Concept and signs of insolvency (bankruptcy) of legal entities

Concept and reasons for bankruptcy of a legal entity

Signs of bankruptcy of an enterprise in 2017-2018 in accordance with Article 3 of the Federal Law on Bankruptcy

What is an additional sign of organizational failure?

Signs of insolvency of individual organizations that are not covered by Art. 3 bankruptcy laws

Signs of insolvency of financial and credit organizations

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Concept

Enterprise bankruptcy is a legal way to solve a debt problem with minimal losses. A separate law 127-FZ “On Insolvency” is devoted to issues of bankruptcy of legal entities and individuals. The law was adopted back in 2002, but changes are regularly made to it.

According to the provisions of this law, bankruptcy of a company is understood as the inability of the company to fully repay the claims of creditors for monetary obligations and to fulfill obligations to make mandatory payments.

Mandatory payments in this case mean tax deductions and payments to extra-budgetary funds. Monetary obligations refer to the company’s debts under paid contracts (for example, supply agreements, purchase and sale agreements, etc.), under loan agreements and other obligations.

Bankruptcy of a legal entity is aimed at repaying the claims of creditors as completely as possible. Repayment of obligations to creditors can occur through the introduction of rehabilitation procedures in relation to the debtor, through the implementation of a set of measures aimed at restoring the balance of payments.

If the company's solvency cannot be restored, the company is declared bankrupt and bankruptcy proceedings are introduced against it. As part of this procedure, all of the company's assets are sold to pay off creditors' claims.

Only an arbitration court has the right to declare a company bankrupt. A creditor represented by a private organization or tax service cannot declare a legal entity bankrupt, but has the right to submit a corresponding petition to the arbitration court. Also, the initiative to declare a company financially insolvent may come from the debtor himself.

There are such types of company bankruptcy as:

Real bankruptcy - it is characterized by the actual inability of the company to restore its solvency.
Temporary, or technical bankruptcy - occurs when the business is seasonal or when there is a large volume of receivables. In this case, with the help of external management or financial recovery procedures, the company's solvency is easily restored.
Intentional or willful bankruptcy . These are cases when the company’s management deliberately brings it to bankruptcy, using various methods to embezzle funds and withdraw assets, distort financial and accounting statements, etc.

Intentional and fictitious bankruptcy are considered criminal offenses.

Goals and logic of the sequence of key stages

If you study all the aspects that make up the bankruptcy procedure, the stages will clearly demonstrate their interconnection. Their sequence is quite reasonable. A single set of ideas can be easily traced. First, an attempt to collect information about the enterprise, then study the levers and mechanisms by which the situation can be corrected. Next comes the moments of recommendations, and if good advice does not bear any fruit, then the transfer of power into the hands of new, more competent managers. At a minimum, they will definitely have no criminal intent, and personal interest is often associated with incorrect performance of duties. When all attempts have been in vain, in order to satisfy the demands of the meeting of creditors, all that remains is to take away all the property from the debtor and sell it under the hammer, thus compensating at least part of the monetary losses of the creditors.

Each stage has its own set goal. It is not identical for the entire complex. Of course, there is also a main motive - to return the creditors' money.

Let's consider each event separately.

Observation

In fact, this is the stage preceding bankruptcy procedures. The Arbitration Court, represented by its representatives, has not yet begun to actively act. And there is practically no influence on company policy. Yes, there may be some recommendations, but you don’t have to follow them. In fact, this is the time to collect information, which sometimes lasts up to six months. The maximum period is 7 months.

The main task is to collect information. The final result is the manager's summary report. It is he who is engaged in identifying all the company’s assets, current financial situation, property owned. There is an active review of concluded transactions, and the accounting records for the last three years are being reviewed. The received reports are sent to the judicial authority. In addition to it, at this stage another document is recorded - the minutes of the meeting of creditors, which largely indicates the list of requirements that must be satisfied.

Often during such an audit it turns out that there is no need to declare a company bankrupt in principle, because the assets of the enterprise are quite sufficient to cover current payments along with interest. After all, you need to pay off, in fact, not the entire debt, but only the overdue part of it. And often the initiation of insolvency occurs from the moment of the minimum threshold. That is, from 300 thousand rubles. And the assets of even a small project, as well as property in terms of market value, are usually enough to cover such expenses.

Rehabilitation or financial recovery

This is where direct interference in the company’s affairs is already taking place. Everything is not limited to external monitoring.

To begin with, this happens:

Any unaccounted expenditure of funds is completely covered. This also applies to company shareholders. Dividends are not transferred to them.
Any transactions involving the alienation of property that management is trying to conclude are cancelled. As well as the acquisition of new property.
Collection is stopped even in enforcement proceedings.
The accrual of sanctions stops. This is a positive moment for the debtor, because now he is no longer charged additional penalties, which can increase the debt many times over.

Otherwise, the procedure does not yet deprive the company's executives of voting rights. First of all, directors. But the issuance of recommendations begins, which are almost obligatory to follow. “Almost” - because, on the one hand, it is possible to refuse, but then there will be suspicion of intent, financial recovery is easily curtailed, and it is replaced by external management, where the founders no longer have any rights. They are simply temporarily removed from their positions.

