Bankruptcy
Like individuals, businesses experience financial difficulties. In fact, a struggling business is often connected to the financial difficulties of an individual. When a business files for bankruptcy (partnership, LLC or corporation), the entity has to retain the services of an attorney. If the business is a sole proprietorship, the business assets and liabilities are treated as those of the owner.
The filing of the bankruptcy petition triggers the “automatic stay.” During the automatic stay, creditors are prohibited from continuing collection activities absent a court order.
A business can also file bankruptcy under Ch. 7. When that happens, the trustee takes over the operation of the business. Just like a consumer Ch. 7 bankruptcy, the assets of the business are liquidated in favor of the creditors and the business ceases to exist.
Ch. 11’s goal is the rehabilitation of the business and the maximization of the funds for the creditors. However, unlike a Ch. 7, in a Ch. 11, the debtor steps into the shoes of the trustee (referred to as a “debtor-in-possession”). The DIP has all the powers, rights, obligations, and duties of a trustee.
Other benefits of Ch. 11 include the ability to reject commercial leases or contracts, refinance existing debt and the sale of assets clear of any liens (a/k/a a “363 sale”).
Recently, Congress enacted the Small Business Reorganization Act of 2019. The Act provides for 90-days to formulate a plan of reorganization, there is no creditor committee like with large Ch. 11s (e.g., General Motors) just a single trustee and the bankruptcy court has the power to approve the plan without a need to obtain approval from the creditor committee like with large Ch. 11s (e.g., Lehman Brothers).
A small business is defined as one with less than $2.7 million debt; however, Sec. 1113 of the CARES Act increased the debt limit to $7.5 million (excluding debts owed to 1 or more affiliates or insiders).
Our team assists business clients implement the best strategy for restoring their businesses to profitability by reducing debt and streamlining operations. Please contact us today for a consultation with a Widerman Malek bankruptcy attorney by calling us at 866-311-1994 or complete our contact form.
