Wednesday, February 11, 2009
BANKRUPTCY CHAPTER 11
Bankruptcy Chapter 11 is a kind of bankruptcy that is reserved for public limited companies. It is also known as corporate bankruptcy. Through this process an organization which is debt ridden can restructure its debts and can again try to be profitable.Most of the public limited companies will choose to file for Chapter 11 rather than Chapter 7 as Chapter 11 gives the company an opportunity to continue its operation so that if possible the company can turn around and pay back its creditors. Sometime it is found that the company regained its profitability and in some other cases it liquidates in the end. In Chapter11 bankruptcy a company can continues its operation and its share can continue to trade on in the OTCBB or the Pink Sheets. However the company is de-listed either from NASDAQ or from NYSE (New York Stock Exchange).And as the company is still carrying on with its operation, it must update its information about its development in SEC’s report.
Here, the court appointed trustee appoints one or more committees to stand for creditors and
stock holders so that they can sit with the company to work out a plan of reformation in order
to get rid off debt. The plan must be acceptable by the creditors and other stock and bond
holders and approved by the court. If the plan is not accepted by the creditors then also court
can approve it if according to the court the plan is proper for the creditors and stockholders.
When the plan gets the court’s approval it is to be mentioned in the SEC on Form-8k.
stock holders so that they can sit with the company to work out a plan of reformation in order
to get rid off debt. The plan must be acceptable by the creditors and other stock and bond
holders and approved by the court. If the plan is not accepted by the creditors then also court
can approve it if according to the court the plan is proper for the creditors and stockholders.
When the plan gets the court’s approval it is to be mentioned in the SEC on Form-8k.
This is how Chapter 11 works. This is more complex than other types of bankruptcy and
undoubtedly the most expensive. It provides the debtor an opportunity to make a new start. It is the last resort for a company and should be considered after analyzing other alternatives.
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