The inevitable outcome: company undergoing judicial liquidation
When a company finds itself in financial difficulty, it may be forced to undergo judicial liquidation. This process, often seen as a failure, is sometimes inevitable to allow the company to restructure and start afresh. In this article, we will explain in detail what judicial liquidation is, what its stages are, and the consequences for the company involved.
What is judicial liquidation?
Judicial liquidation is a collective procedure that occurs when a company is unable to repay its debts. It is decided by a court and aims to end the company’s activities, sell its assets to repay creditors, and settle outstanding debts. This procedure also helps to resolve ongoing disputes and ensure a fair distribution of assets among different creditors.
Judicial liquidation can be requested by the company itself, its creditors, or the court. It can be ordered for several reasons, including insolvency, bankruptcy, or if the company’s situation is irretrievably compromised.
Stages of judicial liquidation
Judicial liquidation occurs in several stages, under the court’s supervision. Firstly, a judgment is made by the court, declaring the liquidation of the company and appointing a liquidator to manage the procedure. The liquidator’s mission is to sell the company’s assets, settle debts, and orderly close the activities.
Next, the liquidator inventories the company’s assets and proceeds to auction them. The proceeds from the sale are used to repay creditors, following a priority order established by law. Secured debts are repaid first, followed by salary debts, and then other debts.
Once the assets are sold and debts settled, the liquidator concludes the liquidation procedure and requests the removal of the company from the commercial register. The company is then permanently closed, and its activities cease.
Consequences of judicial liquidation
Judicial liquidation has significant consequences for the company involved, as well as its employees, creditors, and commercial partners. For the company, liquidation signifies the end of its activities and loss of assets. Employees may face unemployment, although they are entitled to severance pay. Creditors may not be fully reimbursed, depending on available assets. Lastly, the company’s commercial partners may lose a client or supplier, impacting their own activities.
Despite these sometimes dramatic consequences, judicial liquidation can be seen as an opportunity for the company to start fresh. By clearing debts and selling assets, the company can reduce debt and restructure to become viable again. Some entrepreneurs view judicial liquidation as a chance to bounce back and embark on new projects.
FAQ
What are the differences between judicial liquidation and bankruptcy?
Judicial liquidation and bankruptcy are two distinct procedures, although they have similarities. Judicial liquidation is a collective procedure that occurs when a company is unable to repay its debts, and aims to settle debts and end the company’s activities. Bankruptcy, on the other hand, is a situation of insolvency characterized by the company’s inability to meet its debts. Bankruptcy can lead to judicial liquidation, but it can also result in other procedures, such as judicial reorganization or protective measures.
What are the consequences of judicial liquidation for employees?
In case of judicial liquidation, the company’s employees may face unemployment but are entitled to severance pay. This compensation is calculated based on the employee’s length of service and family situation. Employees may also be eligible for unemployment benefits, under certain conditions. Lastly, employees may be rehired by a potential buyer of the company, if there is one.
How to avoid judicial liquidation?
To avoid judicial liquidation, it is important for the company to take measures at the first signs of financial difficulties. Consulting a professional in business law for tailored solutions is recommended. It is also possible to request judicial reorganization or protective measures to avoid liquidation. Lastly, vigilance in financial management and making necessary decisions are essential to ensure the company’s sustainability.
