Contents

INTRODUCTION

This is more like a study guide rather than a book as such. Do you remember what a math book used to be called? A book of problems. It was easier for younger pupils and more challenging for senior ones. Either way, it contained problems to be solved. The right answers were given at the end of the book, but we had to go all the way to the solution by ourselves.

At the end of 2014, the Russian economy suffered another blow when oil prices more than halved. Naturally, the Russian ruble immediately collapsed against the dollar and the euro.

As the old Russian saying goes, ‘misfortune never comes alone.’ The course was set for the development of domestic multi-level processing and high technology. This was impossible for many businesses, as they simply could not replace materials and equipment overnight, nor could they invent or buy new technology. By mid-2015, the economy was on the brink of bankruptcy. Only one question remained: who would go bankrupt next?

It was a disaster for millions of businesses. That was when the most enterprising entrepreneurs ‘crash-dived’ into preparations for bankruptcy. It truly felt like a submarine dive: perfect concentration, steady nerves, unflappable composure, the whole crew ready to steer only one course — for survival.

It wasn’t the first time and it won’t be the last. Crises often come, like storm waves, and we must learn to deal with them. Theory will no longer help. What matters is practice. It is for this reason that I based this book on real events. They may not be described with pinpoint accuracy, but the conclusions are sincere. You know, as the credits of a film sometimes say: ‘Any resemblance to actual people or real events is purely coincidental.’ It is the same here. There may not have been identical situations, but the description is still 50—60% fair and square.

I believe that many businessmen and lawyers in Russia and abroad will corroborate my research. You can read a lot of books on bankruptcy and memorize almost all the legislative and judicial practice related to this tricky area, but you can never know where it may lead. Having studied a large number of related Russian and international cases, I venture to say that bankruptcy is neither death nor even an incurable disease. It is merely a vehicle for getting rid of liabilities that have suddenly put a deathly stranglehold on a business, whatever its size.

That is why I would like to share my research results with you.

SECTION 1. MISTAKES

It’s axiomatic to learn from the mistakes of others.

PROBLEM 1

Given: no nuptial agreement. Businessmen share the ups and downs of both life and business with their families. No one would think of signing a nuptial agreement with their spouse.

Question: why is it important? Nearly everyone who one day decides to act as a guarantor by putting their signature under the text, hardly ever reads it before signing, nor will they re-read it after the hearing. However, everything given away as a present or sold during the three years, or 36 months to be precise, or 1,095 days to be exact before the court declares the company or the individual bankrupt, will be returned to the bankrupt’s estate to be sold to settle the defaulter’s debts.

Solution: make sure to sign a nuptial agreement to avoid a lot а trouble for your family in the event of an unexpected bankruptcy.

PROBLEM 2

Given: consolidation of assets in the hands of a single person. It would seem perfectly logical to consolidate the successful parts of the business, to build the logistics and management systems in such a way that the business is efficient. Training programs cost a lot of money, experience comes with age and working your fingers ‘to the bone’, and businesses cannot but benefit from this.

Question: why is it then, with all parts of the business legally consolidated, there is nothing a bankrupt-to-be can do once the torpedo of crisis suddenly cuts through the side of his business ship? All the bulkheads of the ocean liner that held just yesterday will get soaked and torn like paper under the forceful inflow of creditors and controllers.

Solution: de facto and de jure become very important at a time like this. The most important thing in business is that nothing that is de jure significant should sit within anything else.

PROBLEM 3

Given: underestimation of likely pitfalls. There is no business in the world (and there will never be one in the foreseeable future) that is absolutely and forever immune to external or internal crises.

Question: what can cause bankruptcy? There is always room for betrayal, profligacy, envy, incompetent things done by partners, owners or their families. Natural disasters and wars, man-made woes and bad luck… The list of causes goes on and on.

Solution: you must always be prepared for the possibility of bankruptcy.

PROBLEM 4

Given: no team around. If a business executive or entrepreneur is under enormous pressure in the face of looming bankruptcy and there is no team by his side, he is doomed.

Question: who can be in the team? It is not just your family in a literal sense but also your friends, acquaintances, subordinates — anyone who is prepared to help or to lose some of their material means or income, including bonuses, allowances, and other benefits, along with the business that is going bankrupt.

Solution: try to build your team well in advance.

PROBLEM 5

Given: reliance on stocks and reserves. Even when bankruptcy is imminent, you should never feel compelled to use your stocks and reserves.

Question: why won’t it help? Your stocks are always lower than the resources needed to avoid going bankrupt.

Solution: lock your stocks and reserves away until you need to start all over again.

SECTION 2. ALL OF A SUDDEN

It is not true that bankruptcy cannot be predicted.

So why does it usually strike all of a sudden?

PROBLEM 6

Given: businesses are always on the lookout for ways to survive bankruptcy, often finding themselves on the brink, with all other options exhausted. Banks won’t refinance, interest is accruing on the cost of past borrowings, debts for materials