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Errors in the bankruptcy declaration can cost SMEs up to €150,000

Last June 30 ended the third extension of the bankruptcy moratorium announced by the Government at the time of the declaration of a pandemic. This postponement was granted with the aim of giving a break to companies with Difficult but doable. With a view to this end date of the postponement, a flood of declarations of insolvency proceedings by companies is expected, which may entail a great responsibility for their directors, who must undertake this process without making mistakes that endanger the viability of the business and its own finances.

In this new scenario, in which it will once again be mandatory for companies in a situation of insolvency to present bankruptcy proceedings in court, Hiscox, an insurance company, explains the problematic which can lead to mismanagement by directors when declaring bankruptcy.

According to the insurer, mismanagement of the company that leads it to declare bankruptcy can entail expenses of up to €150,000. This figure includes the defense expenses incurred in the procedure and the possible compensation for moral damages that the administrator must assume after, for example, the employees sue the administrators, holding them responsible for the situation and the loss of their jobs. worked.

At the time of presenting the insolvency proceedings, There are many mistakes that a manager can make. and that, according to Hiscox, are necessary to know to avoid falling into any of them:

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  • Lack of experience: Everything indicates that in a few days the Bill to reform the consolidated text of the Bankruptcy Law will be approved, by which the bankruptcy declaration process is modified in order to improve the restructuring framework for companies with difficulties . However, these developments, which in principle will be beneficial for companies, also mean an increase in the responsibility of administrators and managers who have not previously used this instrument, so it is important that they always turn to truly informed advisors. A bankruptcy is a fundamental process for the company to eliminate its debts, so quality advice is vital.
  • Excess time to resort to the contest: It is common for many managers to take longer than they should to declare bankruptcy in their company and, by the time they are aware of this need, it is usually too late. In fact, if the legal limit is exceeded, they can be classified as guilty for delaying or hiding the bad situation of the company and, therefore, they should face trial with their consequent costs. Luckily, the new modification that will enter into force soon contemplates a period of two months that an administrator who has detected a situation of insolvency has to present bankruptcy.
  • Lack of adequate documentation: Legal processes such as insolvency proceedings always involve a bureaucratic process in which it is essential to provide the relevant legal documentation. If a mistake is made and a non-original document is delivered or one that is missing, it is possible that the documentation is taken as false or as an attempt to deceive, which could also lead to fines for company directors.
  • Failure to comply with the obligations of bankruptcy proceedings: Filing for bankruptcy is a complex situation for businessmen, which they try to avoid at all costs due to the risks involved. However, it is important that once the process begins, they are collaborative in order to find a common solution with their creditors. That is why it is essential that, once an agreement is reached, all the foreseen obligations are fulfilled, to avoid reaching the point where a judge must initiate the liquidation.

“The situation of many companies is delicate at the moment: the sharp rise in the cost of raw materials and supplies, the return of loans from the Official Credit Institute (ICO) requested during the pandemic and now the end of the moratorium on competition are the main problems they face in economic terms. Given this reality, a large number of bankruptcy proceedings can be expected, but it is important that the directors of companies in this situation take the necessary time to carry it out correctly and avoid errors that could have a high cost”explains Diogo Ogando, Senior D&O Underwriter at Hiscox Iberia.

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