Bankruptcy Case – An Opportunity or a Trouble?
Usually the fist mentioning of bankruptcy is felt as something negative, as the end of the business life of one company or individuals. Bankruptcy is a rare nuisance from which everybody feel aversion and everybody is feared of. As some people spook children with evil witches, people in business are spooked with a bankruptcy and bankruptcy trustees.
Is it a deserved reputation for bankruptcy?
Answer on this question is really relative but it mostly depends on where you are. In Croatia and surrounding countries bankruptcy cases were frequent outcome for companies where privatisation processes where late or gone in unwanted direction. Many employees of till yesterday respected companies become creditors in processes without the proper order and without foreseen end so bankruptcy gained many negative experiences.
In western European countries and in USA it was and still is the last defence of core values of one company.
Here are two different examples:
Bankruptcy of General Motors is one of actual interesting examples. In 43 days bankruptcy plan was set and procedures carried out which enabled establishment of new GM. Bankruptcy case was lead, in cooperation with bankruptcy trustees and bankruptcy court representatives, by company itself. New GM is independent company and it managed to keep most of it brands, 5.000 out of 5.900 sales points in USA, 34 out of 47 manufacturing sites in USA and 68.500 out of 91.000 employees in USA. Regarding brands outside USA, those kept by GM passed through restructuring programmes but bankruptcy cases were not open. Creditors of old GM became shareholders of new GM. It went the worst for the old GM shareholders because the value of shares went to 0, but the business was saved. In short, in 43 days regular management (neither bankruptcy nor crisis management!) gained back the full control of the company and the company nowadays has already return the major part of its reputation and its performance.
Entering in Nama store at “Ban Jelačić” square in Zagreb, one could feel a part of the atmosphere of a period before fatal 90’s. Shelves are again full with goods and customers are walking in and out. Salesmen are equally polite as once it was. Everything looks so regulars, but the impression is changed when official document are seen. There it’s stated – “NAMA d.d. in bankruptcy”. And so – for last 11 years.
For the major part of mentioned discrepancies, the legal framework is responsible because procedures and deadlines set by the bankruptcy act are considerably different. Anyhow they are not responsible for the entire span, so considerable difference is formed by:
- The approach of a company management
- The approach of creditors
- Bankruptcy trustee
In fact, in EU and USA the most of bankruptcy cases are filled by company management because bancruptcy is considered as the last defence of the company which forces creditors on agreement, but also protect the management of criminal charges and protect from damage claims. Creditor discrimination and missing to file the bankruptcy case once conditions are met are misconducts of which only avoiding tax payment would be more severe. In Croatia most of bankruptcy cases were open by the government by operation of law and these are the updated figures because previously the government missed to file. Creditors were also reluctant to wait for somebody else and usually it was done by the specific group of creditors – severely damaged employees. The first case of bankruptcy filed by the management has been recently mentioned, but it has to be noted that there were several cases of court cases where the management was accused for not act properly on bankruptcy circumstances.
In countries of the best practices, creditors together with the management play active role in bankruptcy cases. In terms of activities, we are not talking about producing paperwork, but about real involvement in preparing and making decisions about the direction of bankruptcy procedure, about bankruptcy plan, about bankruptcy trustee, etc. In Croatia creditors’ committees are struggling with quorum and mostly the same bankruptcy trustees are mostly exclusively the choice of the bankruptcy judges without any doubt in the legitimacy due to the fact that the choice was (has to be) confirmed by the creditors’ committee.
The last mentioned difference is in bankruptcy trustees. In countries of the best practices bankruptcy trustees are respected and well paid profession. There are specifically educated, their competences are verifiable and performance is measured in brevity of duration of the procedure, percentage of amounts collected for creditors and percentage of proceedings for the owners. Bonus compensation goes to those who manage to save the core business. Mentioned descriptions are matched with the impressions which the business community has on bankruptcy trustees. Although the practice in Croatia has started to change so there are colleagues which deserves the same description, the general impression is totally opposite. For creating such impression the most responsible are bankruptcy trustees with their doings and implemented level of business ethics, but secondly creditors who do not use rights given by the law, among other the right of inquiry and control over the work of bankruptcy trustees.
And finally the answer – will the bankruptcy be the opportunity or the trouble, it will depend upon participants – will the management adequately check its business accounts and notice the bankruptcy threats on time, will creditors systematically and on time react on bankruptcy circumstances and mostly, will they involve in the process when it comes to it (so, surly, creditors, wake up!).
List of bankruptcy trustees no. 200