A business reorganization or liquidation often becomes necessary when a company experiences any number of the following: inability to pay creditors, meet payroll, or service debt; loss of crucial customers or suppliers; inability to fund defense of lawsuits or other creditor actions; operational problems; need for a quick sale of assets free and clear of liens; or default or maturing of a commercial loan.
Corporations, limited liability companies and partnerships can use chapter 7 for liquidation of their businesses. The business operations cease, a chapter 7 trustee will take control of the business, and such trustee will sell non-exempt assets or try and recover assets for distribution to creditors.
In a Chapter 11, the business will generally remain in control unless a trustee is appointed for cause (mismanagement or wrongdoing). The chapter 11 debtor is always subject to the oversight of the bankruptcy court and the United States Trustee, and creditors are entitled to be heard throughout the process. A complete discussion of the benefits of chapter 11 would be impossible; however, some of the key advantages include the ability to complete quick sales of assets free and clear of liens, stop most lawsuits and creditor actions by the automatic stay with exceptions; avoid certain pre-bankruptcy transfers; and reject burdensome contracts and leases. Businesses can use Chapter 11 for reorganization or liquidation.
Involuntary Bankruptcy Proceedings
The Bankruptcy Code provides that a person, partnership or corporation can be forced into an involuntary chapter 7 or 11 under certain circumstances. Ms. Mehdipour has defended businesses that have been forced into involuntary bankruptcy proceedings by their creditors. On the other side, she has represented those persons or companies doing the pushing (or those creditors who have placed the business into an involuntary bankruptcy). That process involves defending the involuntary bankruptcy with the ultimate goal of dismissal. Because creditors that force businesses into bankruptcy for the wrong reasons will be subject to penalties, this mechanism must be carefully evaluated.