Restructuring and bankruptcy – this is the issue that entrepreneurs are wondering about in the face of financial problems. What is the difference between these two solutions? Find the answer in the article.
Table of Contents
- Restructuring and Bankruptcy – What is the Difference?
- Restructuring and Bankruptcy – What to Choose?
- Restructuring and Bankruptcy – Which Procedure is First?
- Restructuring and Bankruptcy – a Way to Satisfy Creditors
- Restructuring and Bankruptcy. Summary
- Restructuring and Bankruptcy. Questions and Answers
Restructuring and Bankruptcy – What is the Difference?
The table below outlines the key differences between bankruptcy and restructuring. It juxtaposes the purpose, nature, and consequences of both procedures.
| Aspect | Restructuring | Bankruptcy |
| Purpose | Avoiding bankruptcy by reaching agreements with creditors. | Formal termination of the business. Repayment of creditors through the sale of the debtor’s assets. |
| Types of proceedings | Proceedings for the approval of an arrangement. Accelerated arrangement proceedings. Standard arrangement proceedings. Remedial proceedings. | No division into types Focused on liquidation processes |
| Asset management | The debtor retains control over assets with management rights. | The receiver takes over the management of the debtor’s assets. The debtor loses the right to manage the assets. |
| Protection from enforcement | The debtor is protected against enforcement during the proceedings. | Limited protection. It ends when the court declares bankruptcy. From that moment on, the receiver manages the assets. |
| Possibility of making an arrangement | The debtor may conclude an arrangement with creditors on favourable terms. | An arrangement is possible, but only if the company’s bankruptcy has not yet been declared. |
| Impact on the company | There is a possibility of continuing operations and improving the financial situation. | Termination of the company’s activity after liquidation of assets. |
| Process formalization | The consequences are less formalised than in insolvency proceedings. Different levels of formalities depending on the type of proceedings | Very formal with strict procedures and enforcement protection. |
Restructuring and Bankruptcy – What to Choose?
The choice between bankruptcy and restructuring depends on many factors including:
- the complexity of financial problems,
- the structure of debt,
- the prospects of the enterprise.
Filing for bankruptcy or restructuring on time is crucial if the debtor wants to avoid personal liability. This requires ongoing monitoring of the company’s financial situation.
| In the case of restructuring | In the case of bankruptcy |
| Liability protection begins only after the court initiates proceedings or approves an arrangement. Restructuring allows companies to maintain business continuity and minimize losses for creditors. It offers a better chance of fulfilling obligations in the future. | Liability protection begins upon filing a bankruptcy petition. The court may find that the entrepreneur contributed to the bankruptcy. This may result in a ban on business activity for 1-10 years. This possibility does not exist in the case of restructuring proceedings. Filing for bankruptcy makes sense when there is no real chance for the company’s financial situation to improve or its debt is very high. |
The decision between bankruptcy and restructuring should be well considered. It should follow the analysis of the financial situation and available options for overcoming the crisis.
Restructuring and Bankruptcy – Which Procedure is First?
Current legal regulations allow for simultaneous applications for both restructuring and bankruptcy. In such cases, the court will recognise first:
- Restructuring. This is to prioritize preserving the company and ensuring its continued operation.
- Bankruptcy. It will be considered only if an arrangement with creditors would not be in their best interest.
Restructuring and Bankruptcy – a Way to Satisfy Creditors
Bankruptcy vs. restructuring will vary depending on the outcome. If the debtor declares bankruptcy:
- Creditors often do not receive full payment of their claims at the expected level,
- The amounts and timing of payments depend on the conditions under which the debtor sells assets.
- Funds available for creditors may be lower due to below-market sales of assets. Moreover, the costs of the proceedings are covered first.
In restructuring proceedings:
- The amounts and payment terms are precisely agreed upon with the creditors.
- The debtor is obligated to comply with them according to the approved arrangement.
- An arrangement proposal made during restructuring may be more favourable to creditors. After all, its primary goal is to ensure organized and predictable debt repayment.
Restructuring and Bankruptcy. Summary
Restructuring and bankruptcy are two very important proceedings. Understanding their differences and applying the right strategy can impact a company’s future. It is crucial to approach these processes thoughtfully. This will help you not only survive the crisis but also build a stronger organization for the future.
If you find our article interesting and are considering bankruptcy or restructuring, contact us. Our legal experts are ready to answer your questions.
Restructuring and Bankruptcy. Questions and Answers
What is the difference between restructuring and bankruptcy?
Bankruptcy is a legal process that satisfies creditors’ claims through the liquidation or reorganization of the debtor’s assets. Restructuring helps a company to adjust its finances and improve situation without liquidation.
When is restructuring worth considering instead of bankruptcy?
Restructuring is a good solution when a company faces temporary financial problems but has the potential to recover. If it has valuable assets and a stable customer base, this option may be better than bankruptcy.
What are the advantages of restructuring?
The main advantage of restructuring is the possibility of continuing business operations. It offers a chance to protect jobs and rebuild the company’s reputation. Additionally, it can lead to better debt management and cost optimization.
What are the consequences of declaring bankruptcy?
Declaring bankruptcy can lead to asset liquidation and loss of control over operations. Furthermore, creditors can pursue claims through bankruptcy proceedings. This often leads to the closure of the business.
Can you proceed with restructuring after declaring bankruptcy?
Yes, in some cases, it is possible to restructure even after declaring bankruptcy. In Poland, there are regulations on the so-called remedial proceedings. It allows for the reconstruction of a company as part of bankruptcy proceedings.
What steps should you take to start the restructuring process?
Starting the restructuring process requires a thorough analysis of the company’s financial situation. You have to identify problems and develop an action plan. It is also worth consulting a legal or financial advisor. He will help you prepare a restructuring strategy and negotiate with creditors.