So, if we analyze bankruptcy in detail, the main points of this particular stage are that it brings only advantages for a company with real problems, and not imaginary ones. Free financial advice, analysis of assets, assistance in decisions, and freezing of all debts. There are almost no downsides.

Methods of healing

They consist in the very advice that the manager provides. As already noted, it would be logical to follow them with all zeal. The specifics vary depending on the views of the manager, the position of the company, the specifics of its activities, the region, established connections, and current assets.

But in general, the following recommendations can be followed:

Reduce the outflow of funds. It is almost always necessary to interrupt the flow of funds into various investment projects. It's not the time to invest when you don't have money to pay the bills. This is completely rational.
Reduce expenses to a minimum. That is, fire employees who are not necessary for production, reduce marketing costs and other aspects that do not give immediate results.
Effectively use current resources.
Try to restructure the debt. In general, all stages of bankruptcy of an organization to some extent pursue the goal of drawing up an agreement between the creditors and the debtor. And restructuring is a kind of peace agreement that will save the company from immediate problems. And will avoid liquidation.

Moratorium

The interesting thing is that during this period creditors do not have the right to claim their money. Yes, we have already clarified that the accrual of sanctions and penalties is blocked. But they didn’t say that you can’t simply demand another monthly payment. The debt is frozen. Although the interest set by the tariff rate is still accruing, sanctions and payments themselves are already stagnating. This is very profitable and convenient for the debtor.

That is why many projects try to initiate the insolvency procedure simply as a short delay. To take a break from creditors for a year or two, restore financial stability, and then start working with renewed vigor.

It is worth knowing that it is impossible to suspend wage payments or compensation for damage caused.

Sequence

Our enterprise bankruptcy scheme did not take this factor into account. It is worth knowing that it is quite important. After all, there are usually many creditors, but the company has few assets. This means that it will not be possible to satisfy all requests. It’s good if at least 30% of lenders keep their money. Without even a hint of profit.

That is why there is a strict sequence prescribed in 127 Federal Law. And when making payments after liquidation, you need to focus only on it.

Victims. In first place are those who suffered some kind of damage as a result of the company’s actions. Both physical and moral. Those who tried to sue their opponent, but he unexpectedly declared himself bankrupt and the collection stalled.
Employees. That is, company employees, regardless of their position.
Other creditors. Usually these are banks and counterparties.

External control

It is considered the largest, most protracted and difficult stage. And it is at this time that a peace agreement is often concluded. It is incorrect to believe that this is the stage of bankruptcy, which begins after the debtor is declared bankrupt. After all, after liquidation, there can no longer be any contracts. If the company ceases to exist, the only possible further stage is the emergence of subsidiary liability.

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But let’s return to external control. At this stage, managers and founders withdraw from their work. All power passes to an external person who can develop a special rehabilitation plan. This is a kind of step-by-step recipe, a list of economic actions that will lead to optimization of the level of solvency of the company. He must submit it to creditors no later than one month after taking office. And the meeting must either approve it or supplement it.

Accordingly, according to this list of anti-crisis measures, attempts to restore the company begin. They conclude new contracts, expand or narrow the activities of the enterprise, look for suppliers and partners. This entire process usually lasts about two years, possibly exceeding two and a half years. Sometimes the stage ends much earlier if the manager, creditors or other interested parties have filed a petition to switch to bankruptcy proceedings. Indeed, in most cases, it is possible to understand in advance whether the management will bring some result or will become an attempt to delay the inevitable liquidation.

Bankruptcy proceedings

This is the final step where all the company's property is collected. A bankruptcy estate is being formed, which will become separate lots. Auctions are often held in electronic format, and the funds received from sales are sent to a special account of the company, from which payments will then be made to all creditors in the order specified.

How the auction works

There are many platforms for carrying out this procedure online. The most significant is the portal of the EDF - the register on which the lion's share of trading takes place. Any citizen of the Russian Federation can become a participant. It is enough to simply fill out the registration form correctly, as well as make a certain amount of deposit. Often this is no more than 10% of the average lot offered at a given auction.

Settlement agreement

It cannot be said that this stage, in principle, has a number. Rather, it comes separately and is used at almost any time. The manager becomes an intermediary between the meeting of creditors and debtors. His task is to ensure that the parties come to some kind of common opinion and find ways for a mutually beneficial way out of the situation.

Once, at his request, the settlement agreement is initiated and registered in the arbitration court, the liquidation is canceled, as well as the insolvency proceedings.

The role of the court in the procedure

This is a supervisory authority that monitors the legality of all actions, appoints managers at all stages, receives complaints, and makes final verdicts based on reporting.

Bankruptcy of legal entities, table

To summarize, we will consolidate the material obtained in the article. Let's briefly outline and compile the information.

