COMPULSORY DISSOLUTION DUE TO INSOLVENCY IN BOLIVIA
Bankruptcy occurs when a company can no longer meet its matured debts. This condition may be declared by:
- The debtor itself, by admitting its inability to pay.
- Creditors, who can prove cessation of payments.
- A judge, in cases expressly provided for by law.
Once bankruptcy is declared, the company enters compulsory dissolution, initiating liquidation proceedings under the control of a court-appointed trustee. From that point on, the company loses autonomy, and its assets are allocated to cover recognized debts.
TYPES OF BANKRUPTCY IN BOLIVIA AND THEIR LEGAL CONSEQUENCES
Legal doctrine in Bolivia distinguishes three main types of bankruptcy, each with different implications:
Fortuitous Bankruptcy
Triggered by unavoidable events such as natural disasters or external economic crises. It does not result in criminal sanctions.
Negligent Bankruptcy
Caused by poor or reckless management, including financial mismanagement. It leads to financial penalties and possible disqualification of administrators.
Fraudulent Bankruptcy
Involves intentional wrongdoing, such as falsifying financial statements, hiding assets, or favoring certain creditors. In this case, beyond dissolution, administrators and accomplices may face criminal prosecution and imprisonment.
LEGAL RESPONSIBILITIES IN CORPORATE BANKRUPTCY
The consequences of bankruptcy extend beyond the company itself:
- Administrators and directors may face civil or criminal liability in cases of negligence or fraud.
- Partners with unlimited liability, such as in general or limited partnerships, may have their personal assets affected.
- Corporate reputation is severely damaged, affecting relationships with creditors, suppliers, and clients.
HOW TO AVOID FORCED DISSOLUTION IN BOLIVIA
Although bankruptcy is often seen as a corporate “death sentence,” Bolivian law includes several mechanisms to avoid forced liquidation:
Preventive Reorganization
- Initiated before creditors file for bankruptcy.
- Allows negotiation of a payment agreement under court supervision.
- If the agreement is fulfilled, the process concludes without dissolution.
Resolutory Agreement
- Can be entered into even after bankruptcy has been declared.
- Facilitates early conclusion of judicial proceedings through creditor agreements.
Voluntary Restructuring or Liquidation (Administrative Procedure)
- Regulated by special legislation and executive decrees.
- Involves a transactional agreement between the company and its creditors.
- Does not require judicial declaration—registration in the Commercial Registry is sufficient to dissolve or restructure the company.
- If the agreement fails, the judicial bankruptcy process may resume.
KEY STEPS IN THE BANKRUPTCY PROCESS
- Trustee Appointment: The trustee manages the bankruptcy, oversees asset inventory, and ensures compliance.
- Creditors’ Assembly: Oversees management and decides on reorganization or liquidation plans.
- Publications and Registration: Bankruptcy declarations and voluntary agreements must be registered in the Commercial Registry to be legally enforceable.
- Registry Cancellation: The company is officially dissolved when liquidation ends and its commercial registration is cancelled.
Practical Example: A transportation company with substantial debt fails to refinance. Creditors file for bankruptcy, and the court declares it insolvent. Before judicial liquidation proceeds, the company opts for voluntary restructuring with most creditors. They agree to reduce interest rates, extend payment terms, and sell non-core assets. By registering the agreement, the company avoids immediate liquidation and continues operations.
In conclusion, bankruptcy as a cause of company dissolution in Bolivia carries financial, reputational, and even criminal risks. However, Bolivian legislation offers several pathways—such as preventive reorganization, resolutory agreements, and administrative restructuring—that prioritize business continuity and fair treatment of creditors.
Facing insolvency or at risk of bankruptcy? Our legal team is here to advise and guide you through the process—safely and legally. Contact us for expert assistance.
Frequently Asked Questions (FAQs)
Does every bankruptcy result in company dissolution?
Yes, unless a valid preventive agreement, resolutory settlement, or registered voluntary restructuring is successfully executed.
What is the difference between preventive reorganization and bankruptcy?
Preventive reorganization starts before bankruptcy is declared and aims to negotiate with creditors. Bankruptcy is declared when payment default is established.
What is the trustee’s role?
The trustee manages the bankruptcy process, controls assets, and oversees liquidation under the supervision of the creditors’ assembly.
What happens if a voluntary liquidation agreement fails?
The company may face judicial bankruptcy proceedings.
Do partners always bear personal liability?
Only in unlimited liability partnerships. In limited liability companies, partners are only liable up to their capital contributions—unless there is fraud or legal breach.
Are criminal penalties involved in every bankruptcy?
No. Only in cases of negligent or fraudulent bankruptcy, where serious misconduct or intentional wrongdoing is proven.
The content of this article does not reflect the technical opinion of Rigoberto Paredes & Associates and should not be considered a substitute for legal advice. The information presented herein corresponds to the date of publication and may be outdated at the time of reading. Rigoberto Paredes & Associates assumes no responsibility for keeping the information in this article up to date, as legal regulations may change over time.
