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What your lawyer is not telling you about chapter 11 bankrupsy...
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Company Liquidation Not a Simple ProcessIt sounds like a simple idea – you close your business or store, and sell the contents, make a few dollars, pay some bills, get your ball and go home. But company liquidation is not that simple a process. Depending on the size of the company and the circumstances under which it is closing, it can be very short or quite long. It’s not uncommon for company liquidation sales, for example, to continue for months. If the company is going bankrupt, the process can usually take a bit longer than if the company is voluntarily selling assets as a way to close the company. Usually, the idea behind company liquidation is converting assets to cash. You then use the cash to pay bills, help pay debts under your company’s bankruptcy, or to take home a few dollars from a failed venture. Sometimes a court of law requires a company liquidation. This happens under several different circumstances. For example, a company is a publicly held and has not been issued a trading certificate within 12 months. On the other hand, the court can force liquidation if a company is an “old public company.” In a third case, the court can require it if a company has not carried out any business transactions within a year of its incorporation. Another situation is when the company is unable to pay its own debts (and likely has filed bankruptcy). Finally, the court may force it if it’s considered a just and decent way for the company to end its business life. Generally speaking, most compulsory company liquidations are due to either the company being unable to pay its debts, or the court considers it the best way to shut the company down. Only occasionally do the other circumstances come into play. Company liquidations can also be voluntary, in the case where members of the company or the owners decide to liquidate it. Often business continues as usual during the company liquidation in this case. |
Chapter 11 Bankrupsy |
If your business is facing hard times,Chapter 11 bankrupsy is a method of claiming bankrupsy which allows you to keep control of your company. With Chapter 11, you can often pull your business out of hard times. Why Chapter 11 Bankrupsy?The law and the government recognize that you have put much more into your business that what somebody else would pay for its parts. For example, you spent hours designing a logo and making changes, to get it just right. However, a logo is not worth anything without your company remaining a going concern. You can't sell it separate from the business. This also applies to other business assets, such as training invested in your staff or managers. You can't resell this, either. That is, you can’t pull it out of a person’s mind and give it to somebody else for a small fee. Many business owners think that Chapter 11 is the shining star that will lead their business from the dark - but it's not so simple. What is Chapter 11 Bankrupsy?Chapter 11 bankrupsy is a way of stopping your creditors from harassing you without liquidating the company to repay debts. This sounds great, but there are catches -- the main one is that you'll need a bankrupsy attorney and it's going to cost you a bundle. Here's why this is bad. In Chapter 11 bankrupsy, a court will supervise reorganizing your company’s debtsl. The court can often provide relief from part or all of your debts, so you can make a fresh start. You have to weigh this benefit against that fact that if you are a small company, a bankrupsy attorney will cost you at least $50,000. If your company is larger, attorney's fees will cost you and your business anywhere between $50,000 and $100,000 and I've seen up to $1million for a medium sized firm. You know what's worse? Your bankrupsy attorney will give you no practical advice about how to change the way you run your business which almost certainly means your business will face trouble again after your high cost bankrupsy is over. In fact, without being too cynical, it would benefit the attorney if another business downturn occurred for you, because they would another fee off you and your business. Why Not Go To Court?Other than the costs, there are other reasons to not file. Going to court for a bankrupsy case is risky business. While you may file for chapter 11 bankrupsy, if your creditors are argumentative enough, they may convince the court to change the proceedings to a chapter 7 bankrupsy hearing. This is especially probable if your attorney is draining all of the company's cash reserves. Under Chapter 7, it forces your company to liquidate – the most severe scenario. The other bad possibility is the court appoints a trustee to run
your business, if for some small reason, the court considers that
you cannot do this yourself. You need to weigh up the possible benefits
of filing a chapter 11 bankrupsy claim against the definite costs
(attorney’s fees) and the possible downsides (you may have
to liquidate and lose control of your company anyway).
How to avoid bankrupsy and business failure.
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