Economy of the enterprise - Pokropivny SF

Chapter 20. Bankruptcy and Liquidation of Enterprises (Organizations)

Key concepts and terms

Bankruptcy; Prediction (forecasting) of bankruptcy; Signs of bankruptcy; Price (value) of the firm; Causes of bankruptcy; The degree of probability of bankruptcy; Filing a bankruptcy case; The liquidation value of a bankrupt enterprise; Consequences of bankruptcy of the enterprise (organization); Procedure for liquidation of a business entity .

20.1 Bankruptcy of enterprises (organizations) as an economic phenomenon

Essence, causes and signs of bankruptcy

The concept of bankruptcy is organically inherent in modern market relations. It characterizes the inability of the enterprise (organization) to satisfy the claims of creditors regarding the payment of goods, works, services, as well as to ensure mandatory payments to budgetary and extra-budgetary funds.

In the law of Ukraine "On renewal of the solvency of the debtor recognition as bankrupt" under bankruptcy is understood as the inability of the debtor to resume its solvency and satisfy the claims of creditors recognized by the court, not through the application of a liquid procedure, recognized by the court of arbitration.

Under normal conditions of management, shareholders and creditors are hoping for a reward, the amount of which depends on the level of profitability of the firm. One of the first signs of approaching bankruptcy is that the company's profitability falls below the cost of capital. The interest for the loan and the dividends paid by the firm cease to correspond to the current market conditions of management. Creditors (bondholders, etc.) still receive certain amounts fixed by credit agreements, but the relative profitability of their investments in this firm decreases, and in connection with the decline in the value of equity capital, the share price also falls, the risk of non-return of funds increases, there is a difficulty with cash, Especially if creditors do not extend loan agreements and the firm is forced to pay not only interest, but also the amount of the principal debt. There may be a liquidity crisis and the firm will be in a state of "technical insolvency". This phenomenon can already be regarded as bankruptcy.

As foreign experience shows, bankruptcy can be predicted for 1.5-2 years before the appearance of its obvious signs. It is quite possible to determine the initial signs of bankruptcy through forecasting the "enterprise price" for the near and long term.

The decrease in the profitability of the firm or the increase in the average value of liabilities cause a drop in its price. The price of a firm is the streams of payments to creditors and shareholders cited so far. The weighted average cost of capital is used as a discount rate. The firm's price may fall below the amount of liabilities to creditors. This means that the share capital "disappears". This is the complete bankruptcy - the bankruptcy of shareholders.

In some cases, the firm's price may be below the liquid asset value. In this case, the liquidation value acts as the price of the firm, and the sale becomes more profitable than its functioning. Shareholders in this case lose their capital.

The reasons for the bankruptcy of enterprises (organizations) can be very diverse. In general, they can be divided into two groups: 1) external, which is almost very difficult (sometimes impossible) to take into account; 2) internal, directly dependent on the forms, methods and organization of work at the enterprise itself. The result of simultaneous influence of all factors is the bankruptcy of the business entity (Figure 20.1).

The main causes of bankruptcy of organizations (enterprises)

External factors can be international and national. International factors are formed under the influence of the dynamics of the general economic indicators of the development of the leading countries, the state of the world financial system, the stability of international trade, customs policy, the level of international competition, the movement of international capital,

An analysis of foreign practice shows that in countries with a developed economy and an established political system, as a rule, one third of bankruptcies are due to external, and two-third - internal reasons. It is quite obvious that the factors of bankruptcy for domestic enterprises are different, derived from the crisis state of the national economy.

It is the unjustified economic policy of the government, uncontrolled inflationary processes, the total economic crisis, political instability in the society, the decline in business activity, and in the economy the imperfection of the legislative base has the greatest impact on the performance of enterprises. At the present stage, the development of science and technology has also slowed down in Ukraine as a result of the same deep crisis in the investment sphere. The low level of integration of the domestic economy, the inefficient use of foreign capital, and the sharp deterioration in the situation on the domestic and foreign markets lead to the appearance of noticeable symptoms of bankruptcy in many Ukrainian enterprises.

The movement to a crisis state begins at the moment of the cumulative growth of the magnitude of the deviation of certain indicators that characterize the state of the external and internal environment of the firm's functioning from long-term trends in the dynamics of these indicators. For example, if the sales volume of the goods fluctuated within ± 3% of the average monthly value from the quarterly, and the next month fell by 10% and the negative trend is increasing, then one can already talk about certain symptoms of the crisis state of this firm.

