by Bob Tremerituus
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 problem is often that a business is often viable and profitable, but without access to working capital it cannot meet its short term financial commitments.
When businesses can no longer meet their commitments, many turn to chapter 11 bankruptcy.
Chapter 11 bankruptcy is not a situation where all is lost and the company folds. Certainly, if the bankruptcy court trustee feels that the business has no future and its problems go well beyond cash flow, chapter 7 may be invoked and that really is the end of the line, but chapter 11 allows the company to continue trading under a legally binding repayment plan.
So, if the court decides that a business can trade profitably again, once debts are rescheduled, chapter 11 will be filed, giving creditors the maximum chance of getting paid in full.
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, the personal wealth of the shareholders is not entirely secure; in that when a company files for bankruptcy this will often decrease the overall value of the company. It also does not mean that assets will not be sold.
The objective is to keep the company trading to generate revenue to pay creditors. However, the trustee overseeing the case may deem it viable to sell some of the company's assets to raise cash, combined with a repayment plan. It's a financial balancing act, with the emphasis on getting the creditors paid.
Not all companies can file under chapter 11. Some are specifically excluded such as insurance companies and utilities. Chapter 11 varies from state to state, so rules differ depending on what part of the US the company is located.
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.
These large enterprises can change their structure to limit their liability under chapter 11, often at the expense of their creditors, many of whom are often much smaller in scale, and lack the financial muscle to take the corporations on. - 41115
When financial times are good you can tend to spend and borrow more money. But when the financial tide turns, you can find yourself out of a job and unable to cope. If you are thinking of (http://declaringyourselfbankrupt.org) declaring yourself bankrupt and wnat more free information, visit (http://declaringyourselfbankrupt.org) www.declaringyourselfbankrupt.org.
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New Unique Article!
Title: Chapter 11 - Bankruptcy For Business
Author: Bob Tremerituus
Email: ntoulson@googlemail.com
Keywords: Chapter 11 bankruptcy,bankruptcy,going broke,finance,corporate finance,wealth,money,cash,credit
Word Count: 437
Category: Finance:Credit
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