Bankruptcy: Part of the Adventure as an Entrepreneur
In the world of entrepreneurship, failure exists in a variety of shapes and forms: some lead to associates parting ways or the cease of activity, while others can pose a threat to its sustainability, its funds or growth and ultimately lead to bankruptcy. Every “flop” puts the entrepreneur’s (or the business’) limits to the test but is also an opportunity for improvement. While all businesses are the sum of their achievements and their failures, failures statistically outnumber successes in Europe and throughout the world.
We prefer to celebrate success, but failure is an integral part of entrepreneurship. In the beginning, Steve Jobs, flopped with the iPhone’s ancestor, the Newton, as well as NeXT computers. Apple was nearing bankruptcy before becoming the biggest company in the world thanks to iMacs and iPhones.
This article will give you some guidelines to limit the damage should bankruptcy be looming on the horizon.
The golden rules for “well-managed” bankruptcy
Assess your company’s financial situation
The first step, for both sole proprietorships and commercial companies, is to identify all existing and upcoming debts. Debts owed to administrations – the Joint Social Security Center, the Direct Tax Department or the Luxembourg Registry – must take priority over other debts.
File for bankruptcy
“Any trader who ceases payments and whose credit is weakened is bankrupt”: such is the definition of bankruptcy provided by the commercial code. A company is bankrupt when it can no longer pay its debts, or at least make its principal payments (salaries, for example), and is unable to obtain further credit from banks, their creditors or their suppliers.
When such a case arises, the company must1 file for bankruptcy with the competent court. The bankruptcy petition must be filed by the trader himself, if the business is run in the form of a natural person, or by the decision-making body, if the business is run in the form of a commercial company. This involves explaining the company’s situation and proving that the conditions for bankruptcy are satisfied (ceased payments, lost creditworthiness). Most importantly, you will have to submit your business’ balance sheet. Should you be unable to supply such a document (if, for example, you cannot supply the accountant’s balance sheet because their invoices have not been paid), you will have to submit a note explaining the reasons for its absence. You can find specific details about mandatory information to include in your bankruptcy petition, a list of required attachments and how to submit your petition on the website of the Ministry of Justice2 (website in French).
The file must be submitted in two copies to the competent district court (Luxembourg or Diekirch, depending on company headquarters). Making an appointment with the clerk is highly recommended.7
The bankruptcy judgement is handed down by the court after a hearing with the bankruptcy party. If it is decided that the conditions are satisfied, a bankruptcy procedure3 is initiated. A trustee is appointed to take control of the company and manage the liquidation of the bankruptcy estate. The company is removed from the Trade and Companies Register when the liquidation process is complete.
What comes next?
Just because you’ve been declared bankrupt doesn’t automatically mean you won’t be able to start another business.
It’s true that you can be held liable when serious misconduct has been committed that contributed to the bankruptcy. Among other possibilities, sanctions in such a case can include a ban on future business undertakings. Gross and serious misconduct consists of unforgivable errors a cautious and diligent manager would not commit. Errors in management, moderate carelessness or negligence do not give rise to such sanctions. Similarly, if serious and gross misconduct is detected but is unrelated to the company’s bankruptcy, the court cannot impose this type of sanction. It’s also important to note that such sanctions are not automatic but rather left to the discretion of the court.
When bankruptcy proceedings are complete, if debts owed to the authorities remain, the holder of the establishment permit will generally be asked to settle them before a new establishment permit can be granted.
Apart from the above situations, entrepreneurs are not usually deprived of the right to start another business. This leaves the door open to embark on a new entrepreneurial adventure, especially with the lessons you’ve learned - that will boost your chances of success!
The House of Entrepreneurship of the Chambre of Commerce is the national contact point for future entrepreneurs and established company heads alike. (Future) entrepreneurs can contact the House of Entrepreneurship’s information point to move forward with their business creation/takeover project or be put in touch with the relevant structures or partners.
Learn more :
1 : Article 440 of the Commercial Code states that “Any trader or commercial company that ceases payments must file a bankruptcy petition within one month from the cessation of payments with the clerk of the commercial district court of their permanent address or registered office […]” / 2 : Ministry of Justice's wabsite / 3 : bankruptcy procedure / 4 : Admission of bankruptcy / 5 : Bankruptcy procedure 1 / 6 : Bankruptcy procedure 2
7 : N.B.: For health reasons, declarations of suspension of payments and subsequent bankruptcy petitions are currently no longer filed by appointment but only remotely by post.
The declaration of suspension of payments and all supporting documents must therefore be sent to the Court (ideally by registered letter with acknowledgement of receipt). Once the declaration of suspension of payments has been processed, the draft bankruptcy petition is returned to the declarant for him to sign and to send back, once again by post, to the Court.
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