May 18, 2022
What is Chapter 11 Business Bankruptcy
You probably heard of various company applying for Chapter 11 bankruptcy during distress condition. So what is Chapter 11.
Chapter 11 is designed to allow businesses that can’t pay their debts breathing room to figure out what to do next. Sometimes the process is straightforward. When, say, a restaurant goes under, the work to be done is clear: You tally the value of inventory, sell it off, and then give that money to whomever the retailer is indebted to. Maybe the whole business can be sold in one shot, making things even easier.
A chapter 11 case begins with the filing of a petition with the bankruptcy court serving the area where the debtor has a domicile, residence, or principal place of business. A petition may be a voluntary petition, which is filed by the debtor, or it may be an involuntary petition, which is filed by creditors that meet certain requirements.
Unless the court orders otherwise, the debtor also must file with the court:
- schedules of assets and liabilities;
- a schedule of current income and expenditures;
- a schedule of executory contracts and unexpired leases; and
- a statement of financial affairs.
Pretty Simple …right. But no…….
It gets ugly when it is a big global corporation.
When a big corporation fails , things cannot be treated as food inventory or machinery waiting to be sold. The assets and liabilities of a big corporation are first classified based on some specific criteria. As an example, if that corporation provided mortgage, what is the value of that mortgage. If it is during a bad time like 2008, it might be very little. But how little, specifically? And how much valuation can be recovered by the mortgage insurance. And to make things complex , what is the mortgage consists of bag low credit mortgage.
For big corporation who is global things get nastier
For the same example as above , corporate debts can be referenced to an unit which is located in a different country. Did the parent company have to cover the debts of the foreign unit? How that will impact the law there.
Pretty Complex …huh?
Now if you want to be the high paid living caretaker during the bankruptcy filling , your life is doomed. What if you mistakenly gave money to the wrong person and the foreign court decides that you made a mistake , you are about to be doomed.
