Bankruptcy agreement

The bankruptcy agreement is an agreement between the creditors and the debtorwhereby the bankrupt company is not liquidated, but, with the agreement, the debtor can continue operating his company and paying the creditors with some reduction and deferment on your debts

There are two possible solutions to a bankruptcy, the agreement and the liquidation of the debtor’s assets. The purpose is the same, the satisfaction of the creditors. To request the agreement it is necessary that the debtor has not requested the liquidation of his estate.

What is the content of a creditors agreement?

The content pivots on two major propositions, the removable and expected proposals that will be made between debtor and creditors to reach an agreement.

  • The removal is a credit reduction (not all credits can be submitted to this removal). Once these credits have been paid with the corresponding withdrawal, they are extinguished, that is, the total credit is not paid nor can it be demanded by the creditor that has accepted this reduction in the payment of the entire debt.
  • The wait is about the delay at the time of payment.
  • In no case may the settlement of the debtor’s estate be a proposal of the agreement, because in that case it would not be the settlement by agreement but the settlement by settlement.

How is a bankruptcy agreement approved?

First, a proposal for an agreement must be made by the debtor or by the creditors.

The agreement must then be approved at the meeting of creditors . This meeting of creditors will attend the bankrupt, the bankruptcy administration and the creditors. The agreement will be deemed approved when the creditors who at least hold half of the company’s debts vote in favor. Creditors who vote against will not be bound by the content of the agreement.

The second step is judicial approval of the agreement.

What are the effects of the approved bankruptcy agreement?

It has full effectiveness since it is approved, that is, that the effects of the declaration of insolvency end and are replaced by the effects of the agreement. Debts are paid with the corresponding removals and with the waiting time. The bankruptcy administration in the agreement phase ceases its position.

The agreement binds the debtor and the creditors who have voted in favor of the agreement of credits produced before the declaration of insolvency.

When does the bankruptcy agreement end?

The agreement can end for two reasons. For having satisfied everything collected in it, that is, having paid all creditors, or for not having satisfied as agreed in the agreement. In the latter case, the agreement phase will cease and will be redirected to the other possible solution of the bankruptcy proceedings, the liquidation of the bankrupt.

Sample bankruptcy agreement

Company A (bankrupt) and B, C and D (creditors of company A)

  • A has a debt with B of 1,000 euros
  • A has a debt with C of 100 euros
  • A has a debt with D of 10 euros
  • The total debt of A is 1,110 euros

Company A is in the tender phase and proposes a bankruptcy agreement to its creditors, the content of that agreement would be:

  • A wants a take off of the debt he has with B of 100 euros, that is, he will only pay 900 euros to B
  • A wants a take off of the debt he has with C of 10 euros, that is, he will only pay 90 euros to C
  • A wants a wait for the debt he has with D for 1 year, that is, he will pay 10 euros to D, but one year later.

Both B and C accept the agreement, and as their credits total 1,100 euros, more than half, the agreement is approved. Therefore, A will pay instead of 1,100 euros 990 euros.

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