Preparing for a Successful Chapter 11 Bankruptcy
A Chapter 11 bankruptcy — also called restructuring or reorganization — is filed by a company that cannot pay outstanding debts from its current revenue or existing assets. Rather than closing the doors, the company can remain in business by restructuring its debts so that it will ultimately become economically viable. Outstanding debts are repaid, at least in part, over a period of years under the supervision of the bankruptcy court. A Chapter 11 plan must be approved by the court.
Completing a Chapter 11 case can be lengthy, time consuming and possibly adversarial, depending upon how creditors react. Chapter 11 plans can fail for a variety of reasons. Sometimes the plan itself is not realistic and is destined to fail. In other cases, the company does not properly execute the plan. In many instances, the company fails due to changing external circumstances that are beyond its control. In order to maximize the chances of successful completion of Chapter 11, the management should prepare accordingly.
Business owners who plan to file Chapter 11 should have the right mindset. Bankruptcy protection is an essential part of capitalism. If businesses were not allowed to discharge or restructure debts, people would be unlikely to start new companies or to take existing ones in another direction. The risk of running an enterprise would be overwhelming. As a result, our economy would not grow as quickly and innovation would be stifled. Companies who make loans do so to turn a profit and they assume the risk of debtors not paying.
A struggling business should engage an experienced Chapter 11 bankruptcy lawyer. A business restructuring is usually complex. The owners and managers have to supply a large amount of information to the court and to other parties in appropriate formats. In addition, there are a number of filing deadlines that must be observed in creating and implementing a Chapter 11 plan. Experienced bankruptcy counsel can provide the guidance necessary to manage the process from beginning to completion.
Companies planning to file Chapter 11 should inform their various stakeholders. A Chapter 11 case affects creditors, shareholders, and employees. When the stakeholders know about bankruptcy in advance, they are less likely to panic or abandon the company. It is pointless to keep the financial problems a secret. When a Chapter 11 is filed, detailed financial information about the insolvent company becomes public. Ideally, the stakeholders will understand the situation and choose to be a willing participant in restructuring the company so that it stays in business.
The Law Offices of Michael Jay Berger in Beverly Hills is one of the most experienced business bankruptcy firms serving California businesses. If your company is struggling and you are considering Chapter 11, feel free to contact us online or call 310-271-6223 to schedule an initial consultation.