Specific stage currently being implemented	Is the actual management of his own enterprise available to the director, as well as the founder?	Manager	Term
Monitoring	Some minor restrictions apply	Temporary	Up to six months
Sanitation	Serious restrictions	Temporary or administrative	Up to two years
External control	Full transfer of rights	External	Standard 18 months, but can be extended to 2.5 years upon request
Sale of bankruptcy estate under the hammer	The manager does not participate in the process	Competitive or external	Often the final period is 6 months. In the case of particularly illiquid property - a year

Main signs of bankruptcy of a legal entity

Signs of a company's insolvency are covered in Art. 3 FZ-127. A legal entity may have debts in the following categories of payments:

in terms of monetary obligations to partners and contractors;
salary payments and severance benefits to employees;
tax deductions, fees and other obligatory payments.

Not every organization with financial difficulties can be declared bankrupt. To do this, it must meet the criteria for bankruptcy.

On formal grounds, any delay in the fulfillment of its obligations by the company to counterparties or to the budget for a period of more than 3 months is a sign of bankruptcy (according to paragraph 2 of Article 3 of 127-FZ). But one cannot ignore another important sign of bankruptcy, which is related to the amount of debt.

Obviously, with a small debt one can hardly talk about insolvency. But if the debt exceeds 300 thousand rubles, then with such an amount it is permissible to initiate a bankruptcy case under clause 2 of Art. 6 FZ-127.

General signs of insolvency or bankruptcy include the presence of overdue debt in the amount of at least 300 thousand rubles. and non-payment for at least 3 months or more.

Presence of signs of bankruptcy in the form of overdue obligations in the amount of 300 thousand rubles. for a period of 3 months or more, gives the right to the following entities to apply to the arbitration court to declare the company financially insolvent:

To creditors regarding claims that were previously confirmed by a court decision.
To the authorized bodies after 30 days have passed since the decision to collect the debt has been made.
Employees to whom the legal entity has arrears of wages and severance pay (the amount of wage requirements must be established by a court decision).

According to the decision of the Supreme Court of the Russian Federation of 2020 in case No. A53-2012/2015, if someone makes payments so that the amount of the debt does not reach 300 thousand rubles, then this can be regarded as an abuse of right and does not deprive the applicant of the opportunity to declare bankruptcy of the debtor.

It is worth noting that for carrying out a simplified bankruptcy procedure for an absent debtor, the amount of debt does not matter under clause 1 of Art. 227 127-FZ. This is the difference from simplified bankruptcy when liquidating a company: in the latter case, the debt of the debtor being liquidated must be 300 thousand rubles. and more.

When determining whether the amount of debt complies with the legal requirements of 300 thousand rubles. The amount of debt includes:

wage debts, which were determined as of the date of filing the insolvency application under clause 1 of Art. 4 127-FZ (debts that arose after filing a bankruptcy petition are classified as current payments);
debt to pay for goods and services;
loan amount including accrued interest;
debts that were formed as a result of unjust enrichment or harm;
mandatory tax and other payments.

When determining signs of insolvency of a legal entity, the amount of debt does not include penalties, penalties and fines, as well as damages in the form of lost profits.

After discovering signs of bankruptcy of a legal entity, the director or other head of the company is obliged to inform about them to the owners of the property of the unitary enterprise company and the initiators of convening an extraordinary meeting of shareholders or owners of the legal entity (its participants) under clause 1 of Art. 30 127-FZ. Thus, as soon as the manager discovers signs of bankruptcy, he reports it:

Board of Directors (supervisory board).
To the audit commission.
Auditors.
Shareholders owning at least 10% of the voting shares for a JSC (under clause 1 of Article 55 208-FZ), participants having at least 1/10 of the total number of votes for an LLC under clause 2 of Art. 35 14-FZ.

The head of the legal entity notifies the indicated persons about signs of insolvency within 10 days after he became aware of the signs of bankruptcy.

For failure to report signs of financial insolvency, directors may be fined 25-50 thousand rubles. or disqualify him from performing duties for a period of 6 months to 2 years under Part 6 of Art. 14.13 Code of Administrative Offences.

Cases of bringing to administrative liability can be initiated, in particular, by the prosecutor. Information can come to him from any interested parties, in particular from competitors.

Bankruptcy theory

Kinds

There are several types of bankruptcy.

Technical or temporary

It often occurs in manufacturing enterprises, in a situation where real assets exceed the amount of accumulated debt, but it is not possible to pay off debts.

For example, a company cannot sell the accumulated volume of produced goods in order to pay for the services of suppliers. In this case, they resort to the services of an anti-crisis manager.

Real

A legal entity and has sufficient funds to repay the financial obligations that have arisen, which leads to a situation of insolvency.

fictitious

In order to delay the fulfillment of obligations, companies resort to cunning and file for bankruptcy, providing false information about their financial condition. Such actions carry irreversible consequences and are prosecuted by law.

Criminal

The company's management deliberately brings its condition to real bankruptcy in pursuit of its own selfish goals (seizure of property, transferring it to another owner). Such actions carry criminal liability.

Signs

The main sign of bankruptcy is more than three months of delay in payments to creditors or government agencies. But this condition alone is not enough to file an application to declare an enterprise bankrupt.

