Bankruptcy Provisions For Business
One of the most common forms of bankruptcy that people will hear about is a Chapter 11 petition for bankruptcy. You will often hear news items where a certain business has applied for a voluntary Chapter 11 petition for bankruptcy. You will also hear about involuntary petitions for bankruptcy.
Chapter 11 is used for businesses of all sizes. When a business applies for a voluntary Chapter 11 petition, the aim normally is to seek assistance to trade their way out of difficulties. Like the Chaper 13 petition, the debtor will normally offer a payment scheme to trade their way clear. In some circumstances, the court will discharge some debts and terminate burdensome contracts or leases.
Under a Chapter 11 petition, debtors are able to recover assets, call in debts and rescale their operations in order to return to profitability. A business that successfully negotiates its way through a Chapter 11 petition for bankruptcy is often stronger and more viable for the experience.
The second form of Chapter 11 bankruptcy is commenced when a group of creditors are no longer satisfied that a business will ever be in a position to repay debts. The creditors apply to the bankruptcy court and the debtor is forced to present themselves for review. Creditors can be appointed to a creditors committee. They have the task of working with the debtor to administer the case.
Creditor committees often employ lawyers to help investigate the business. This is a frequent occurrence when a business has provided documents showing them to be financially stable when, in fact, the opposite is the case. Lawyers and accountants will examine the affairs of the business for any irregularities.
If a business can satisfy the courts that a restructure is viable and a payment plan is achievable then the court will approve those plans. Once the business has met the obligations in the plan, they will be discharged from bankruptcy and able to continue their normal business activities.
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February 1st, 2010 at 7:15 am
[...] for businesses in general is through a Chapter 11 filing. We covered this topic in an early post, Bankruptcy Provisions For Business, where we looked at how the Chapter 11 process worked for all businesses. Small businesses can be [...]