Bankruptcy is a crisis financial condition characterized by a stable inability to meet the requirements of creditors. Such a situation, as a rule, does not arise simultaneously, and there can be many reasons for its development. In world practice, even their own criteria have been developed by which the bankruptcy of an enterprise is assessed and its types are distinguished.
Early signs of bankruptcy
In fact, there are not so many main signs by which it is possible to determine the upcoming bankruptcy of an enterprise at an early stage. This is primarily a delay in reporting deadlines. A similar factor may indicate financial fraud or simply the poor performance of the financial services of the enterprise.
Other criteria worth paying attention to are conflicts at the enterprise, dismissal of people from key posts and a sharp increase in managerial decisions.
Less significant symptoms of impending bankruptcy, which should still not be discounted, include:
- a significant decrease in cash in the accounts;
- a sharp increase (decrease) in receivables;
- decrease in production and sales;
- increase in accounts payable.
Real and fictitious bankruptcy
Bankruptcies of enterprises receive real status if, in the specified period, the company has suffered significant capital losses. In this regard, it is completely insolvent in terms of restoring its solvency. Further economic activity of such an economic entity can harm both its counterparties in particular and the industry as a whole. Therefore, such a debtor is legally declared bankrupt.
The exact opposite of the real are fictitious bankruptcies of enterprises. They are characterized by the fact that the debtor himself appeals to the arbitration court. Most often, the reason for such actions is the desire to obtain discounts and installments for the payment of debts, or even avoidance of their payment. If it is proved that the debtor at the time of filing such an application was able to fully satisfy all the requirements of the creditors, then he will be liable for the damage caused to him.
What is the bankruptcy stage and technical bankruptcy?
If the company is in the stage of bankruptcy or declared technical bankruptcy, then this does not mean that it should cease to exist. So, for example, there are 3 stages of bankruptcy of enterprises:
- Hidden reduction in the price of the enterprise.
- Financial instability.
- Legal bankruptcy.
Companies in the early stages of bankruptcy can still normalize their activities with proper financial management. The same applies to technical bankruptcy. This term refers to the situation when the payables of an economic entity arise due to a significant delay in payment from its debtors. An essential condition for the recognition of bankruptcy as purely technical is the excess of its uncollected receivables over payables.