Chapter 11 Reorganization
Can Chapter 11 Bankruptcy Work for Your Business?
The availability of Chapter 11 relief for troubled businesses reflects the general economic truism that a viable business is worth more intact than it is cut up and sold off piecemeal. Chapter 11 gives a troubled corporation the chance to prove that the whole is indeed greater than the sum of its parts, but it's difficult, cumbersome and expensive.
If your company of any size is faced with financial challenges of a nature that indicate a chance of survival if you can buy time, the bankruptcy attorneys of The Fried Law Firm can evaluate your situation and advise you. Our experience with Chapter 11 bankruptcy and the resolution of complex business debt and tax problems makes us a sound choice as debtor's counsel in a Chapter 11 situation. Contact us in Bethesda to learn how our experience and insight can benefit you.
How does Chapter 11 reorganization work?
The entity filing for Chapter 11 relief becomes a debtor in possession responsible for the administration of assets and debts for as long as the case continues. The debtor has a limited amount of time in which it has the exclusive right to file a plan of reorganization. A majority of creditors within each class of claims must approve the plan. These are generally negotiated ahead of time so as to obviate the suspense involved in confirmation, the ultimate goal of a Chapter 11 case.
Confirmation of a plan generally depends on finding a way to protect the premium of value represented by the going concern as opposed to the sum of its assets. There are many approaches to protecting this value — selling off unprofitable portions of the company, reducing overhead, improving management, and perhaps most commonly, finding a new source of capital to support continuing operations.
Absent any of these, the trick is to convince a majority of creditors (and such key creditors as mortgagees, secured lenders and the IRS) that the company's fortunes will improve significantly during a period of protection from its creditors.
Obtaining creditor or court permission to commit your cash flow to reorganization rather than short-term or secured debt is always a key step in a Chapter 11 case. If your case goes well, you'll even win confirmation by convincing creditors to trade their claims for an equity position in the reorganized company. This dilutes the current equity interests, but certainly beats getting wiped out.
Most Chapter 11 cases fail. If you can't extend your period of exclusivity for filing a plan or find the capital you need in the meantime, impatient secured creditors will move the court for permission to foreclose on collateral or convert the bankruptcy case to Chapter 7 liquidation. A trustee is appointed to relieve the debtor of possession, and the end is nigh.
At The Fried Law Firm, our focus on distressed business workouts, bankruptcy and complex tax problems over the last 25 years allows us to see your situation clearly and whole. If your company has a fighting chance to emerge in one piece from Chapter 11, we'll advise you accordingly and go right to work. If we see no plausible way that you can protect the going concern value of the business in the time you'll have available, we'll spare you the rigors and expense of a Chapter 11 case and advise liquidation or an alternative means of dissolution.
Call 866.439.0886 to see if Chapter 11 makes sense for your company
For smaller businesses, Chapter 11 often works best if you face acute pressure from a single creditor — the IRS, a commercial landlord, or a secured lender with problems of its own. For larger companies, reorganization in bankruptcy can be extremely complicated, and a clear understanding of your options will require close legal and financial advice.
Contact a lawyer at The Fried Law Firm in Bethesda if you need to find out whether Chapter 11 might represent a realistic option for your business.
