For a small business owner whose finances
are spiraling out of control, corporate
Chapter 11 bankruptcy may seem like the
only answer. While corporate Chapter
11 bankruptcy looks like a good solution,
most business owners should consider
several other choices before going to
this extreme. If you have explored all
other possibilities and have decided
that corporate Chapter 11 bankruptcy
is the best choice for you and your business,
here are a few basics you should know.
What Happens to My Business When I File
Corporate Chapter 11 Bankruptcy?
When you file corporate Chapter 11 bankruptcy,
your business continues to run as usual
but there is an important change. You
have some new partners. A bankruptcy
court must approve all significant business
decisions you make for your company.
Although the court protects your business
from creditors, the goal of corporate
Chapter 11 bankruptcy is keep your business's
doors open while you pay off your debt.
Therefore, the bankruptcy court oversees
your business decisions to ensure you
are working toward meeting that goal.
How Do I Form a Plan When Filing Corporate
Chapter 11 Bankruptcy?
When you file corporate Chapter 11 bankruptcy,
the judge will order you to create a
reorganization plan that details how
you intend to get out of debt. If you
have shareholders, they, along with your
creditors and bondholders, get to vote
on your plan. Even if they reject the
plan, the court can still put the plan
in place if it feels it is fair to all
involved.
Can My Securities Still Be Traded if
I File Corporate Chapter 11 Bankruptcy?
If you own a publicly traded business,
you can still trade securities even after
filing bankruptcy. Because of the listing
standards upheld by the New York Stock
Exchange and the Nasdaq, you probably
won’t be able to be traded in these
venues. You can, however, still be traded
on the Pink Sheets or on the OTCBB. The
likelihood of having someone buy securities
in your company after filing corporate
Chapter 11 bankruptcy is low, however,
because the risk of loss is so high.
Why Wouldn’t I Want to File Corporate
Chapter 11 Bankruptcy?
While filing for corporate Chapter 11
bankruptcy may seem like the logical
response to a failing business, there
are several reasons to avoid it. First,
it puts a huge black mark on your record
with your creditors. You will have difficulty
overcoming this. Second, it destroys
your business relationships. Will your
business customers and suppliers view
you the same way? Probably they will
not. Third, and most importantly, approximately
90% of businesses that file corporate
Chapter 11 bankruptcy end up liquidating
their assets and going out of business
when it comes time to the bankruptcy
attorney. So, be sure to explore every
other option available before taking
this drastic step.
What
to consider when deciding on
business restructuring and chapter
11.
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