Bankruptcy In Corporations

Bankruptcy is the

legal situation in which a corporation may temporarily or permanently close,

due to the impossibility of fulfilling its obligations.

In El Salvador,

bankruptcy is regulated under several legal authorities, such as: the Code of

Commerce, the Law of Commercial Procedure and the Code of Civil Procedure. The

process itself is basically to immobilize the goods of the debtor and supervise

that such goods are equally distributed among its creditors. During bankruptcy

process, a Trustee is named and is responsible for administration of the estate

and liquidation of the goods/assets of the corporation.

Besides the process

of bankruptcy, a debtor, may also request a suspension of its payment

obligations; however both legal processes are obsolete as once a corporation or

a debtor is in an extreme debt, banks and financial institutions immediately

file Executory Proceedings in order to obtain the appointment of an Intervenor

to exercise authority over the corporation's assets. Any other creditors that

appear in Court will embargo the same properties, triggering a technical

joinder of legal actions or claims into one. Notwithstanding the

aforementioned, secured or preferred creditors have priority over the rest of

the creditors.

This does not

alleviate the obligations of a debtor; furthermore, it does not guarantee

either a restructuring or a re-organization of the debt that may assure that

the creditors will indeed receive their payments.

It may also be the

case that corporations have goods whose assets are worth many times the amount

owed by it. In this circumstance they will be condemned to lose all their

assets in order to pay their debts if they don't find potential buyers.

In contrast to the

Salvadoran system, other countries have modern insolvency regimes, in which

honest debtors seek protection under a special procedure. In the United States,

the US Code, regulates Bankruptcy and Chapter 11 contemplates the

re-organization of a corporation that is in bankruptcy. Chapter Eleven allows

large corporations facing a complicated financial situation to declare

themselves in bankruptcy and may temporarily suspend their payment...