Bankruptcy Effects on Contracts, Assets, and Liabilities
Effects on Contracts in Bankruptcy
3) Effects on Contracts: Contracts previously included a clause stating they would be extinguished if one party was declared insolvent. Today, this is ineffective, as the law provides that a declaration of insolvency does not automatically terminate contracts. The legal principle of effective yield applies if the declaration of bankruptcy is a legal cause of extinction or by express statutory provision. The parties may agree on the extinction when the law recognizes the right of unilateral withdrawal.
Impact on Assets and Liabilities in Bankruptcy
4) Effect on Adverse Events for the Active Mass: This refers to the possibility of bringing into the active mass rights over goods and competitions that occurred before the declaration of the competition and were once suspect. In a competition, there are two types of masses: active and passive. The limits of active and passive masses are attributed to the receivers. These managers need to develop a report, an inventory, and a list of creditors.
- Active Mass: Composed of the bankrupt’s credits. The law regulates rescissory actions, which can be exercised to render ineffective acts and contracts made by the debtor in the two years prior to the declaration of insolvency, provided they cause damage to a third party. (Note: Rescissory actions are unrelated to the failure of the parties; a contract is terminated because it causes damage to a third party).
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Passive Mass:
Consists of the bankrupt’s debts.
When defining liabilities, it’s crucial to distinguish between two types of credits:
- Bankruptcy Claims: Composed of the liabilities.
- Claims Against the Estate: Not incorporated into the liabilities, and their members are not part of the Board of Creditors. They do not vote, and agreement proposals do not affect them. Unless some previous loans exist (for social and humanitarian reasons), claims against the estate generally arise after the declaration of bankruptcy, incurred due to the competition procedure.
Classification of Bankruptcy Claims
- Preferential Claims: Divided into credits with special or general privilege.
- Unsecured Debts: Neither privileged nor subordinate.
- Subordinate Loans: Deferred credits in relation to ordinary ones, including fines or penalties.
Bankruptcy Convention and Liquidation
The law provides for the resolution of the competition by agreement (normal solution) or liquidation. For the convention, the meeting of creditors must be convened, and the required majority obtained. If not, the liquidation stage begins. Before extinguishing the competition, a “qualification” phase is opened, where the contest is classified as fortuitous or guilty.
Determining Guilt in Bankruptcy
The contest is classified as guilty if the creation or aggravation of insolvency involved malice or gross negligence by the debtor or, if applicable, their legal representatives. In the case of a legal person, its directors or liquidators, whether de jure or de facto, are considered.
Circumstances Leading to a Guilty Classification
2. In any case, the competition will be classified as guilty under the following circumstances:
- When the debtor, legally obligated to keep accounting records, materially breaches this obligation, keeps double accounting, or commits wrongdoing relevant to understanding their financial position.
- When the debtor has committed a serious inaccuracy in any documents attached to the bankruptcy declaration request or filed during the proceedings or has submitted false documents.
- When the opening of liquidation has been officially agreed upon due to a breach of the agreement attributable to the bankrupt.
- When the debtor has disposed of all or part of their assets to the detriment of their creditors or has taken any action to delay, obstruct, or impede the effectiveness of an embargo in any predictable execution initiated or to be initiated.
- When, in the two years preceding the bankruptcy declaration, the debtor’s assets or rights have fraudulently left their estate.
- When, before the bankruptcy declaration date, the debtor has performed any legal act aimed at simulating a fictitious financial position.
Conclusion of Bankruptcy Proceedings
The contest ends when an appeal is filed, and the district court revokes the competition, when the order granting the agreement is affirmed, when payments are made to creditors, or when the nonexistence of goods in the debtor’s assets is confirmed.