Financial Debacle: When a Company is Placed in Judicial Liquidation
What is judicial liquidation?
Judicial liquidation is a procedure that occurs when a company is in a situation of payment cessation, meaning it is unable to meet its debts with its available assets. In this case, the commercial court may decide to place the company in judicial liquidation in order to proceed with its dissolution and the sale of its assets to repay its creditors.
Stages of judicial liquidation
Judicial liquidation takes place in several stages. First, the commercial court appoints a liquidator responsible for managing the procedure. The liquidator will establish an inventory of the company’s assets and implement a sale plan to sell these assets and repay the creditors.
Next, the liquidator will proceed with the sale of the company’s assets, whether they are real estate, stocks, equipment, or claims. The funds collected will then be distributed among the different creditors according to a priority order established by law.
Finally, once all the assets have been sold and the creditors have been repaid to the extent possible, the company is permanently removed from the registry of commerce and companies.
Consequences of judicial liquidation
Judicial liquidation has severe consequences for the company involved. First, it leads to the loss of all jobs related to that company, which can have a significant social impact. Additionally, shareholders and directors may be held responsible for the company’s debts, especially in cases of mismanagement.
For creditors, judicial liquidation can also have negative consequences, as they may not be fully repaid if the company’s assets do not cover all its debts.
FAQ on judicial liquidation
What are the most common causes of a company’s judicial liquidation?
The causes of a company’s judicial liquidation can be multiple: poor management, economic difficulties, increased competition, excessive debt, etc.
Are there alternatives to judicial liquidation for a struggling company?
Yes, there are other procedures such as judicial reorganization or safeguarding that allow a struggling company to benefit from a restructuring plan to avoid liquidation.
How are creditors repaid in judicial liquidation?
Creditors are repaid according to a priority order established by law, starting with employees, then privileged creditors, and finally ordinary creditors.
In conclusion, judicial liquidation is a procedure with serious consequences for a struggling company. It can lead to the loss of many jobs and significant financial losses for creditors. It is therefore essential for companies to take necessary measures to avoid reaching this point, by adopting rigorous management and anticipating financial difficulties.
