Corporate Bankruptcy
If you own a business and need to file for bankruptcy under the federal laws, what protection can you expect? The federal bankruptcy laws direct how a bankrupt company can revive from debt. You may use Chapter 11 of Bankruptcy Code to rearrange your business and get back in track.
With a Chapter 11 Bankruptcy the day-to-day business of the company still remains the responsibility of the management. However, if there are any major or significant decisions to be taken, it must be approved by a bankruptcy court. If a company files for Chapter 7 Bankruptcy, it means that the company has stopped all operations and has gone completely out of business.
Filing Chapter 7 bankruptcy
In a Chapter 7 bankruptcy, the company declares itself completely out of business and stops all operations. After this is done a trustee is then appointed. The assets of the company are then liquidated and the money earned is used to pay off the outstanding debt. Investors who have the least risk are paid first since their credit is usually backed by a collateral.
Since bonds represent the debt of the company, bondholders are more likely to be paid before the stock holders. Stock holders own a portion of the company and take greater risks. Hence they are paid late. The fact is, the stockholders could make more money if the company makes money, but if the company loses, they too lose money. However, the order of payment will be determined by the bankruptcy laws.
Filing Chapter 11 bankruptcy
If you can still run your business and keep a check on the bankruptcy process, it is advisable that you file Chapter 11 bankruptcy rather than Chapter 7. Through this process you can revive your business. The stocks and bonds of such a company may continue trading and hence the company must continue to file SEC reports that includes information about any noteworthy development.
One or more committee is appointed by the U.S. Trustee in order to represent the creditor’s interest and also that of the stockholders working in the company. This is done to develop a plan to get the company out of debt. The plan that has been developed must be accepted by the bondholders, share holders and creditors. This plan must be confirmed by the court. Even if the court may disregard the vote given by shareholders and creditors in favor of the plan, it may still confirm the plan if it sees the others being treated fairly.
After confirmation of the plan, there must another report containing summary of the plan or maybe a copy of the same, filed with SEC on Form 8-K.
If your company’s finances are in the doldrums and you want to file bankruptcy, it may give you an opportunity to revive your business. Even if you file foe corporate bankruptcy you have the chance to revive profitability or maybe completely closing operation and selling off property and assets to pay off the debts.
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