1. Bankruptcy Proceedings
- Purpose: The goal of bankruptcy proceedings is to halt a company’s business activities and distribute its assets fairly among creditors. Bankruptcy is pursued when it becomes unfeasible to continue operations, and the process focuses on liquidating the company.
- Details: Once bankruptcy proceedings begin, a bankruptcy trustee is appointed, who will liquidate the company’s assets and distribute the proceeds to creditors. At the end of the process, the company is dissolved, and its legal entity ceases to exist.
- Characteristics: Bankruptcy aims to close down the company entirely, with no intention of continuing operations.
2. Corporate Rehabilitation Proceedings
- Purpose: Corporate rehabilitation proceedings aim to help companies restructure their finances, reduce debt, and continue operations. The goal is to maintain the company’s business activities and protect employees’ jobs.
- Details: A rehabilitation plan is created, which requires approval from the court and creditors. Through this process, companies may receive debt relief or other forms of support to aid in their recovery. Civil Rehabilitation Act and Corporate Reorganization Act apply here. Under the Civil Rehabilitation Act, the management team often remains in charge of operations.
- Characteristics: These proceedings focus on maintaining the business, aiming to protect employee jobs and relationships with suppliers, ultimately restoring the company to a sound financial state.
Summary of Key Differences
| Item | Bankruptcy Proceedings | Corporate Rehabilitation Proceedings |
|---|---|---|
| Purpose | Liquidation of business | Business continuation and recovery |
| Process | Liquidate assets and pay creditors | Reduce debt and restructure finances |
| End Result | Company dissolution and end of entity | Business continuation and rehabilitation |
| Impact on Stakeholders | Employee layoffs, losses for suppliers | Job protection, aim to maintain supplier relationships |
In summary, bankruptcy proceedings focus on “liquidation,” while corporate rehabilitation proceedings focus on “recovery.” If a company is in a difficult situation but has a prospect of recovery, it may pursue corporate rehabilitation. If recovery is not feasible, it often moves towards bankruptcy proceedings.