In practice, several indicators are used to recognize the insolvency of a legal entity; most situations are considered individually, taking into account:

The categories of legal entity, the bankruptcy procedure determined by the state largely depends on this. It will be different for an ordinary organization, an insurance or credit company, a real estate developer or a strategic enterprise.
Initiator of bankruptcy. They can be government agencies, the creditor, or the debtor himself.
Whether the debtor has the opportunity or obligation to file a bankruptcy petition in court.
Conditions for the court to accept a statement of financial insolvency.

In addition, it is important to additionally take into account formal and informal signs, as well as the possibility of the debtor initiating fictitious bankruptcy.

Additional external and internal signs of bankruptcy of a legal entity

In Art. 8 127-FZ states the right of a legal entity to go to court if it foresee its own insolvency and if there are circumstances indicating the impossibility of fulfilling them in a timely manner. That is, in this case there is no need to wait until the debts exceed 300 thousand rubles.

Based on paragraph 1 of Art. 9 127-FZ establishes the following signs, in the event of which a legal entity is obliged to apply to the court for bankruptcy:

If repayment of debt obligations to one or more creditors will lead to the impossibility of fulfilling the claims of other creditors.
If foreclosure on the property of a legal entity makes the further activities of the legal entity impossible or complicates it.
If the founders of a legal entity or the owners of a unitary enterprise have decided to file an insolvency application with arbitration.
If a legal entity has signs of insolvency or insufficient property.
If the company has arrears in wages for 3 months or more , which arose due to insufficient funds.

Failure by the owner of the company to fulfill his obligations to file a bankruptcy application if there are signs of insolvency may become the basis for bringing him to subsidiary liability.

The management of a legal entity, with a competently organized financial analysis in the company, can foresee signs of future bankruptcy in advance. These include internal and external factors. Internal reasons that indicate the possibility of bankruptcy in the near future include:

Significant losses in the dynamics of core activities : a chronic decline in production, a decrease in sales volume, stable unprofitability of business processes.
Availability of overdue accounts payable and receivable.
Low values of liquidity ratios and identification of a tendency towards their reduction.
Working capital deficit.
Increasing the share of borrowed capital in assets.
Negative trends in changes in the order portfolio.
Increase in raw material reserves above normal.
Decrease in production potential.
Fall in stock market value.
Using sources of financing on unfavorable terms.
Loss of key counterparties.
Underestimation of the importance of updating equipment and technology.
Loss of qualified personnel.
Insufficient capital investment.

External factors include stagnation or negative dynamics in key sales markets, negative economic situation in the country, in the commodity market, etc.

To reduce the likelihood of bankruptcy, a company should work on diversifying its sales markets, reducing costs, looking for ways to sign long-term contracts, etc.

Concept and reasons for bankruptcy of a legal entity

Enterprise bankruptcy is a procedure for dissolving a company that has debts of various kinds to individuals, counterparties and government agencies, which it is not able to repay, as provided for by the Law “On Insolvency...” of October 26, 2002 No. 127 (hereinafter also referred to as the Law/Federal Law on Bankruptcy). on one's own. At the same time, the company does not have the right to declare itself bankrupt on its own, since only the arbitration court has the authority to carry out the bankruptcy procedure and make an appropriate decision based on its results. The initiator of assigning bankrupt status to an enterprise, in accordance with paragraph 1 of Art. 7 Federal Law No. 127, may be the debtor himself, his creditors, former and current employees or authorized government bodies to whom the company has an outstanding debt.

As a rule, external reasons for an organization’s loss of solvency are:

instability of the economic situation in the country;
rapid growth of inflation;
increased competition;
decline in consumer demand;
an increase in the cost of raw materials and other consumables used in the course of the enterprise’s activities.

Internal reasons that can lead to bankruptcy of an organization include:

its management making ineffective management decisions;
irrational use of production capacity, leading to an increase in production costs and, as a consequence, a decrease in profit margins;
untimely repayment of existing debt obligations, entailing the accrual of penalties and fines;
the occurrence of unplanned operating costs, etc.

Signs of insolvency of certain categories of legal entities

Above were general signs of bankruptcy that are characteristic of all legal entities, while for individual companies the law provides for specific signs.

Credit organizations

Certain criteria have been established, in particular, for credit institutions (in paragraph 1 of Article 189.8 of 127-FZ). Among them are the following:

Failure of a company to fulfill its obligations to creditors and to make required payments within 14 days after the due date.
Insufficient assets to fulfill assumed obligations.

The presence of signs of insolvency can be said if the bank does not transfer mandatory payments for itself as a taxpayer or as an executor of payment orders received from its clients (based on Article 189.8 of 127-FZ).

Bankruptcy legislation also provides for some cases when measures are taken to prevent the insolvency of a credit organization (based on Article 189.10 of the 127-FZ). These include the following signs:

The company does not fulfill its obligations to partners for six months, does not pay taxes and fees within 3 days (or more than 3 days) after the maturity of obligations due to a lack of funds.
Violates the standards established by the Central Bank of the Russian Federation regarding the adequacy of its own funds.
by 10% or more over the last month

Agricultural organizations

Based on clauses 4, 5 of Art. 177 127-FZ, it is possible to define special signs of insolvency of agricultural organizations. This is the presence of a total debt of at least 500 thousand rubles. and failure to fulfill requirements for its repayment for a quarter or more.

