The basics of Chapter 11 proceedings for businesses

On Behalf of | Mar 18, 2020 | Business and commercial bankruptcies |

Businesses have many moving parts, and sudden disruptions or changes can throw everything into chaos. Anything from a sudden sharp decline in the supply of key components for a product you make to decrease in consumer demand because of social isolation protocols could leave your company with more operating expenses than income. 

Once your business’s debts reach a point where creditors want to come calling, your business may have to start making difficult decisions. Filing Chapter 11 bankruptcy allows your company a chance to restructure and take responsibility for its debt without necessarily closing the business.

Chapter 11 bankruptcy involves restructuring and repayment

What a business files for Chapter 11 bankruptcy, the courts will appoint a trustee who will manage meetings of creditors and help create a plan for the business. In addition to the business restructuring itself, it is a common practice for businesses to also restructure their debt by renegotiating contracts and prioritizing certain expenses over others. 

The company should file a reorganization plan that will work in the best interest of its creditors. If it does not, the creditors could potentially work together and propose a plan of their own. Under this plan, the business will prioritize certain spending and debts while attempting to streamline operations and make its way back to generating a profit. Sometimes, it also becomes necessary to reduce the workforce, close certain facilities or even liquidate some assets. 

For businesses currently struggling that have the potential to recover in the future, Chapter 11 bankruptcy proceedings could be a way to manage currently overwhelming levels of debt and give the business an opportunity to change and adapt to the current market.