When acting as reconstruction trustee or liquidator, the supervising attorney must make many choices that are crucial for the business in question. The attorney must decide what happens to the employees, whether work in progress shall be finished, whether the business is to be sold or closed down, or what is to happen. Everything must be done quickly and the initial phase is therefore often hectic and requires several people to work on the case at the same time in order to create the necessary perspective.
Insolvency often involves complicated issues relating to the law of mortgages and pledges, which we specialise in and have previously lectured on at the mandatory lawyers’ education.
When a business or a person is declared bankrupt, the Bankruptcy Court appoints a liquidator.
Basically, the liquidator’s job is to sell the assets of the insolvent estate in the best way possible, to check whether any illegal transactions have been made, and finally to distribute the assets of the estate to the creditors that are owed money.
Unfortunately, the estate often contains so little assets that the value does not even cover the liquidator’s fee. In that case, the creditors will not receive any dividend from the estate.
The time immediately after issuance of the bankruptcy order, as it is called when the Bankruptcy Court declares a person or a business bankrupt, is often very hectic. The liquidator must as soon as possible make himself acquainted with the business in order to secure the assets, find out what shall happen to the employees, and ensure the continued operation in case that may result in more money for the creditors.
If a business is in financial trouble, but the basis for the business is deemed to be good, reconstruction may be used as an alternative to bankruptcy. In that case, the Bankruptcy Court will appoint a reconstruction administrator (an attorney) and a reconstruction accountant who will prepare a plan for saving the business, either by selling it or by making an arrangement with the creditors.
Both solutions require the support of a majority of the creditors. It is often difficult to obtain a majority in favour of an arrangement with the creditors, because the creditors will have to accept a solution that reduces the amount owed to themselves. Moreover, the process is very cost-consuming, which is why this solution is rarely used.