Business Bankruptcy - Chapter 11 - Restructuring of Entities
When a business (such as a corporation, partnership or limited liability company) is unable to service its debt or pay its creditors, the business or its creditors can file with a federal bankruptcy court for protection under Chapter 11.
As opposed to a Chapter 7 filing, where the business is dissolved, under Chapter 11, the debtor in most instances remains in control of its business operations as a debtor in possession, and is subject to the oversight and jurisdiction of the court.
Chapter 11 retains many of the features present in all, or most, bankruptcy proceedings in the U.S. It provides additional tools for debtors as well. Most importantly, Chapter 11 empowers the trustee to operate the debtor's business. In chapter 11, unless a separate trustee is appointed for cause, the debtor, as debtor in possession, acts as trustee of the business.
Chapter 11 affords the debtor in possession a number of mechanisms to restructure its business. A debtor in possession can acquire financing and loans on favorable terms by giving new lenders first priority on the business' earnings. The court may also permit the debtor in possession to reject and cancel contracts. Debtors are also protected from other litigation against the business through the imposition of an automatic stay. While the automatic stay is in place, most litigation against the debtor is stayed, or put on hold, until it can be resolved in bankruptcy court, or resumed in its original venue.
If the business' debts exceed its assets, the bankruptcy restructuring results in the company's owners being left with nothing; instead, the owners' rights and interests are ended and the company's creditors are left with ownership of the newly reorganized company.
All creditors are entitled to be heard by the court. The court is ultimately responsible for determining whether the proposed plan of reorganization complies with the bankruptcy law.
If you have any questions, do not hesitate to contact Tony at (347) 464-8277 or tony@amvasslaw.com.
As opposed to a Chapter 7 filing, where the business is dissolved, under Chapter 11, the debtor in most instances remains in control of its business operations as a debtor in possession, and is subject to the oversight and jurisdiction of the court.
Chapter 11 retains many of the features present in all, or most, bankruptcy proceedings in the U.S. It provides additional tools for debtors as well. Most importantly, Chapter 11 empowers the trustee to operate the debtor's business. In chapter 11, unless a separate trustee is appointed for cause, the debtor, as debtor in possession, acts as trustee of the business.
Chapter 11 affords the debtor in possession a number of mechanisms to restructure its business. A debtor in possession can acquire financing and loans on favorable terms by giving new lenders first priority on the business' earnings. The court may also permit the debtor in possession to reject and cancel contracts. Debtors are also protected from other litigation against the business through the imposition of an automatic stay. While the automatic stay is in place, most litigation against the debtor is stayed, or put on hold, until it can be resolved in bankruptcy court, or resumed in its original venue.
If the business' debts exceed its assets, the bankruptcy restructuring results in the company's owners being left with nothing; instead, the owners' rights and interests are ended and the company's creditors are left with ownership of the newly reorganized company.
All creditors are entitled to be heard by the court. The court is ultimately responsible for determining whether the proposed plan of reorganization complies with the bankruptcy law.
If you have any questions, do not hesitate to contact Tony at (347) 464-8277 or tony@amvasslaw.com.