a proposal at the creditors’ meeting to terminate the external administration in connection with the recovery of the debtor’s solvency and proceeds with settlements with creditors. The situation when external administration does not cause the expected result is possible, too. In this case the arbitration court declares the debtor bankrupt and bankruptcy proceedings start.

Bankruptcy proceedings are the final stage of the whole bankruptcy case and are carried out in respect of the debtor declared bankrupt by the arbitration court. The final aim of bankruptcy proceedings is proportionate satisfaction of the creditors’ claims. All bankruptcy proceedings are carried out by the bankruptcy administrator determined by the creditors’ meeting and appointed by the arbitration court. He is a person exercising all powers on managing the debtor’s affairs in the course of the whole bankruptcy process. In the course of the bankruptcy proceedings he performs stock-taking and search and return of the debtor’s property into the bankrupt’s estate, if necessary. The bankruptcy administrator organises and performs sale of the debtor’s property at a public auction, distributes the obtained resources between the creditors. The bankruptcy administrator exercises his powers since the moment of his appointment till the moment of the termination of the bankruptcy proceedings. After the sale of the debtor’s property and other assets, as settlements with creditors are terminated and the arbitration court approves the bankruptcy administrator’s report, the bankruptcy administrator accomplishes the bankruptcy proceedings and performs necessary formalities on excluding the debtor’s company from the state register of legal entities.

If the creditors’ claims were not satisfied on account of the bankrupt’s estate then the bankruptcy administrator or creditors are entitled before the termination of the bankruptcy proceedings to file an application of calling the debtor’s manager to personal (subsidiary) liability. Other persons having influenced the process of making decisions in the course of the debtor’s economy activity may be called to liability, too, including the owner of the debtor’s company, members of the Board of the Directors, the chief accountant, the financial director, other persons. In case of the arbitration court’s making the decision of calling the debtor’s manager or owner to liability the indicated persons will be liable to the debtor’s creditors with all their property and personal money resources.