A business generally files for Chapter 11 bankruptcy in order to reorganize and restructure its debts. Chapter 11 allows a company to stay in business without having to liquidate its assets. As part of a Chapter 11 plan, a company will disclose its assets and submit a list of creditors. A creditor’s committee will then oversee the payments to the creditors.
Chapter 11 is a bankruptcy option available to corporations, sole proprietorships, and individuals, although it is usually filed only by larger corporations or businesses due to the complexity involved. It allows a troubled company to stay in business and conduct its normal operations, including selling stock. However, while in Chapter 11, the business owners cannot expand the company, sell off property or equipment, or buy other companies without the permission of the court.
A Chapter 11 plan begins when the bankruptcy papers are filed. At that point, if gross mismanagement or fraudulent activities have occurred, the court may appoint a trustee and take control of the company away from the owners.
The business owners will also need to create a plan to restructure the company’s debts and expenses. Restructuring sometimes requires stores to close and employees to be laid off.
When the details of a Chapter 11 plan have been developed, the stockholders will put the plan to a vote. In some situations, the court may continue with the bankruptcy plan even if the stockholders vote against it.
If the owner of the company does not follow the terms of the plan, then either a trustee will be appointed or the bankruptcy will become a Chapter 7, which means the end of the company and the liquidation of its assets.
If your company is struggling with debt, there are many benefits to creating a Chapter 11 plan. If you need to file for bankruptcy to help your business to become more profitable and to dispose of bad debt, you should strongly consider speaking with an experienced attorney for guidance and advice.