There are also quite specific symptoms of the onset of total debt and total insolvency of the enterprise (organization). The most characteristic of them are shown in Fig. 20.2.

Symptoms of the onset of total debt and total insolvency of the enterprise (organization)

The growth of interest rates and prices causes a rise in the price of raw materials, materials, components, which outstrips the increase in prices for finished goods, increases, with other things being equal, the enterprise's accounts payable. All this requires additional credit resources and, as a result, leads to negative changes in the structure of the company's liabilities due to an increase in the average cost of the balance sheet liabilities.

In the future, the crisis phenomena (more obvious signs of bankruptcy), caused by a sharp change in the structure of the balance of the enterprise, namely: difficulties with cash and a sharp decrease in cash on the accounts; Increase in accounts payable and receivables (a sharp decrease in it may also be a negative phenomenon, since it will indicate difficulties with the sale of products); Decrease in sales volumes (although complete sale of products is possible before liquidation of the enterprise). As a rule, there are delays in reporting, conflict with the situation in the enterprise.

Bankruptcy can occur at each stage of the life cycle of the company's competitive advantage (LCCP). Researchers identify a specific set of factors that contribute to the bankruptcy of the firm at each stage of the CCMC.

The first determinant (determinant) is the parameters of the factors of production . The influence of these factors is observed at all stages (stages) of the LCCP, but their role is especially great at the stage of nucleation. At this stage, the greatest number (seven) of the reasons are allocated, as a result of which the firm can become bankrupt:

  • Incorrect definition of the mission of the company and its production profile;
  • Low entrepreneurial abilities of the owner of the firm;
  • Low qualification of the company's management personnel;
  • Inadequate marketing;
  • Excessively large share of borrowed (borrowed) capital;
  • Insufficient qualification of performers (engineers, workers);
  • Inadequacy of transaction costs.

The next stage of the RCCP is the acceleration of growth. This stage is characterized by the fact that the form has a good demand for its products, a strong marketing strategy, and high qualification of management personnel. As a consequence, such a firm quickly increases production and flourishes. In this situation, for a firm, only too much a share of borrowed capital in the total mass of used capital is dangerous. The firm can not timely provide payments to creditors and, as a result, be bankrupt.

At the stage of slowing growth, the threat of bankruptcy is created by: poor use of working capital, loss of flexibility in management, inadequate marketing and inadequate transaction costs. The level of capital use can be determined on the basis of an analysis of liquidity ratios. The speed of turnover of funds directly affects the solvency of the enterprise. Lack of flexibility in management leads to ineffective management decisions and, as a consequence, increased management costs and loss of profits.

The stage of maturity is characterized by a stable state and profit of the firm, saturation with all production resources. At this stage, factors such as high liquidity of working capital, aging of fixed capital, inadequate marketing and transaction costs are dangerous. In particular, the deterioration and technical and economic aging of fixed capital cause a decrease (in comparison with other firms) in labor productivity, a loss of the competitive advantage of the firm, and, as a result, bankruptcy.

At the stage of production decline, the same factors act as at the stage of maturity. But the situation is aggravated by the general unsatisfactory financial condition of the business entity. The latter loses consumers, and the negative effect of internal factors can lead to its accelerated bankruptcy.

Another important determinant is demand parameters. The analysis indicates that these parameters act at all stages of the LCCP and, as a rule, are the same for all stages. A sharp decline in aggregate demand adversely affects all activities: production is reduced, costs per unit of output are increased, and the total volume decreases profits. In the case of the development of the production of substitute goods, the process of crowding out the goods produced by the company from the markets, reducing the demand for its products and, as a possible consequence, the loss of profit by the company and bankruptcy.

Similarly, other factors of demand parameters act, but their influence is different at different stages of the LCCP. In particular, at the stage of intensive growth, only one factor can lead to bankruptcy - a sharp decline in aggregate demand . Other factors are not critical, as the firm at this stage always has the opportunity to resort to necessary preventive measures.

The next determinant is the level of sectoral competition . Increasing the competitive advantages of other firms in the industry can be a catalyst for the company's bankruptcy at any stage of the CCMC. This process indicates that other firms use the best technology, marketing strategy and management personnel. Defending the firm worsens its position in the market and can also lead to bankruptcy.