The amount of requirements of creditors and authorized bodies for declaring an agricultural company financially insolvent compared to standard rules has been increased by 200 thousand rubles.

In accordance with paragraph 1 of Art. 177 FZ-127 the following legal entities are classified as agricultural companies:

Agricultural producers and processors . When a company is classified in this segment, revenue from the sale of agricultural products must be 50% or more.
Fishing cooperatives with revenues of 70% from the production of agricultural products , their processing and catching water resources.

Strategic Enterprises

Special bankruptcy conditions are also provided for initiating insolvency proceedings for strategic enterprises.

This requires that the debt is not repaid within six months after the due date, and the total debt is at least 1 million rubles. in aggregate for several creditors under clauses 3, 4 of Art. 190 127-FZ.

Strategic enterprises include federal enterprises and joint stock companies if their shares are owned by the Russian Federation, if they produce products that are strategically important for the security of the state and the protection of the legal rights and interests of Russians. It could also be a defense sector enterprise that deals with State Defense Orders.

The list of strategically important enterprises was approved in Decree of the President of the Russian Federation of 2004 No. 1009 and Government Decree No. 1226-r of 2009. The company may be included in one of the specified lists.

Natural monopolies

Legal entities are classified as subjects of natural monopoly according to the norms of Federal Law No. 147 of 1995 “On Natural Monopolies”.

In order to initiate a case of financial insolvency of natural monopolies, i.e. enterprises that are engaged in the production and sale of products under natural monopolies, it is necessary:

Availability of total debt to partners and employees in the amount of at least 1 million rubles. according to paragraph 3 of Art. 197 127-FZ.
The presence of an unfulfilled obligation to repay debt within six months after monetary obligations must be fulfilled under clause 2 of Art. 197 127-FZ.

It is also legislatively established that two additional conditions must be met: the requirements were confirmed by an executive document, and the requirements were not satisfied in full through foreclosure on the property of natural monopolies.

Key Stages

This procedure represents a whole range of measures under federal law, which are aimed not only at liquidation, but also at restoring the financial stability of the project. First of all, legal measures are used for rehabilitation, because in this case all the interests of creditors will be fully satisfied. And only in cases where this is not possible in principle, as practice has shown (actions of the manager, health procedures), bankruptcy proceedings come into play, which is a kind of liquidation.

It is customary to conventionally distinguish 5 stages of bankruptcy, which are considered the main ones. Although, each of them, in turn, may consist of various events. For example, external management quite often ends at the audit stage, if it is clear that the project cannot be restored. And sometimes the period of activities is extended to two and a half years, various methods are introduced, and the manager’s project plan is implemented in full. But in general, you need to focus on five stages, which will be discussed.

Audit in case of bankruptcy

Conducting an audit in bankruptcy is based on regulations:

Federal Law-127 (in particular, Article 70);
RF PP of 2003 No. 367 “On approval of the Rules for conducting financial analysis by arbitration managers”;
RF PP of 2004 No. 855 “On approval of temporary rules for checking by an arbitration manager for signs of fictitious and deliberate bankruptcy”.

Since, on the basis of clause 6 of Resolution No. 367, in order to assess the financial position of a company, it is necessary to determine the reasons for the loss of solvency, then to calculate these indicators, one can rely on the Order of the Federal Fund for Financial Affairs under the State Property Committee of 1994 No. 31-r “On approval of Methodological Regulations for assessing the financial condition of enterprises and the establishment of an unsatisfactory balance sheet structure.”

When an organization goes bankrupt, an arbitration court or creditors sometimes order an audit to identify facts of deliberate bankruptcy or unreliable information in financial documents. The responsibilities of the auditor in this case include analyzing the legality of signed transactions by a legal entity, indicating transactions aimed at illegal targeted withdrawal of assets, and checking financial statements for reliability. This makes it possible to establish the facts of deliberate and willful bankruptcy.

In relation to the bankruptcy procedure, an audit refers to the verification of accounting and financial documentation for a certain time period that preceded bankruptcy. Such a check is mandatory to be carried out by the arbitration manager after introducing the monitoring stage in relation to the debtor.

But in some cases, specialized third-party auditors may be involved in the audit. Auditors can be involved at the initiative of the bankrupt himself to eliminate inaccuracies and bring accounting documentation into normal condition. More often, the initiative to involve independent auditors in a bankruptcy case comes from the creditors of a legal entity. The main purpose of the analysis in this case will be to increase the bankruptcy estate by canceling illegal transactions for the alienation of assets.

Statutory audits can be carried out by both audit organizations and individual auditors. They must be members of the SRO.

Sometimes the arbitration court unilaterally issues a decision to engage an auditor to confirm the legality of the bankruptcy procedure.

The legislation provides for situations in which an audit is a mandatory condition. So, on the basis of clause 4, part 1, art. 5 307-FZ audit is required for revenues exceeding 400 million rubles. and the amount of assets of a legal entity - over 60 million rubles.

