Bankruptcy Takes Effect Upon Declaration (Article 311 of the Debtor Rehabilitation and Bankruptcy Act)

Bankruptcy takes effect from the moment it is declared (Article 311 of the Debtor Rehabilitation and Bankruptcy Act).

As a result of the bankruptcy declaration, all assets owned by the debtor corporation at the time of the bankruptcy declaration, as well as any claims arising from causes before the declaration that may be exercised in the future, constitute the bankruptcy estate. This estate serves as the source of distribution to creditors. In other words, the debtor corporation loses the right to manage and dispose of the assets that constitute the bankruptcy estate, and these rights are vested in the bankruptcy trustee. The bankruptcy trustee exercises full authority over the management, liquidation, and distribution of the estate, and the bankruptcy process is carried out through the trustee from the commencement to the conclusion of the process.

Therefore, in lawsuits regarding the bankruptcy estate, the bankruptcy trustee becomes the party in the case. If a lawsuit is ongoing at the time of the bankruptcy declaration, the process is suspended due to the declaration. After the bankruptcy declaration, creditors are prohibited from exercising their individual rights. Any forced execution, provisional attachment, or provisional disposition carried out based on bankruptcy claims before the bankruptcy declaration loses its effect against the bankruptcy estate.

However, if the bankruptcy trustee determines that continuing the previous enforcement procedures will allow for a quicker and more expensive sale, they may proceed with those procedures themselves (Article 348, Paragraph 1 of the Debtor Rehabilitation and Bankruptcy Act). Additionally, the execution of a security right, such as a mortgage, on assets in the bankruptcy estate is not invalidated by the bankruptcy declaration and continues with the bankruptcy trustee assuming the debtor’s position. Claims for tax and other public tax debts, including those subject to priority over general bankruptcy claims, can continue if the collection process was initiated before the bankruptcy declaration under the National Tax Collection Act or the Local Tax Collection Act.

The bankruptcy declaration prohibits individual creditors from exercising their rights, and they must participate in the bankruptcy process to seek satisfaction. A petition to withdraw the bankruptcy filing is only allowed before the bankruptcy declaration and cannot be withdrawn once the declaration has been made, even before the final confirmation.

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