The recognition of insolvency, or bankruptcy of a legal entity, is a complex and time-consuming process. No less complicated bankruptcy procedure is external management. The external manager is the person responsible for its implementation. What is the meaning of this stage of bankruptcy, for how long can it be introduced?
Bankruptcy Summary
Insolvency, or, in other words, bankruptcy, is the status of the debtor recognized by the arbitration court, which frees him from payment of monetary obligations to creditors in connection with the inability to satisfy them in full. According to federal law, bankruptcy can be recognized if obligations to creditors have not been fulfilled in the 90-day period from the moment they were to be performed. Bankruptcy of a legal entity includes 5 procedures:
- Surveillance (financial capabilities are analyzed, property is retained by the debtor).
- Financial recovery (debt repayment schedule is drawn up).
- External management (we will talk about this stage in more detail below).
- Bankruptcy proceedings (sale of property of the debtor, is applied to bankruptcy in order to proportionately satisfy the requirements of credit organizations).
- Amicable agreement (may be concluded at any stage of the process).
External management: definition of a concept
External management is the bankruptcy procedure applied by the debtor, which is introduced in parallel with the financial recovery of the organization. This procedure is of a rehabilitation nature and allows you to prevent the launch of bankruptcy proceedings, which, in turn, is aimed at liquidating the enterprise, and not at returning the company to an economically stable state.
External management as a bankruptcy procedure is introduced if there is a decision of the arbitral tribunal adopted by agreement with the creditors and based on the results of the previous stage of bankruptcy - observation. The implementation period at this stage is no more than 18 months. In exceptional cases, the period may be extended for another six months. Thus, the duration of external management activities can be no more than two years.
One of the most important differences of this procedure is the removal from management of the current management of the enterprise. The authority to manage the organization is transferred to the external manager. In fact, the manager is a key figure here and plays the role of the CEO, and he can also manage the assets of the enterprise at his discretion. However, the current management only partially loses its authority. Some technical features are retained.
External management as a bankruptcy procedure: briefly on the tasks
The bankruptcy procedure phase called “external management” begins to be implemented after the transfer of the rights of the head of the organization. The choice of manager and decision on the need for the procedure is made at the general meeting of creditors, and then approved in court. For it to be accepted, the court must make sure that it is quite possible to restore the solvency of a bankrupt enterprise. For this it is necessary to provide relevant evidence.
The purpose of external management in bankruptcy proceedings is to restore the solvency and normal functioning of the organization, as well as the subsequent recognition of solvency.Another important task is to satisfy the requirements of all creditors.
External management as a bankruptcy procedure and the consequences of its introduction
Like any process, the execution of which is controlled by the court, external management has the following consequences:
- The head of the organization is almost completely deprived of control over it, with the exception of technical powers.
- The governing bodies of the enterprise cease to carry out their activities, as the power passes to the external manager.
- Activities aimed at satisfying the requests of all creditors and undertaken before the launch of this procedure are canceled and invalidated.
- The property of the organization cannot be seized, and restrictions cannot be imposed on it, since these measures take place after the recognition of the insolvency of the enterprise in court.
- A moratorium is established on the claims of all creditors regarding financial obligations.
A moratorium cannot be established on those claims of creditors that arose after consideration of the claim by the arbitration court and recognition of the bankruptcy of the company. Moreover, there are such exceptions as the payment of wages and employee benefits, alimony.
Responsibilities of the External Manager
The main characteristic of external management as a bankruptcy procedure is the termination of powers of the current management of the enterprise. In this case, the external manager has a wide range of responsibilities, which include the disposal of the debtor's property. The existing governing bodies of the enterprise are deprived of the right to make independent decisions without coordination with an external manager or to influence their decision-making. Also, the manager performs all the functions of managing the organization, controls the processes of inventory and disposition of property, maintains accounting, financial, statistical accounting and reporting, register of creditor claims, takes measures to collect receivables. Moreover, he is engaged in conducting recreational activities aimed at restoring solvency and carried out in the course of business. To this end, draw up a management plan.
External Manager Rights
So, the goal of external management in the bankruptcy procedure is to financially improve the enterprise. The external manager has the rights:
- To carry out business activities.
- By disposition of property.
- Conclusion of a settlement on behalf of a bankrupt.
- Application for refusal to fulfill obligations under enterprise contracts.
- The requirement of recognition of invalidity of transactions conducted before the external management procedure.
External Manager Work Plan
External management as a bankruptcy procedure involves the implementation of a work plan, which is drawn up within a month. The external manager should reflect the following points in the plan:
- The procedure and conditions for the implementation of measures aimed at restoring the viability of the enterprise
- Financing.
- Planned expected expenses of the organization.
- The period during which it is planned to restore solvency.
- Argumentation of the selected recovery period.
- Separation of powers of committees and creditors.
The execution of the plan is controlled by creditors, it must be strictly observed.
What measures can be taken by the manager?
External management as a bankruptcy procedure involves the application of the following measures to the debtor:
- Change in the nature of production activities.
- Completion of work of divisions and branches of the enterprise, which are recognized unprofitable.
- Collection of receivables.
- Realization of property objects of the organization.
- Replenishment of the authorized capital with funds from third parties and founders.
- Substitution of assets and other activities under the law.
Measures can be taken both separately and in combination.
Wellness activities: features of the
External management as a bankruptcy procedure has the features of the implementation of recreational activities:
- The period for notifying the head of the organization about the implementation of external management is 1 day.
- The founders are notified of the procedure.
- In the 10-day period from the moment the procedure is launched, an application is sent to publish this information.
- The manager receives an order to transfer all the documentation to him.
- Documents are transmitted within 3 days after taking office of the manager.
- The meeting of creditors is scheduled for the first time within 31 days after the start of the procedure.
- Wellness events are reported to the FSSP, the Federal Tax Service, banks.
- Appropriate requests are sent to the control bodies.
- A general meeting of all employees of the enterprise is organized.
- An accountant and an auditor are involved in the organization’s work.
- An inventory is organized.
- The analysis of the financial situation of the company.
- The property of third parties is returned to them.
- A list of creditors' requirements is compiled and reviewed.
- A meeting of creditors is organized.
- An interim and final report is prepared and announced at a meeting of creditors.
- The arbitration court provide a plan.
- Property objects are being realized.
Final stage
At the final stage of external management, the following activities are carried out:
- debt is paid, which is notified to both management and creditors;
- settlement operations are performed;
- performance of managerial duties is terminated;
- a liquidation protocol is drawn up.
If all possible attempts have been made to return the company to an economically stable state, the manager draws up a report on the work done.
Procedure result
External management as a bankruptcy procedure, as the judicial practice shows, does not always have good results. The reason for this is the low level of professionalism of the external manager. This is because he is a third party and does not have the necessary skills to use legal measures to solve the problems of the organization.
Moreover, the activities of an external manager can be very significantly affected by external factors - direct (direct entry into force of changes in existing legislative acts, competition, tax system) and indirect (political situation in the country, changing trends in international relations, rapid inflation, natural disasters) character. Often the reason for the low efficiency of external management is the desire of creditors to establish financial control over the debtor, ruin it, and demand its movable and immovable property.
External management as a bankruptcy procedure is introduced in order to restore the solvency of the debtor organization. In its course, the manager takes direct part, who is vested with almost all the powers of the leader. The main characteristic of external management as a bankruptcy procedure is that there is not only interaction with debtors, but the activity of the enterprise itself is being reorganized. When the solvency was restored, the manager fulfills his duties until the arrival of a new management. Otherwise, the beginning of bankruptcy proceedings is announced.