Based on Art. 70 127-FZ, the manager is obliged to conduct a financial analysis of the debtor’s activities, and the tools for such analysis include audit.

Taking into account the provisions of Part 1 of Art. 5 Federal Law-307, a company is obliged to conduct an audit if it is:

Participant in the securities market.
Has the status of JSC.
Is an insurance company.
Is a non-state pension fund.
Acts as a credit institution.

Mandatory audit of financial and accounting statements is required for joint stock companies. This requirement is not lifted after bankruptcy proceedings are introduced against the company.

In particular, if a bankruptcy procedure has been introduced in relation to a joint-stock company, then it must routinely conduct an audit of its annual and financial statements. Only the person responsible for signing the report changes. In this case, he becomes a bankruptcy trustee in a bankruptcy case on the basis of Art. 126 127-FZ.

Failure to conduct a mandatory audit and lack of an audit report may result in liability under Art. 15.11 Code of Administrative Offences. Protocols on administrative offenses in accordance with the provisions of this article are prepared by officials from among tax inspectors and executive authorities, which have supervisory and control functions in the public sector, representatives of the Accounts Chamber and regional accounting bodies.

Statute of limitations for imposing administrative punishment under Art. 15.11 Code of Administrative Offenses is 2 years.

What is

Today, a certain set of criteria for assessing the financial insolvency of a company has been fixed, which become the subject of analysis during the audit. Initially, business activity data is analyzed, and then the auditor begins to calculate solvency ratios, which include:

Absolute and current liquidity.
Level of security of liabilities with assets.
Degree of solvency.
Financial Independence Ratio.
Share of personal resources in current assets.
Share of overdue debt in liabilities.
Receivables to assets ratio.
Coefficients for the bankrupt’s business activity : return on assets, net profit rate.

Only consideration of all these indicators together allows us to draw any significant conclusions about its financial solvency.

Since a company in the process of bankruptcy is in a cramped financial situation, they often try to save money on the services of auditors. But in fact, the effect of their work can be several times higher than the costs (due to an increase in the bankruptcy estate in a bankruptcy case).

Goals and objectives

The goals and objectives of the audit are transformed depending on the stage of bankruptcy. In the period before the bankruptcy petition is accepted by the arbitration court, auditors need to:

identify signs of deliberate bankruptcy;
check the feasibility of transactions for the alienation of assets and their compliance with market realities;
check schemes that allow founders to unofficially withdraw capital;
provide practical recommendations for the return of inventory items.

During the bankruptcy process, the auditor’s tasks include:

Confirmation of the legality of the adopted court decision on the legality of the bankruptcy procedure.
Determining compliance with legal requirements during the process.
Checking and analyzing the financial condition of the enterprise based on reporting.
Valuation of property owned by the debtor.
Checking transactions for their economic efficiency.
Analysis of receivables and payables.
Checking the effectiveness of the pricing policy.
Analysis of the feasibility and effectiveness of signed contracts with suppliers.
Determination of the amount of current expenses in a bankruptcy case.
Studying the statements of the arbitration manager and checking his statements for accuracy.
Monitoring compliance with the balance of interests and the order of repayment of creditors’ claims.
Analysis of the feasibility of current payments.

Bankruptcy procedure

Declaring a legal entity insolvent begins with filing an application to the Arbitration Court. The application form has not been approved at the legislative level; it can be drawn up in free form, necessarily reflecting the following points:

The name of the court to which the application is sent,
Full name of the legal entity that must be declared insolvent,
Details of creditors, business partners or government agency on behalf of which the application is being submitted.,
A reasoned requirement to initiate bankruptcy proceedings based on existing justifications, which must also be stated in the application,
List of attached documents.

The document can be submitted to the Arbitration Court in person to the office, sent via an electronic server or through the services of the Russian Post by registered mail with an inventory and notification. After consideration by the court and identification of signs of real insolvency, an observation period of up to 7 months is assigned.

During this period, creditors collect their claims, and a meeting of creditors is scheduled, at which a decision will be made on the liquidation of the organization or its rehabilitation. In the latter case, an external management procedure is introduced for 2 years. If a decision is made to liquidate it, then the bankruptcy procedure is launched. During which the sale of its property by the bankruptcy trustee takes place and the payment of all existing debts takes place, as well as the subsequent liquidation and exclusion of the legal entity from the Unified State Register of Legal Entities.

Cost of bankruptcy

Bankruptcy of a legal entity costs a pretty penny:

it all starts with a state duty of 6,000 rubles; for individuals, for comparison, it’s 300 rubles (Article 20.6 of Law 127-FZ);
then payment for the work of the arbitration manager (from thirty thousand rubles per month);
auditors, non-free legal consultations, independent examinations, lawyers, notaries, whom you have to contact during the bankruptcy process, will cost a significant amount;
the costs of publishing about the progress of bankruptcy in the Unified Register and thematic media, sending registered letters, certifying copies of documents will result in 20-25,000 rubles.

As a result, the costs by the end of bankruptcy will amount to more than 250,000 rubles.

