Businesses the world over have been facing severe financial challenges in recent years. The consequence has been unemployment for many people as companies struggle to remain competitive as costs rise and access to working capital dries up.
The biggest problem faced by companies is often short term cash flow. This is where the company is basically sound, but is facing a few months of inability to meet it's payment commitments, be it to suppliers or to it's own staff in the form of wages.
Firms in this position often have no option but to file for bankruptcy.
Chapter 11 is open to corporations, sole traders and partnerships, and what it basically does is allow the company to continue trading, at the same time adhering to a repayment plan after rescheduling of its debts. By continuing in business they are generating revenue which can be used to repay debt, as opposed to the alternative of liquidation, where all assets are sold, are creditors paid from the proceeds, often leaving many out of pocket.
Chapter 11 also offers the best chance of the creditors getting paid.
Chapter 7 requires the liquidation of all assets, which means that if a company goes down this road, the business is effectively finished. Chapter 11 requires no sale of assets, indeed the assets are necessary to allow the company to continue trading, and in the court's eyes, to repay its creditors.
However, it should be understood that this does not mean that the shareholders necessarily emerge unaffected by the chapter 11 situation, as any form of bankruptcy will reduce the overall value of the company, and the perception amongst its creditors may affect trading relationships.
Assets that the trustee deems are not essential to the business may have to be sold to raise cash so that a realistic repayment plan can be implemented. The main focus is always on ensuring that the creditors get paid.
Some companies are not allowed to file for bankruptcy, but the rules vary from state to state, so the state that the company is located in has a major bearing on financial matters when things get tough.
One of the problems with chapter 11 and indeed any business filing for bankruptcy is the advent of globalised business. The problem is, despite the growing amount of case law to clarify the situation; it can be extremely difficult to identify what part of any large global corporation is subject to chapter 11 proceedings.
Large companies can move or hide assets within other parts of their operations, making it difficult to work out exactly which part of the business is responsible for that part of the company in question.
The biggest problem faced by companies is often short term cash flow. This is where the company is basically sound, but is facing a few months of inability to meet it's payment commitments, be it to suppliers or to it's own staff in the form of wages.
Firms in this position often have no option but to file for bankruptcy.
Chapter 11 is open to corporations, sole traders and partnerships, and what it basically does is allow the company to continue trading, at the same time adhering to a repayment plan after rescheduling of its debts. By continuing in business they are generating revenue which can be used to repay debt, as opposed to the alternative of liquidation, where all assets are sold, are creditors paid from the proceeds, often leaving many out of pocket.
Chapter 11 also offers the best chance of the creditors getting paid.
Chapter 7 requires the liquidation of all assets, which means that if a company goes down this road, the business is effectively finished. Chapter 11 requires no sale of assets, indeed the assets are necessary to allow the company to continue trading, and in the court's eyes, to repay its creditors.
However, it should be understood that this does not mean that the shareholders necessarily emerge unaffected by the chapter 11 situation, as any form of bankruptcy will reduce the overall value of the company, and the perception amongst its creditors may affect trading relationships.
Assets that the trustee deems are not essential to the business may have to be sold to raise cash so that a realistic repayment plan can be implemented. The main focus is always on ensuring that the creditors get paid.
Some companies are not allowed to file for bankruptcy, but the rules vary from state to state, so the state that the company is located in has a major bearing on financial matters when things get tough.
One of the problems with chapter 11 and indeed any business filing for bankruptcy is the advent of globalised business. The problem is, despite the growing amount of case law to clarify the situation; it can be extremely difficult to identify what part of any large global corporation is subject to chapter 11 proceedings.
Large companies can move or hide assets within other parts of their operations, making it difficult to work out exactly which part of the business is responsible for that part of the company in question.
About the Author:
If financial conditions are good you can tend to spend and borrow more cash. But If the financial conditions change, you can find yourself out of work and unable to cope. If you are thinking of declaring yourself bankrupt and wnat more free information, visit www.declaringyourselfbankrupt.org.
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