Businesses, unfortunately, fail much more often than they succeed. While no business wants to file bankruptcy, Chapter 11 can provide the answer for businesses with significant debt, who believe they may be able to restructure and become profitable. With careful planning, many times a business can be saved and the business owner can work out the creditor’s concerns. Tough negotiation skills are critical at this juncture. Creativity is also key. Entities and new business associations may be formed. Often, bankruptcy filings are appropriate. Our corporate bankruptcy attorneys bring a wealth of experience restructuring businesses in the bankruptcy setting to its corporate bankruptcy clientele.
Filing for Chapter 11 bankruptcy places a moratorium on creditors taking action against the business and provides the business with time to determine and file a plan to restructure the its operations. During the bankruptcy proceedings, the business will typically still be able to operate, but will not have control over all major decisions, but many issues, such as the sale of assets, will require court approval. However, if the court finds that the business has engaged in mismanagement or fraud, the court may appoint a trustee to manage the business during the bankruptcy proceedings.
Businesses will be required to file a disclosure statement with the court disclosing all assets, liabilities, and other information about their business. The disclosure statement must provide information that is adequate to allow creditors to make informed decisions about the business’ restructuring proposal. Once submitted, the court will review the disclosure statement and determine whether it is sufficient and should be approved. Once the disclosure statement has been approved by the court, the business will file its reorganization plan with the court, providing details on how each creditor will be treated and repaid. Many plans will include provisions for downsizing the business operations in order to reduce their expenses.
The creditors are provided with the reorganization plan and can then vote on whether it should be accepted.
Reorganization plans typically provide the business with anywhere from six months to several years to repay its debt obligations. Creditors are often interested in accepting the plan, otherwise the business may just close, or file for Chapter 7 bankruptcy and discharge all debts, leaving the creditor with no, or less, of a repayment. The bankruptcy court will then hold a hearing to determine whether the reorganization plan should be confirmed. At this time, creditors may also object. Even if there are no objections to the reorganization plan, the bankruptcy court must still review the plan and determine that it complies with the bankruptcy code. Once approved, the business is required to meet the obligations of the plan.
* The law requires that we tell you that we are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.