Asset Protection before Insolvency

The timing of a transaction matters. In a bankruptcy case, the debtor's transactions are examined over periods that the law counts back from the court's acceptance of the petition to declare the debtor bankrupt: the closer a transaction is to that point, the wider the range of grounds on which it is examined. The assessment begins by determining which actions involving assets and liabilities are still possible in the current position.

A transaction is assessed by its substance. A transaction may be declared invalid if the other party provided inadequate consideration, including where the price or other terms are significantly worse for the debtor than those on which similar transactions are made in comparable circumstances. A flawlessly documented transaction without a genuine basis does not improve the company's position.

A purpose of causing harm is presumed, in particular, if the transaction was made without consideration or with an interested party at a time when the debtor already met the criterion of inability to pay or insufficiency of assets. A transaction made merely for appearance's sake is void.

Some of the risks concern the company's executives and participants. A person controlling the debtor may be held subsidiarily liable if creditors' claims cannot be paid in full as a result of that person's actions or omissions, in particular owing to transactions that caused significant harm to creditors or to missing or distorted accounting records.

A further ground relates to failure to file a debtor's petition. The law obliges the chief executive to file a debtor's petition when the circumstances specified in the law arise.

• Arrears on several obligationsPayments to some creditors have stopped, demands and letters of claim are being received, and the order of payments is under discussion.
• Claim by a major creditorA claim has been made whose size makes it possible to raise the question of opening a bankruptcy case.
• Past transactions with assetsIn the preceding period, assets were transferred, exchanged or encumbered, and these transactions need to be analysed.
• Property complex owned by the companyProduction facilities on which the continuation of the business depends.
• Group of companies with mutual securityGroup members secure each other's obligations with suretyships and pledges.
• Owner's personal suretyshipThe company's obligations are secured by the personal assets of the owner or chief executive.
• Change of chief executive or sale of an interestA change in the persons who determine the company's decisions is under discussion.

• Written assessment of the positionThe state of liabilities and assets, the ownership structure, a list of the risks identified and their significance.
• Analysis of past transactionsFor each, the grounds for examination in a bankruptcy case and the missing supporting evidence are identified.
• Prepared justificationExplanations of transactions and of decisions of management bodies concerning their business purpose and the conditions in which they were made.
• Draft agreements with creditorsChanges to the timing and terms of performance, replacement and addition of security.
• Assessment of links between personal assets and company debtsSuretyships, pledges and the matrimonial property regime.
• Sequence of further stepsWhat is to be done first and which actions increase the risk.

The outcome of the service is the work performed within the scope agreed with the client.

1. Materials

   The work is built on the company's documents and information; the following points are relevant.

   • Financial statements and accounting recordsFor the periods in which the transactions were made.
   • Contracts and primary documentsFor transactions and payments, including intra-group settlements.
   • Information on assetsComposition of assets, encumbrances, information on assets disposed of.
   • SecuritySuretyships, pledges and information on the persons who provided them.
   • Ownership structureParticipants, interested parties, decisions of management bodies.
   • Composition of creditorsA list of claims, information on arrears and on claims filed in court.
   • Owner's personal assetsThe owner's obligations relating to the company's affairs and the matrimonial property regime.
   • Purpose of the requestAssessment of the position, preparation for negotiations with creditors or analysis of transactions already made.

2. Assessment

   On the basis of the materials, the risks, the possible solutions and their consequences are identified.

3. Plan

   For the chosen option, a plan is drawn up: the sequence of steps, timing and scope of work.