Understanding Insolvency Proceedings: Competition & Settlement
The Competition Process
The competition process involves a common phase followed by two possible outcomes: agreement or settlement.
1. Budgets and Establishing Concurso
This phase is initiated in case of a debtor’s insolvency, where they cannot fulfill their payment obligations. The insolvency law dictates the judge’s determination based on the applicant (debtor or creditor).
- Debtor Application: Insolvency can be present or imminent. The debtor must demonstrate their financial situation.
- Creditor Application: Only present insolvency is considered. Claims must be supported by documentation.
2. Types of Competition
- Voluntary: Initiated by the debtor.
- Required: Initiated by the creditor.
3. Governing Bodies
3.1 Judicial Function
The Commercial Judge has increased power over decisions regarding insolvency administration.
3.2 Receivers
Appointed by the judge, usually a lawyer, auditor/economist, and a creditor. They manage the process, supervised by the court, and are liable for damages caused to the competition mass.
3.3 Board of Creditors
Safeguards creditors’ interests. Its role is primarily to deliberate and vote on agreements.
4. Effects of Competition Declaration
4.1 Effects on the Debtor
Personal effects may include communication interception or residence restrictions. Property effects involve limited disposal and management powers.
4.2 Effects on Creditors
All claims are consolidated into a single procedure, suspending individual actions and ensuring equitable division.
5. Active and Passive Mass
Active Mass: Debtor’s assets and rights. Reintegration aims to recover assets transferred prior to the competition. Separation involves returning assets owned by third parties.
Passive Mass: All claims against the debtor prior to the competition. Claims are classified as privileged, ordinary, or subordinated.
6. Competition Completion: Agreement or Settlement
Agreement: A negotiated settlement between debtor and creditors. It requires judicial and creditor approval.
Prior Agreement Proposal (CAP): Aims to facilitate agreement adoption with reduced requirements.
Settlement: Can be initiated by the debtor, creditor, or judge. It involves asset liquidation and payment to creditors based on loan valuation.
7. Competition Rating
This phase determines if the competition is accidental or guilty. Guilty classification leads to penalties, including disqualification and asset restitution.
Short Procedure: Halved timeframes and a single insolvency administrator.