INSIGHTS

BANKRUPTCY, WHY NOT?

Tháng Bảy 10, 2019 Dispute Resolution

Most people think that bankruptcy is bad and try to avoid it. However, bankruptcy is a powerful legal tool and if using it the right way, it can solve your problems, whether you are a creditor or a debtor.

If you are a creditor, why should you file for bankruptcy?

Creditors often file normal lawsuits to collect the debts instead of using bankruptcy proceedings because (i) bankruptcy is very complicated and (ii) bankruptcy will invite other creditors to join the proceedings, so you may need to share the assets collected from the debtor with them .
However, bankruptcy may be a good approach in the following situations:

1. You are late in comparison to other creditors in taking legal actions against the debtor

When facing the legal actions of the creditors, it is common that the debtor will transfer its assets to other entities (e.g. other companies of the same owner or relatives of the owner) to hide its assets. Prevention of such action is often difficult, as you do not know exactly what assets the debtor has; when, how and to whom they will be transferred. Though it is possible to ask the court for voiding those transactions, the proceeding may take significant time and by the time you can revert one transaction, the debtor may have already finished two or three more.

2. The debtor has been hiding its assets

When facing the legal actions of the creditors, it is common that the debtor will transfer its assets to other entities (e.g. other companies of the same owner or relatives of the owner) to hide its assets. Prevention of such action is often difficult, as you do not know exactly what assets the debtor has; when, how and to whom they will be transferred. Though it is possible to ask the court for voiding those transactions, the proceeding may take significant time and by the time you can revert one transaction, the debtor may have already finished two or three more.

Bankruptcy proceedings can give you powerful legal measures to stop the asset dispersion and preserve the assets of the debtor. Accordingly, after the court agrees to officially open the bankruptcy proceedings, it will appoint an asset management agency or officer (“Asset Management Agency”) to inventory and supervise the assets of the debtor. Any asset transactions of the debtor must be reported to and approved by the Asset Management Agency; and any acts of hiding or unreasonably reducing the debtor’s assets are banned. Furthermore, suspicious transactions within 06-18 months prior to the opening of the bankruptcy proceeding can also be voided and reverted by the court. Voiding the transactions within the bankruptcy proceedings is often faster and easier than in normal lawsuits, because you will have a judge who clearly knows about the case be available for you, and ready to take actions to preserve the debtor’s assets.