Initially, the legal entity does not have that kind of money? You will have to write a request for an installment plan. The judge may take pity, appoint a state financial lawyer, he will be cheaper, accept the terms of the installment plan, or otherwise contribute to making the procedure cheaper for the defendant.

Reasons for bankruptcy

The most common external factors that negatively affect the financial condition of a legal entity are the following:

Unplanned expenses caused by major industrial accidents, the need to purchase additional equipment (if this was not included in the plan for the next year), etc.
Increase in price of raw materials used in production.
Deterioration of the general economic situation in the country.

Internal causes are usually associated with management policy errors in terms of pricing, investment policy or lending to the enterprise. In the latter case, obtaining loans at a high interest rate can reduce the profitability of the business, which entails the formation of large debts.

Bankruptcy proceedings

This stage means the legal recognition of the debtor as bankrupt, regulated by Chapter VII 127-FZ. The goal of this stage is to maximize the repayment of debts by selling the assets of the enterprise at auction.

The court appoints a bankruptcy trustee, who determines the value of all assets of the enterprise through an inventory and an independent assessment. Based on the results of the inventory, the bankruptcy estate is formed. It includes all the property of the debtor.

The sale of the bankruptcy estate takes place on electronic platforms. The bankruptcy trustee publishes information about the auction in the media and places lots for sale at bankruptcy auctions.

The proceeds from the sale of property are used to pay off debts. If something remains unsold, the manager can offer it to creditors as payment. At the end of the bankruptcy stage, all debts are considered repaid and the debtor is considered liquidated. Information about bankruptcy is entered into the Unified State Register of Legal Entities, and the activity of the enterprise is terminated.

Sources:

About insolvency

Unified Federal Register of Bankruptcy Information

Signs of bankruptcy of an enterprise in 2017-2018 in accordance with Article 3 of the Federal Law on Bankruptcy

Signs of bankruptcy of a legal entity are determined by the provisions of paragraph 2 of Art. 3 Federal Law No. 127. A bankruptcy case against an enterprise, in accordance with the provisions of this article, can be opened only if it has not fulfilled its obligations to pay wages or repay other financial debts within 3 months from the date on which such obligations had to be fulfilled.

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At the same time, paragraph 3 of the article under consideration indicates that the inability of an enterprise to satisfy the financial demands placed on it is the basis for implementing bankruptcy proceedings only if the law does not directly provide otherwise (i.e., the organization does not belong to a certain category for which which the legislator established a special procedure for declaring bankrupt).

Myths about subsidies for non-submission

To be clearer, we have collected the top misconceptions about not filing an application that we regularly hear from our clients:

“I didn’t apply. So it’s 100% subsidized?”

No, no and NO.

The subsidy will only cover those debts that you created, realizing that the company was already insolvent.

And all the obligations that were accrued before the signs of insolvency appeared are an ordinary commercial risk that the counterparties took when working with you, and there is no dishonesty in the inability to pay them off. This means there is no chance of attracting a subsidy.

At least, this is the case if the subsidiary is brought to justice for late filing of a bankruptcy petition. But nothing prevents creditors from going the other way - we discussed the options in detail in the article “Subsidiary Liability of a Director”.

“I started the business with debts. What, should I close?

Yes and no. It all depends on whether you are lucky with an adequate judge and competent lawyers.

When a business starts with borrowed or attracted money, this is normal. After all, we must somehow launch production, build facilities, buy raw materials, etc. The only problem is that at first a business may show exactly the same notorious negative NAV that we talked about above.

When the business gets going, it will pay off its obligations and gain profit in terms of NAV. But if after N years it again goes into the red and then into bankruptcy, the question will arise from what moment the date of insolvency will be counted: from the very first date when the CEO indicated a negative NAV in the reporting, or from the last? The question is actually not an idle one.

If we are guided by adequate logic, then, of course, the countdown should be carried out from the last date, because... the company has already closed the initial “tails” and worked for some time with a positive NAV.

But adequate logic is not always applied in our courts. Therefore, they can take the very first date - in fact, the date of opening of the company. We looked at an example of such an inflection here.

But let’s not intimidate you too much: judicial practice in Russia is diverse, and the approaches of judges are also changing (including in a fair direction). Personally, I would cope with protection from a subsidiary in such a situation.

“As long as the creditors have not settled the debt, there is no obligation. This means there are no signs of insolvency.”

This is wrong.

A business’s obligation arises at the moment of signing the relevant piece of paper. This is correct and logical: they signed the certificate of completion of the work - they owe money. We signed the delivery note - we have to do it again. If you missed the payment date under the signed loan agreement, you again risk falling under the signs of insolvency. And the fact that you refused to pay money and delayed the trial for 5 years does not matter at all. The period for the occurrence of obligations will be counted precisely from the moment of acceptance of work, receipt of goods, acceptance of services.

This rule has its own specific exceptions. For example:
The obligation to compensate for damage (losses) arises precisely from the date the relevant court decision enters into legal force.
The obligation to guarantee arises only from the moment of receipt from the creditor of a written demand to pay the debt for the principal debtor. And not earlier! Even if the credit manager with the eyes of the cat from Shrek sculpts that you should have immediately assessed the possibility of repaying the guarantee as soon as you put it on off-balance sheet accounts. This is wrong. There is a requirement - there is an obligation, and nothing else.

