How do you know if a company is in liquidation?
Judicial recovery is intended to enable the continuation of the company’s activity, the maintenance of employment and the settlement of liabilities. This procedure establishes a so-called observation period of 12 to 18 months at the end of which, the court can resort to a recovery plan, a transfer plan or judicial liquidation. Judicial liquidation is the court’s last resort, judging that the recovery plan and the disposal plan are insufficient. This last solution implies the total cessation of the activity of the company and its dismantling, as well as the inventory of the assets of the company, their evaluation and fixing of their price and their sale. But what are the signs that a company is in liquidation?
Understanding judicial liquidation
When a company is unable to meet its debts and its survival appears compromised, recourse to judicial liquidation may be considered. This collective procedure differs depending on the legislation, but in general, it consists of a cessation of activity controlled by a judicial administrator or a liquidator appointed by the court.
Judicial liquidation can take several forms. The most radical is judicial liquidation where the company closes definitively and irreversibly . In other cases, liquidation may be accompanied by a partial or total transfer of the company to an interested third party, which would possibly allow certain activities and jobs to be maintained.
Understanding judicial liquidation goes far beyond the legal framework. It also requires consideration of the financial, social and economic implications of this procedure for all stakeholders. Although difficult, judicial liquidation ultimately aims to provide an orderly and fair solution to business crisis situations , while preserving as far as possible the interests of the various stakeholders concerned.
Financial signs of a possible judicial liquidation
In the complex and changing world of business, companies can find themselves in perilous financial situations, sometimes even on the verge of compulsory liquidation. Recognizing the warning signs of this possibility is essential for managers, investors, creditors and employees. Among these signs, we find:
- Deterioration of profitability: one of the first signs to watch for is a constant decline in the company’s profitability. If profit margins are steadily declining despite stable or growing sales, this may indicate underlying problems such as increased competition, poor cost management or inadequate sales prices.
- State of cessation of payment or bankruptcy of the company: this state occurs when a company is no longer able to repay its debts due from third parties. More simply, this situation means that the company’s liquidity cannot meet its due liabilities, forcing it to file a declaration of cessation of payment with the Commercial Court.
- Reduced investments: When a company significantly reduces its investments, particularly in research and development, new technologies or infrastructure upgrades, this may indicate financial difficulties that limit its ability to prepare for the future.
- Erosion of employee confidence: Declining employee morale, due to salary delays, mass layoffs, or uncertainty about the company’s future, can harm overall company performance.
The judicial liquidation procedure and the role of the Court
A judicial liquidation procedure aims to order the activities of a company while honoring its commitments to creditors. At the heart of this complex process, the Commercial Court supervises and guides every step of the way. Let’s take a closer look at the key stages of this procedure and the role of the Commercial Court.
The 5 key stages of the judicial liquidation procedure
Among the most important steps are:
- Establishing the status of cessation of payments : before even initiating the collective procedure, it is essential to prove that the company can no longer honor its due debts.
- Declaration of cessation of payment : once the status of cessation of payment has been noted, the company must file a declaration with the commercial court. This step marks the official start of the liquidation procedure.
- The appointment of a judicial liquidator : the Commercial Court appoints a judicial liquidator who will be responsible for managing the liquidation and supervising the sale of the company’s assets.
- Realization of assets : this stage consists of selling the assets of the company. The funds thus generated will be used to repay creditors in an order of priority established by law.
- Payment of creditors : creditors will be reimbursed according to their priority.
The role of the commercial court in managing the process
The commercial court plays a central role in the management and supervision of the collective procedure. He is responsible for:
- Validate the declaration of cessation of payment: the court examines the company’s declaration and verifies whether the conditions required to initiate the procedure are met.
- Appoint the judicial liquidator,
- Approve major decisions made by the liquidator, such as selling assets or entering into major transactions.
The procedure for selling assets in the event of judicial liquidation
When a company finds itself in financial difficulties, the procedure for selling its assets takes center stage. This process involves converting the company’s assets and possessions into cash, which will be used to repay creditors. Assets are valued and then sold through auctions, tenders or direct negotiations.
The consequences and alternatives to judicial liquidation
The compulsory liquidation of a company can have significant repercussions on its employees, its creditors and its future. Understanding its consequences is necessary to consider possible alternatives.
1) Consequences for employees and creditors of the company in liquidation
For employees, compulsory liquidation can cause major disruptions. Mass layoffs are common and can leave many workers jobless. Additionally, salaries, severance pay, benefits, and entitlements may be delayed or even compromised depending on the availability of funds following the sale of company assets .
On the creditors’ side, the consequences vary depending on their priority. Privileged creditors, such as employees and social organizations, are generally better protected and have a greater chance of being reimbursed. On the other hand, ordinary creditors or shareholders risk not recovering all of their debts.
2) How to check the status of a company and its possible liquidation
It is important to be able to quickly check whether a company is still operational or whether it has been liquidated. Several sources can be used for this, including online business records, official government databases and publicly available financial information. These sources provide information about the company’s status, financial condition and legal history.
3) The importance of monitoring the closure of the liquidation and its implications for the future of the company
The closure of compulsory liquidation may have repercussions on the future of the company. In certain cases, the company can be bought by new investors or buyers, thus allowing its resumption of activity. It is crucial to monitor this stage, as it can provide opportunities for creditors to recover some of their debts and for employees to return to employment.
4) The existence of a recovery plan or sale plan concerning the company
After the decision to place the company in receivership has been validated, the Court, with the assistance of professionals and experts, requests the implementation of the recovery plan . This plan aims to guarantee the continuity of the company’s operations while repaying creditors.
If the plan is ineffective, the Court may require the formulation of a transfer plan or proceed with the judicial liquidation of the company. In this situation, the Court mandates a liquidator to carry out an inventory of the company’s assets , assess their value and estimate the sale price. The liquidator then proceeds to the open sale of these assets. These last two options open the door to a possible takeover of the company by third parties through the acquisition of its assets.
Taking over a company in liquidation: what to expect
An unmistakable sign of the compulsory liquidation of a company is the possibility of acquiring it. Indeed, from the transfer plan to the liquidation of the company, third parties can take over a company in compulsory liquidation. However, the Court may request the intervention of professionals for the management and management of legal transition . However, it should be noted that the takeover of a business involves risks and that no guarantee is given to the purchaser. This is why the assistance of professionals in restructuring and crisis management is essential. Between restoring the confidence of third parties, their reimbursement, as well as the restructuring of the activity and the company, decisions must be made quickly and efficiently.
In conclusion, vigilance and knowledge are invaluable assets in navigating the business world, and companies such as Reactive Executive are at the forefront of helping to keep businesses stable and thriving in the face of financial challenges. Staying informed, surrounding yourself with competent experts and acting with caution are all keys to preventing and effectively managing a potential liquidation.
