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Learn about the effects of the bankruptcy of joint stock companies

In the bankruptcy of public limited companies, legal bankruptcy is the inability of the company to fulfill its obligations to creditors, and in this case, the company resorts to liquidating its bank accounts and all its assets to pay its obligations and thus exit from the labor market. In case the return is less than the obligations, the company is forced to liquidate some real estate to meet the obligations, and when the return fails to meet the obligations, the company declares bankruptcy.

Bankruptcy is normal and very common in the field of trade and economy, and it is fraught with many risks, and it is not a sin for companies to declare their bankruptcy, and bankruptcy is completely different from the natural out-of-control bankruptcy. The company becomes unable to repay these debts.

Application for bankruptcy

The system forces joint-stock companies to file a bankruptcy lawsuit when the debt reaches half of the company's capital, and therefore the reduction of the company's capital is considered the most popular solution for the company to get rid of the legal obligation, but it is not a solution to the problem of the company's debts to others.

How to reduce capital

The Extraordinary General Assembly shall begin to reduce the capital if the company suffers losses while the shareholders continue to operate, in which case the company can reduce the capital below the limit stipulated in the Companies Law, and a decision is issued for the reduction after an accounting report is issued on its reasons and the company’s obligations and reduce the impact.

How to reduce capital

The first method states that the company cancels a set of shares equal to what must be reduced, in which case the company must consider the equality of all shareholders.

The second method states that the company purchases a set of its shares equal to what will be reduced, and then cancels them under Article 146 of the Companies Law.

If the total losses of the joint-stock company during the year are equal to half of the capital, the accounting officer of the company must inform the Chairman of the Board of Directors, who in turn informs the members of the Board of Directors.

In this case, the board of directors calls the general assembly within 15 days to convene within 45 days to decide the procedures that the company will follow, whether to reduce or increase the capital, to reduce the percentage of losses that the company will incur. exposed or dissolved the company.

Types of bankruptcy

The first type: the company liquidates the assets and pays them to the creditors’ agent and when there is excess revenue it goes to the shareholders but it rarely happens because then the shareholders get nothing most of the time and all the shares lose their value.

The second type: The company negotiates a debt settlement with the creditors' agent. In both cases, if the company is a joint-stock company whose shares are listed on the stock exchange, this trading will be suspended until the crisis is over.

Side one: simple bankruptcy

Occurs when companies are unable to pay business debts due to urgent economic conditions or political conditions that lead to weakness or decline in the value of their assets due to stagnation of markets and seasons or the loss that can occur to their customers and their impact. Comp.

The second aspect: default failure

This typically occurs due to mistakes made by companies due to poor spending or speculation in the financial markets and stock exchanges, or due to checks being drawn without balance.

The third aspect: is fraudulent bankruptcy

This happens when companies hide their money and books or falsify their accounts, and their owners flee.

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