Advantages And Disadvantages Of Pre-Bankruptcy Settlement

The Act on Financing and Pre-bankruptcy Settlement entered into force on October 2012. Government proposed Act as a response to fast growing illiquidity and insolvency. Years of irresponsible business operations brought many enterprises to the edge. There were two excuses for bringing Act. First one objected that most of enterprises are in situation where regular bankruptcy would lead to cessation of business. Second was connected to first one, stating that bankruptcy means loss of work places. Idea was to allow debtors to continue business by reprogramming and writing-off of part of debt with consent from majority of creditors. Financial and operating restructuring plan, a key part of pre-bankruptcy settlement, sets how enterprise will operate and what is necessary for continuation of business. However, by accepting plan, creditors agree that some of their claims will not be settled. Therefore, Act approves non-payment of some of the debts, directly damaging creditors and other enterprises that pay on time. Reasonable question is: do saving enterprises and jobs justify unpaid debts? Moreover, there are no grants that enterprises who successfully settle will operate positive; and, if not – allowing them to continue business will only make new debts. Through three case studies paper shows how pre-bankruptcy settlement is conducted and what are advantages and disadvantages of settlement.