General statistics on corporate bankruptcies demonstrate the inefficiency of bankruptcy procedures: in 60% of bankruptcy cases in 2019-2022, creditors received 0% satisfied claims and, in the remaining 40% of cases in 2022, 3rd and 4th priority creditors received only 4.2%. So bankruptcy proceedings are not always financially feasible. In a classic lawsuit (plaintiff vs defendant), the financial costs are limited to advocate and legal fees while, in bankruptcy, there are additional costs of litigation of dozens of separate disputes and potential costs of financing the bankruptcy proceedings. At the same time, the extent of bankruptcy and the number of separate disputes exceed the basic general claim process significantly. In addition to financial costs, an applicant also bears expenditures of time. While a judicial dispute lasts 6 to 12 months on average, bankruptcy proceedings can last for years, this entailing an increase in creditors’ labour outlays and a loss of the value of money over time.
It is advisable to make a decision on the debtor’s bankruptcy after an analysis is conducted of the procedure’s financial prospects: the Bankruptcy Practice of BGP Litigation offers to conduct such an assessment of the financial feasibility of initiating bankruptcy procedures using both numerical and statistical methods.
The bankruptcy scoring method includes several assessment components.
Lawyers analyse how the debtor's assets relate to accounts payable, how long the debtor has been showing signs of insolvency, how the change in the dynamics of assets on the balance sheet has manifested itself in the life of the company, as well as the prospects for financing the procedure using the debtor's own funds, not those of creditors.
The practice team identifies the projected percentage of the client's claims in the debtor's register of creditors' claims. This helps simulate the project budget, where the projected costs of supporting and financing the procedure, time costs and projected income are important.
Additionally, potential competition for the bankrupt’s assets must be analysed: will there be major players on the register with preferences in the form of collateral or many other creditors whose claims will dilute the percentage of the client’s claims. For the analysis, it is important to know what the debtor is: a fly-by-night company, a well-established company, or a big business.
In the bankruptcy prospects, it is vital to predict the liquidity of the procedural instruments used: challenging transactions and having subsidiary liability imposed on controlling entities.
The aim of bankruptcy scoring is to predict (as far as possible) the prospects of bankruptcy proceedings for a specific person, i.e., the client. Lawyers conducting the analysis provide specific recommendations and do not always suggest initiating bankruptcy proceedings. Sometimes, it is far more expedient for the client to take a different approach, such as holding management liable outside the bankruptcy case or, on occasion, simply agreeing to “forgive and forget.”
In a similar way, at the country level, the Federal Tax Service has developed a System of integrated debt management and administration (SKUAD), which acquires data from publicly available and internal national sources into a digital profile of the debtor, allowing inspectors to make decisions about the debt’s future.
The bankruptcy scoring product created by BGP Litigation lawyers is unequalled for the private client audience. BGP Litigation offers a unique solution for non-bankruptcy professionals to obtain a professional legal opinion, i.e., a report based on statistical and intelligent analysis.