But with debts arising to the beloved Federal Tax Service as a result of an on-site tax audit, the judicial practice is no less fun than diverse:

A number of courts believe that a debt to the budget arises only when the corresponding tax decision (a judicial act based on the results of its challenge) comes into force. This, of course, is more convenient for the debtor: complex additional accruals can be litigated for 3 years, delaying the date from which the amount of the subsidy will be calculated.
Other courts equate the tax authority’s decision with signing the primary document: “Well, yes, you challenged the decision... But you didn’t challenge it... This means that the tax authority’s decision was fair, justified and payable from the moment it was made.”
And a number of “progressive” courts go even further. Since, as part of an on-site tax audit, VAT and income tax are assessed quarterly, the following logic is applied: “The on-site audit was for 2014, 2020, 2020. VAT and income tax were additionally charged to you for all 3*4=12 quarters. You lost the court to challenge the tax authorities' decision. This means that the fact of your dishonesty in calculating and paying taxes has been established. But if you had acted in good faith and wisely, then by the end of the 1st quarter of 2014 you would have recognized a tax debt in the amount of 7 million rubles. We will take this date as the moment when signs of insolvency arose. From there we will count the month for filing a bankruptcy petition and will impute all subsequent quarterly additional accruals to the subsidy.” How do you like that, Elon Musk?

What to do to avoid CO

We cannot give you a universal way to fight off the subsidy - there is none. It works differently in every situation. At the same time, it would be strange to just go and file for bankruptcy on the very first day of delay. Actually, waiting ten years, relying on the help of all the saints, is also not a good format. Here are the basic methods:

Option 1: Notify creditors.

The most obvious and at the same time hardly feasible method is to notify creditors of your insolvency. Those. if you already meet the signs of insolvency, take a piece of paper (or keyboard) and notify your counterparties in writing that there is a financial difficulties, while I would like to receive a product, service or money.

If, after such frankness, the counterparty gives you what you want, it means that he has assessed the situation and, at his own peril and risk, meets you halfway. You act in good faith, which means there are no complaints against you.

In practice, it is clear that everyone will appreciate such honesty... and no one will give you what you want.

But this does not mean that this option cannot be used to resolve issues regarding the subsidy. Here is a whole article with an analysis of a case where we fought off the director from the subsidiary precisely for failure to submit an application. The general director received 75 lyams, and among the creditors was our beloved DIA.

Option 2: Plan to restore solvency.

The creditors' task is to move the starting point of insolvency as far into the past as possible. So you can impose more obligations, and drag people in as much as possible - there are so many genders alone that you can count.

Our task is the opposite - to shift this date as far into the future as possible. What can help with this?

The financial analysis. Having an analysis of the state of your affairs in hand, you will have something to operate with before the court, proving that the company as a whole was ok. Or not ok. Either way, you were in control of the situation. But we recommend reading a separate article about this: “Financial analysis in bankruptcy.”

Anti-crisis plan. If you don’t need an outsider’s view to see the elephant in the room, your weapon is a crisis exit strategy or an anti-crisis plan.

At the same time, the format strategy: “I bought a lottery ticket. I think there’s a chance to win” won’t do. The plan must be drawn up based on the real state of affairs and no less realistic solutions. Moreover, it is important to start implementing it.

The fact is that within the framework of the case of attracting a subsidiary, this plan will be subject to evaluation. In particular, check for the reality and feasibility of what is being described: how objectively it could help the company restore solvency and what actions were taken to implement it. A plan and actions that are incompatible with the life of the company will only make the situation worse.

For example, not long ago we drew up an anti-crisis plan based on the timing of collection of receivables. For this purpose, letters of guarantee for payment within the appropriate time frame were received from the main debtors. In court, we argued that if the gentlemen had kept to the dates they promised, the company would have restored solvency. The court took this into account as proper and conscientious behavior of our client, and the date of insolvency was moved forward, to the scheduled date for collecting receivables, which reduced the volume of obligations imputed under the subsidiary to zero.

An anti-crisis plan can include agreements with investors, concluded contracts with buyers, and much more if you work with creative professionals.

And the last option is to do nothing. Yes, that's possible.

For example, if the calendar shows March 30 and you realize that you have a negative net asset value, freeze your activities. Or stop completely.

Thus, for old debts you will have the usual business risks that your creditors shared with you. Such debts are not included in the subsidy, because do not imply bad faith in your behavior. And you are not gaining new obligations.

What is better: filing for bankruptcy or simply freezing activities? The answer, in fact, is obvious: if there is no risk of being attracted to a subsidiary on other grounds, then we file for bankruptcy. If there are risks, then why make life easier for creditors and complicate your own?

Another question is that 99% of entrepreneurs (and, in fact, general lawyers) are unlikely to fully understand whether the risks of a subsidiary are present or not. Although here everything is simple - just contact Igumnov Group for pre-bankruptcy preparation. We wrote how it works here: part 1 and part 2.