Bankruptcy Law

The main condition is that the debtor is insolvent, cf. the Bankruptcy Act § 60. For the debtor to be considered insolvent, two conditions must be met: 1) The debtor must be unable to pay their obligations as they become due (unable to pay debts), and 2) The debtor's obligations must exceed the value of their assets and income (negative equity). The inability to pay debts must not be temporary.

Bankruptcy can be petitioned by a creditor or by the debtor themselves (self-petition), see the Bankruptcy Act § 60. A creditor who has satisfactory collateral in the debtor's assets cannot petition for bankruptcy, see the Bankruptcy Act § 64.

At the opening of bankruptcy proceedings, the debtor loses control over the assets included in the bankruptcy estate, cf. the Bankruptcy Act § 100. The trustee takes over control on behalf of the creditors' community. The bankruptcy estate can seize all assets belonging to the debtor at the time of the seizure that can be converted into money, cf. the Coverage Act § 2-2.

The right of stoppage grants a supplier the right to prevent their performance from being delivered to the debtor or the debtor’s estate when the debtor lacks the means to fulfill their part of the agreement, cf. the Coverage Act § 7-2. The right of stoppage is retained as long as the performance has not been 'transferred' to the debtor.

Reversal means that transactions made before the opening of bankruptcy are set aside or reversed, so that values are returned to the estate. The purpose is to protect the creditor community against harmful transactions conducted shortly before bankruptcy. The rules for reversal are found in Chapter 5 of the Bankruptcy Act and include both objective rules (§§ 5-2 to 5-8) and the subjective rule (§ 5-9).

In cases of objective annulment (§§ 5-2 to 5-8), the estate does not need to prove that the recipient acted in bad faith - it is the nature and timing of the transaction that are decisive. The deadlines are short (typically 3 months to 2 years). In cases of subjective annulment (§ 5-9), the estate must prove that the transaction was improper and that the recipient knew or should have known about the debtor's financial problems. In return, the deadline is longer (10 years) and the consequences are stricter (compensation for loss vs. enrichment).

Yes, as a general rule, the estate has the right to step into the debtor's mutually burdensome agreements, cf. the Coverage Act § 7-3. However, there are several exceptions, including if the nature of the contract prevents it (e.g., credit agreements), if the co-contractor has the right to terminate, or if insolvency is a ground for termination according to the nature of the contract. The estate must also provide security for its fulfillment if the co-contractor demands it.

For individual debtors, the remaining debt will persist after the bankruptcy, see the Bankruptcy Act § 6-6. The debtor is still responsible for the part of the debt not covered by the distributed dividend. For joint-stock companies, the company will normally cease to exist after the bankruptcy proceedings, and the remaining debt will be cancelled.

Claims are covered in a specific order of priority in bankruptcy, cf. the Coverage Act Chapter 9. First, mass claims are covered (§ 9-2), then priority claims of the first class (§ 9-3) which include, among other things, wages and holiday pay, next are claims of the second class (§ 9-4) which include tax claims, then ordinary bankruptcy claims (§ 9-6), and finally subordinated claims (§ 9-7).

Bankruptcy quarantine means that a person is deprived of the right to establish new companies or be a board member or general manager in companies for a period of two years, cf. the Bankruptcy Act § 142. Quarantine can be imposed if the person is reasonably suspected of criminal acts in connection with the bankruptcy, or due to irresponsible business conduct, must be considered unfit to establish or manage companies. The purpose is to prevent so-called repeat bankrupts.