The downfall of a company: judicial liquidation
Judicial liquidation is a procedure often dreaded by business owners. It signifies the end of the company’s activity, due to financial difficulties too significant to overcome. It is a painful stage, both for the executives, employees, and creditors. In this article, we will explain in detail what judicial liquidation is, the steps to follow, and the consequences for the various stakeholders.
What is judicial liquidation?
Judicial liquidation is a collective procedure that occurs when the company is in a state of insolvency, meaning it is unable to meet its debts with its available assets. It is the commercial court that is competent to declare judicial liquidation, at the request of the business owner themselves, a creditor, or the public prosecutor.
Once judicial liquidation is pronounced, a liquidator is appointed to liquidate the company’s assets, meaning to sell its properties and assets to repay the creditors. The employees are also supported by the AGS (Association for the Management of the Guarantee Fund for Employees’ Claims) which guarantees part of their salaries and compensation.
The steps of judicial liquidation
Judicial liquidation takes place in several steps:
- The declaration of the company’s insolvency;
- The appointment of a judicial administrator or receiver;
- The opening of the judicial liquidation procedure by the commercial court;
- The designation of a liquidator to liquidate the company’s assets;
- The sale of the company’s properties and assets to repay the creditors;
- The closure of the judicial liquidation by the commercial court.
The consequences of judicial liquidation
Judicial liquidation has significant consequences for all stakeholders:
- For the executives: they lose control of their company and may be banned from managing a company for a specified period;
- For the employees: they lose their jobs but are supported by the AGS for part of their salaries and compensation;
- For the creditors: they may face significant losses if the company’s assets are insufficient to repay them;
- For suppliers and customers: they may be impacted by the disappearance of the company with which they had business relationships.
FAQ
What is the difference between judicial liquidation and safeguarding?
Judicial liquidation occurs when the company is insolvent and its survival is compromised. It is the end of the company’s activity. Safeguarding, on the other hand, is a preventive procedure that aims to allow the company to restructure and avoid judicial liquidation. It is an intermediate stage between the crisis situation and judicial liquidation.
What are the options for executives in case of judicial liquidation?
In case of judicial liquidation, executives can challenge the commercial court’s decision if they believe it is unjustified. They can also request a judicial recovery plan to try to save the company. Finally, they may benefit from the professional rehabilitation procedure to erase their personal debts and have a second chance.
In conclusion, judicial liquidation is a difficult stage for struggling companies. It is a procedure with significant consequences, but sometimes necessary to allow creditors to be repaid and employees to find new employment. It is important for executives to make the right decisions in case of financial difficulties and to seek professional guidance to avoid judicial liquidation.
