Have you ever heard of the term "technical bankruptcy"? This definition is very important if you own a business, since no one is immune to technical bankruptcy.

In this article from Advogados em Braga you will learn what technical bankruptcy is and how you can prevent your company from entering this situation. 

What is technical failure?

Technical bankruptcy occurs when a company's liabilities exceed its assets. In other words, a company is technically bankrupt when its equity is negative. 

How to Identify a Company in Technical Bankruptcy?

In order to determine if a company is technically bankrupt, one must consider whether its equity is negative and whether its liabilities exceed its assets. 

What are the main causes of technical failure?

There are situations that can lead to a company becoming technically bankrupt. Among these situations, some notable examples include: 

• Financial problems, such as delays in paying employees or suppliers;
• Lack of investment in marketing;
• Assigning incorrect prices to products;
• Lack of financial planning;
• Failure to separate personal and business accounts;
• Excessive spending and unnecessary expenses. 

What is the difference between technical bankruptcy and judicial bankruptcy?

Technical bankruptcy occurs when a company has a negative balance, while judicial bankruptcy occurs when a company is unable to pay its expenses. 

What is the difference between technical bankruptcy and insolvency?

Technical bankruptcy and insolvency are two similar situations, but they do not mean the same thing. 

In the case of technical bankruptcy, the company is recognized as one that cannot pay its debts, whereas insolvency is a state of debt in which a company is unable to pay its debts, and this situation is judicially determined and declared. 

How to resolve technical failure

In order to resolve a technical failure situation, there are several solutions you can resort to:

• Initiate insolvency proceedings.
• As an alternative to insolvency, there is... Special Revitalization Process (PER).

What does negative equity mean?

Negative equity occurs in situations of technical bankruptcy. When a company has negative equity, it means that the company's debts exceed its assets. 

What to do when equity is negative

For a company to emerge from technical bankruptcy and resolve its negative capital situation, there are several measures the company can take:

• To receive capital contributions from partners;
• To receive temporary loans from partners;
• Reduce the share capital;
• Amend the articles of association and register the amendment with the land registry.  

What is the Portuguese legislation related to technical bankruptcy?

O Insolvency and Business Recovery Code (CIRE) It is a legislative document related to technical bankruptcy. This is established by Decree-Law No. 53/2004. 

Solutions and Strategies to Reverse Technical Failure

In order to reverse technical bankruptcy, there are mechanisms that should be considered, which can help the company avoid running out of capital to pay its bills. 

Thus, the following points stand out:

• Strengthening relationships with customers: A brand's market position depends on the strength of its relationship with its customers. By having a strong relationship with customers, a company more easily gains a customer base, and consequently, a source of profit. 
• Review of the products and services offered: Having good products is essential to retaining and attracting customers. 
• Debt renegotiation: Renegotiating debts is a way to avoid accumulating debt. 
• Implementation of an emergency business plan: Anticipating problems can help avoid falling into a situation of technical failure. Therefore, an emergency plan should be in place. 
• Exploring new market opportunities: The market is constantly changing, and therefore it is important for companies to seek to keep up to date. 

What is the role of a lawyer in a technical bankruptcy situation?

In a situation of technical bankruptcy, a lawyer can help their clients fight for their rights, as well as help them analyze the issue in a more thorough way. 

Among the duties of a lawyer, the following stand out: 

• Check for possible errors and invalidities;
• Analyze the situation presented by the other party;
• Develop arguments to defend the client;
• Conducting meetings;
• To mediate agreements;
• Negotiate. 

To obtain legal assistance, contact lawyers in Braga. Lawyers in Braga We work with professionals specializing in various areas of law, ready to assist you in fighting for your rights. 

How can a lawyer protect company administrators?

For a company to prevent situations of technical failure, There are tactics that can be used.

Legal opinions, where:

• Lawyers can provide legal opinions that help administrators mitigate their personal liability. 
• Lawyers can advise administrators on best corporate governance practices;
• Lawyers can advise on taking out liability insurance, protecting business owners from potentially unnecessary expenses.

Conclusion 

Technical bankruptcy occurs when a company has a negative balance. This is different from insolvency, since insolvency involves a court ruling stating that a company does not have the capital to pay its debts. 

Implementing a business emergency plan, strengthening customer relationships, or reviewing the products offered are some of the measures that companies can take to avoid technical bankruptcy.

A lawyer can be a key element in ensuring that a business owner receives proper advice, thus avoiding situations of technical bankruptcy or more serious problems.