When everything collapses: the company in judicial liquidation
When a company finds itself in a situation of judicial liquidation, it is a sign that everything is collapsing for it. It is a difficult stage to go through for executives, employees, and creditors. But what is the judicial liquidation and what are the consequences for the different stakeholders?
What is judicial liquidation?
Judicial liquidation is a legal procedure that consists of terminating the activity of a company in payment default. This procedure is generally initiated by the commercial court at the request of the company’s manager, a creditor, or the public prosecutor. The objective of judicial liquidation is to sell the assets of the company to repay the creditors.
During the period of judicial liquidation, the company stops its activity and a liquidator is appointed to manage the sale of assets. Employees are laid off and creditors are reimbursed in the priority order defined by law.
The consequences of judicial liquidation
Judicial liquidation has significant consequences for the different stakeholders of the company:
- Executives: Company executives lose control of it and can no longer make decisions. They may be held responsible for the company’s debts if they have committed management faults.
- Employees: Company employees are laid off and lose their jobs. They may be entitled to severance pay and assistance in finding new employment.
- Creditors: Company creditors are reimbursed in the priority order defined by law. Secured creditors are reimbursed first, followed by unsecured creditors.
FAQ
What are the stages of judicial liquidation?
Judicial liquidation takes place in several stages: the declaration of payment default, the opening of the judicial liquidation procedure, the appointment of a liquidator, the sale of the company’s assets, the repayment of creditors, and the closure of judicial liquidation.
What happens after judicial liquidation?
After judicial liquidation, the company is removed from the trade and companies register. Managers may be prohibited from managing a company for a specified period. The remaining assets of the company are distributed to creditors according to the priority order defined by law.
In conclusion, judicial liquidation is a difficult stage for a struggling company. It involves the end of the company’s activity, the dismissal of employees, and the repayment of creditors. It is important for executives to react quickly in case of financial difficulties to avoid judicial liquidation.
