Almost always voluntary in nature, a business bankruptcy is a legal proceeding that is filed by companies in the midst of financial difficulties. There are two types of business bankruptcy processes for which a business can file. A Chapter 11 bankruptcy financially reorganizes or restructures the entity. A Chapter 7 bankruptcy, however, is often a better option for business owners who are seeking to liquidate their business. While either of these types of bankruptcy can be an invaluable tool for companies experiencing financial difficulties, an experienced Oakland corporate bankruptcy attorney can help determine which type of bankruptcy is appropriate for your situation.
Corporate Bankruptcy and Chapter 7
Chapter 7 bankruptcy involves the liquidation of a business debtor’s assets. After filing Chapter 7 bankruptcy, a trustee is selected to take charge of the debtor’s business. Sometimes a trustee will decide to continue to operate the business, but others might take steps to immediately close the operation. A trustee’s primary job involves the collection of any real or personal property associated with the company, which can include accounts receivable, cash, inventory, pending lawsuits, sale proceeds, rights of action, and valuable leases.
Companies are not required to inform stockholders of Chapter 7 filings because stockholders are often not capable of receiving payback of shares that have lost their value.
One of the most common questions asked by company owners who are debating filing for Chapter 7 bankruptcy is whether their stocks or bonds will become worthless. In many cases, stock for a company undergoing Chapter 7 bankruptcy will drop substantially in value.
Chapter 11 and Corporate Bankruptcy
Filing for Chapter 11 bankruptcy allows the managers of the company to continue operating while the bankruptcy process is underway without the interference of creditors. Following a notice and hearing, bankruptcy courts often allow a debtor to sell unprofitable assets as well as take other steps.
As a part of the Chapter 11 process, a reorganization plan will be filed with the company’s secured and unsecured creditors. A reorganization plan will address partial payment of unsecured debts. These reorganization plans often work particularly well for companies that are delinquent on secured debt payments.
While all involved parties are required to accept the reorganization plan, courts will sometimes still accept these plans if it is believed that doing so is fair to all of the involved parties. After a plan is accepted, the court will perform “plan confirmation” during which time the court will determine whether the plan complies with the United States bankruptcy Code. Following confirmation, a company is able to implement its own reorganization plan.
As part of a Chapter 11 filing, the Securities and Exchange Commission (SEC) will review the disclosure document to make sure the company is properly disclosing important facts and that stockholders are properly represented. The SEC might also take legal action if it is determined that the company’s directors are attempting to use bankruptcy to hide from the threat of lawsuits.
Speak with a Knowledgeable Oakland Corporate Bankruptcy Lawyer
If you have questions or concerns about the corporate bankruptcy process in Oakland, reach out to a knowledgeable bankruptcy lawyer right away. At the Law Offices of Melanie Travare, we have helped many people and businesses navigate the bankruptcy process to obtain the results they deserve. Contact our law office today to schedule an initial free case evaluation.