Public companies, in New Hampshire and elsewhere, sometimes find themselves deeply in debt. When this occurs, the business cannot operate efficiently. It may lose its line of credit or be unable to pay its employees. In these cases, a company has the option of declaring Chapter 7 or Chapter 11 bankruptcy. These are federal laws designed to protect creditors’ rights while helping a company to either get back on its feet or close its doors.
A Chapter 7 bankruptcy means that the company will be going out of business. The court appoints a trustee to sell the company’s assets. The money that is raised is used to pay creditors. Bankruptcy law determines the order that creditors are paid. In general, secured creditors are paid before unsecured creditors, and the owners of the company are repaid last.
When a company declares a Chapter 11 bankruptcy, this means that it is going to continue operating in the hopes of becoming profitable again. The company tries to improve its efficiency by “reorganizing” its operations. The bankruptcy court supervises and oversees this process. While a company is in Chapter 11, all major business decisions must be approved by the bankruptcy court. Sometimes, the business is successful in its reorganization. Other times, it fails and proceeds to Chapter 7.
Chapter 11 bankruptcy is not a way to avoid paying creditors. It is an opportunity for a business to have a fresh start. This benefits the community. If the company is successful in its Chapter 11 reorganization, then its employees will continue to have jobs. Chapter 11 is a chance to rescue businesses that are struggling but still have the potential to succeed.
Source: U.S. Securities and Exchange Commission, “Corporate Bankruptcy“, November 07, 2014
