Friday, September 21, 2018

Why Do So Many Companies Seek Bankruptcy?

by emgreen (writer), , December 05, 2015

This goes over the reasons that companies might seek bankruptcy.

The number of companies involved in bankruptcy proceedings has somewhat increased, despite a fairly healthy stock market and growing economy. One of the factors that has had a serious effect many companies is a drop in crude oil prices. Some lenders have also tightened their requirements, making troubled companies less likely to borrow money.

Why Do Attorneys and Restructuring Professionals Matter?

Companies faced with the prospect of bankruptcy frequently turn to attorneys like Suzzanne Uhland, who specialize in bankruptcy and restructuring. When companies file for bankruptcy, the type of bankruptcy they need to file for and what they need to do largely depends on the circumstances. This process is one that most prefer not to undertake without the help of a lawyer.

What Happens During Reorganization?

Chapter 11 is the type of bankruptcy that many associate with companies that are trying to recover from their financial difficulties. One of the things that makes this option attractive is the fact that the company is restructured rather than liquidated. The existing owners and managers can still run the company on a day-to-day basis. When they must make major decisions that affect the company, the court must approve the decision.

Other Advantages of Chapter 11

Company owners have a greater degree of control over the bankruptcy, ensuring that they don't feel as though everything is out of control. Rather than being a force that dissolves a company, this type of filing makes rehabilitation possible. Many company owners successfully restructure their companies and find that they can still have a good profit.

The Impact on Securities

One of the things that many people, particularly investors, are concerned about is whether the stocks and bonds are still available for trading. Chapter 11 offers the advantage of allowing stocks and bonds to stay on the securities market, increasing the possibility of extra profits. The company still has a legal obligation to report to the SEC.

How Do the Courts Keep Companies in Line?

A concern that many people have is whether companies that file for bankruptcy must correct their financial and managerial practices. The US Trustee resolves that issue by having at least one committee to represent creditor interests. It is also necessary for the bankruptcy court to approve or deny restructuring plans. The SEC must receive a detailed report on the reorganization.

Can Reorganization Lead to Meaningful Recovery?

A lot of what determines whether Chapter 11 enables better recovery depends on the restructuring plan. There will be some changes that have a larger effect, such as laying off employees or firing them altogether. It may be difficult to tell right away if the reorganization will have any meaningful effect in the long run. Much of the level of success will have to be determined over time.

When companies reorganize, they have hopes for their future. Although things may look bleak at the time of the bankruptcy filing, this action may provide the fresh start that troubled companies need. Company owners facing difficulties will appreciate having a clearer idea of what options are available.

About the Writer

emgreen is a writer for BrooWaha. For more information, visit the writer's website.
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