A Quick Guide to Business Reorganization and Corporate Bankruptcy
Business reorganization and corporate bankruptcy always go hand in hand. Corporate bankruptcy laws guide companies when they go out of business for various reasons. With these laws, companies can find ways to clear their debt liability for them to improve their financial credibility. Filing a case under chapter 11 of corporate bankruptcy laws can help companies recover from their debts and improve their business as time goes.
One of the things that companies who are dealing with a bankruptcy must focus on is the reorganization of their business activities. With business reorganization, the proposition of companies become much more profitable. However, there are a few things that you need to remember after filing a case. While management can continue running your daily business operations, all business reorganization plans should go to court and be approved by them accordingly. If you are going to file a case under chapter 7 of corporate bankruptcy laws, your company needs to stop all business operations and declare your company out of business. In this case, the court will assign a trustee who will take charge of liquidating all assets of your company. After liquidation, the trustee will sell off all the identified assets to pay off the investors and lenders that the company owes.
In paying off the debts of a company, they need to pay their investors first. Second, they need to pay secured lenders who are the ones in charge of arranging credit for the company against other assets or mortgages of the firm. With this type of arrangement, lenders will not get worried about not getting their finances back from the company once it has declared insolvency. For companies with floated bonds, the bondholders can get their money back too under the same situation that is not the same as shareholders. For shareholders who own the company, once they file for bankruptcy, they are at a greater risk. During bankruptcy, bondholders will not get any principal and interest payments. Meanwhile, shareholders will not get more dividends. If the liabilities of the company are higher than their assets, then the shareholders will not get anything as per the directive of the court. Generally, if you file a chapter 7 case under corporate bankruptcy laws, you will not get the best outcome. You can be sure that your shareholders and bondholders will lose their money. If you are a bondholder, you may receive some money, but if you are a shareholder, you are bound to lose your money. When you file for bankruptcy under chapter 11 of corporate bankruptcy laws, though, you have more chances of continuing company securities and you can also proceed to trade because there are now laws that prohibit you to do this after filing your case.
In filing a bankruptcy case, you will be going through many hassles and legal processes that make you better off avoiding bankruptcy in the first place. Though filing for bankruptcy and business reorganization may see the most convenient and easiest way out of your financial liabilities, there are many be troubles ahead. You don’t want to end up losing your business entirely. So, before you file for a case, always consider what other options are available for you.