The nature of public policy is a factor that influences the development and functioning of the firm through the fiscal and monetary system.

Stages and procedure for initiating bankruptcy proceedings

The conditions and mechanism for the recognition of legal entities engaged in entrepreneurial activities, subjects of bankruptcy (bankruptcy) and the procedure for the satisfaction of claims of creditors are determined by law. The main stages of passing the bankruptcy case of this or that economic entity are shown in Fig. 20.3.

Stages of the bankruptcy proceedings

In accordance with the law of Ukraine "On renewing the solvency of the debtor or declaring it bankrupt", any legal entity registered as an entrepreneurial entity that is unable to meet the creditors' claims or pay in a timely manner can be a subject of bankruptcy. Obligatory payments to the state of a legal entity against which a bankruptcy case is initiated is called a dozhik, and a bankrupt is a debtor who is in the process of liquidation.

As a creditor, any Ukrainian or foreign legal entity or individual who claims to the debtor on the basis of both the property and non-property obligations of the latter may act. The cost of the claim is determined depending on its essence: the value of the monetary obligation - at the market price on the day of submission of the petition for bankruptcy (before the filing of such an application the amount of any claim includes only interest and penalties), the cost of claim under the contract - at the cost of losses incurred by the creditor In connection with non-fulfillment of the terms of the contract by the debtor.

An application for bankruptcy to an arbitration court at the location of the debtor may be submitted by creditors (except those whose property claims are secured by a pledge), state tax authorities, state audit services, and the debtor himself.

A written application of the creditor (debtor, tax or audit service) to the arbitration court is the basis for initiating a bankruptcy case. The application shall be accompanied by: a list of other creditors the applicant knows; List of signed contracts; List of arbitration or other legal cases of the debtor against the debtor. If the debtor, on his own initiative, applied to the arbitration court, his application shall be accompanied by: a list of debtors of creditors, a list of claims against the debtor secured or unsecured by the pledge (if the claims are secured, the value of the pledge is indicated); List of property and its value.

After the adoption of the application, a preliminary session of the arbitration court is held, at which the submitted documents are examined, explanations of the parties are heard and, if necessary, the administrator of the debtor's property is appointed. If the court decides that all procedural requirements have been met, then he appoints a trial, sends a message to all parties to the lawsuit and publishes a report on the court's decision in the printed body of the Supreme Council or the Cabinet of Ministers of Ukraine.

Within one month (from the date of publication of the communication), the arbitration court issues a definition in which it obliges all persons who submitted an application with material claims to the debtor to convene a meeting of creditors, and if the number of creditors exceeds ten, establish an authorized committee. The credentials of the committee are determined by the meeting of creditors.

Any natural or legal person (including the debtor or the creditor himself) wishing to take part in the restructuring or rehabilitation of the debtor must submit to the arbitration court an application with a written obligation to transfer the debt to him, as well as specify the terms of the restructuring process Or sanitation. In this case, readjustment is a procedure that includes an agreement between a sanator and a creditor aimed at settling debts and financial recovery of a debtor legal entity. Thus, the first stage of sanation is the transition to a sanatorium of the debts of the debtor; The second is to agree on the terms of restructuring of the debtor's legal entity; The third is the coordination between the sanatorium and the creditors of the terms of payment of the debt.

Practice shows that restructuring can be carried out in various forms, either by purchasing a sanator or a person (physical, legal) authorized by them: a) all or part of the debtor's property in order to obtain funds to pay off debts; B) all or part of the statutory fund of the debtor in accordance with the terms of the reorganization plan to cover debts; Or by the way of leasing (leasing) all or part of the property of the debtor with the purpose of distributing the lease payments between creditors; Or the transfer of the enterprise to the labor collective, if the debtor is a state enterprise.

Restructuring can be an instrument of privatization of an integral property complex, a state enterprise or a stake (shares, units) of a state in business entities in such cases: if the debtor is a state enterprise; If the debtor himself instituted bankruptcy proceedings; If the restructuring plan provides for the process of privatizing the debtor.

Any reorganization plan should include the order of satisfaction of claims (claims) against the debtor in accordance with the terms of the refurbishment offer. In the absence of proposals for reorganization or in case of disagreement of creditors with the conditions for carrying out the rehabilitation of the debtor, the arbitral tribunal recognizes the debtor as bankrupt and takes an appropriate decision on this matter.