Bank­ruptcy is a pro­ce­dure where the as­sets of the debtor are used all at once in or­der to cover his or her debts, in pro­por­tion to the amounts of the in­di­vid­ual debts.

The District Court may declare the debtor bankrupt when the debtor is other than temporarily unable to pay his or her debts when they fall due. The debtor may be a natural person, an estate, a company or a corporation.

The bankruptcy application may be filed by the debtor or by a creditor. The application is generally filed with the District Court in whose jurisdiction the effective management of the debtor’s operations is located.

When bankruptcy proceedings are initiated, the District Court appoints an administrator to administer the settlement of the estate. The administrator is normally an advocate specialising in bankruptcy matters. The administrator takes over the estate and its debts. The administrator draws up an estate inventory and a written account of the debtor’s economic activity before the bankruptcy and the reasons for the bankruptcy. The debtor must attest to the correctness of the estate inventory.

If the assets of the estate are sufficient for the payment of its debts, the administrator sets a date by which the creditors must file their claims. This procedure is called securing of claims in bankruptcy. If the creditor fails to secure its claim within the time limit, the creditor generally forfeits the right to payment.

The administrator also has the duty to settle ambiguities and disputes relating to the claims. When necessary, the disputes may be settled in court. The administrator draws up a distribution list, which is examined and confirmed by the district court. The list defines how the assets of the estate are distributed among the creditors.

If the assets of the estate are not sufficient for the payment of the costs of the proceedings or if the payments to the creditors would be insignificant, the district court may order the bankruptcy to lapse. In this case, the remaining assets of the estate are surrendered to the enforcement authority.

The court may on the recommendation of the Bankruptcy Ombudsman order that the bankruptcy procedure continues as public receivership, if the bankruptcy estate lacks sufficient assets or if there are other special grounds to continue the settlement of the activities of the debtor or the bankruptcy estate. The public receivership is carried out by a public receiver appointed by the Bankruptcy Ombudsman.

The debtor is not released from liability through bankruptcy, but is liable for pre-bankruptcy debts also with any assets received after the bankruptcy, if the company continues its operations. However, if a company is declared bankrupt, it in most cases ceases to exist.

The Bankruptcy Ombudsman monitors that the administrators of bankruptcy estates act in accordance with the law and good administrative practice. The Bankruptcy Ombudsman is assisted by the Consultative Committee on Bankruptcy Matters, whose recommendations are a significant form of development of good administrative practice.

Published 7.12.2020