Meaning and Definition of The competition creditors

Definition of the competition of creditors

The concept of bankruptcy is part of own terminology of Economics and more specifically in those situations in which some companies are in a situation of economic crisis and cannot cope with their debts with its creditors.

Context in which it occurs

In a context of economic crisis, there are companies that are struggling to succeed, particularly a series of debts that cannot be paid (for example, with a provider number or with a Bank). This situation companies in crisis have at their disposal a legal mechanism to try to overcome this situation. The established legal mechanism is enshrined in the law and in the case of Spain is the bankruptcy law.

The basic idea of the insolvency proceedings

The entity that cannot assume financial responsibility is put in the hands of a commercial judge, who analyzes the situation of insolvency of the entity (what you have and what the company owes) and when the judge verifies that indeed the entity cannot assume responsibilities approves bankruptcy. This implies that the creditors of the company may not sue her and that Treasury not can apply to the company the ordinary procedures. Thus, instead of the complete closure of the enterprise bankruptcy allows that keep it running, since commercial judge appoints a bankruptcy administrators to monitor the operation of the company in a situation of bankruptcy.
On the other hand, the competition of creditors as procedure allows the company to reach an agreement with its creditors. From this moment on creditors trying to negotiate partial payment of the debt that the company has with each of them. In this way, the insolvent company has been able to reduce its financial commitments (because it has reduced the debt that has or postponed it) and in this way the company can continue with its activity without having to close the entity.

The sword of protection

Bankruptcy is a legal figure intended to protect companies and workers who perform their activity in them so that they can continue to operate. However, this theoretical protection is not enforced in the majority of cases in reality, since usually companies in bankruptcy situation turn out to be liquidated. For this reason, experts recommend that before you start bankruptcy companies try to negotiate with creditors and workers themselves (for example, with a reduction in wages and a postponement of debts).