Bankruptcy

If the company is unable to pay its debts or continue its operations, liquidation is often the only option. This can be done through liquidation, i.e., dissolving the company, but in the case of a financial crisis, bankruptcy is the most common option.

Bankruptcy proceedings are initiated when either the company itself or a creditor applies for the company to be declared bankrupt. The district court shall decide on bankruptcy if the company is unable to pay its debts as they fall due and this inability is not temporary. If the district court grants the application, a bankruptcy trustee is appointed.

The bankruptcy administrator's task is to sell the company's assets, pay its debts and wind up its operations in a structured manner. Debts are paid according to a statutory order of priority. During the bankruptcy proceedings and the notice period, employees may receive wages through the state wage guarantee. Bankruptcy means a rapid winding up of the business and, once the bankruptcy proceedings are complete, the company is dissolved. The bankruptcy trustee takes over the management of the company and assumes the duties that were previously the responsibility of the board of directors and the CEO.

A bankruptcy trustee also has other duties, such as investigating whether any transactions took place prior to the bankruptcy that may have favored certain creditors and disadvantaged others. The bankruptcy trustee must also investigate whether a balance sheet has been prepared and, if so, whether it was done in a timely manner. This information is in turn used by certain companies whose business concept is to try to collect money from board members who have not followed the rules on balance sheets.