Understanding Chapter 11 Bankruptcy
One of the most important functions of a Chapter 11 bankruptcy filing is that it allows the business to continue operating while giving it a breathing spell from creditors. A bankruptcy filing acts as a stay preventing creditors from pursuing any means for payment on debts that arose before the bankruptcy filing. This provides the business with an opportunity time to focus on restructuring the financial issues that are causing the problems without being pressured by creditors for payment.
A Chapter 11 bankruptcy filing provides a business with latitude to stabilize and reorganize its operations while considering its potential exit options. The exit options generally are (i) to restructure the business and continue operating as a going concern, (ii) to sell the assets of the business as a going concern or (iii) an orderly liquidation of the company’s assets. Careful planning will help to optimize outcomes regardless of what decision the company ultimately chooses. Too often, businesses wait too long to consider the option to seek bankruptcy protection. This is a mistake. Early planning is essential to a successful outcome. Accordingly, it is very important for a financially struggling company retain advisors early so that it can prepare for a seamless entrance into bankruptcy and continue to operate without interruptions.
Sometimes an emergency arises where a company has to seek bankruptcy protection earlier than expected. For example, SHA represented a debtor in a case where a company with a judgment against it sought to execute on that judgment unexpectedly while the parties were in settlement negotiations. The sheriff showed up on morning and locked the business up. We had been planning for this possibility so we were able to file the bankruptcy petition the day that the business was shut down. This stayed the sheriff’s sale and the sheriff had to remove the locks, allowing the company was able to move seamless into bankruptcy and continue its operations.
Is bankruptcy the right option for your business? If you are wondering, then you should not hesitate to reach out and seek professional counsel from an experienced attorney who can help you weigh all of your options.