Small Business Bankruptcy
Small businesses have been hit especially hard by the economic difficulties of the last few years. When considering bankruptcy, companies should keep the following things in mind:
Corporations, limited liability companies and partnerships are legal entities separate from their shareholders or partners. They can file Chapter 7 or Chapter 11 bankruptcy in their own right.
Proprietorships are an extension of the individual owner(s). They can’t file for bankruptcy in their own right. Rather, the proprietor must file bankruptcy because the assets and liabilities of the business are really assets and liabilities of the proprietor. The individual owner may file Chapter 7, Chapter 11 or Chapter 13 (if the debt limits are met).
Should the business be reorganized or liquidated?
The next question to ask is whether the business can and should be reorganized or whether it is best to liquidate. To answer this question, you have to know what caused the problems the business now faces and what are the prospects for change: Reorganization can’t create a market, increase gross revenue, or make up for a poor fit between the skills available and the skills required to run the business.
Reorganization could free up cash from servicing the old debt to permit current operations, permit rejection of leases or contracts that are no longer advantageous (an expensive facility lease or improvident equipment purchase), or prevent the loss of vital assets or cash to creditor collection actions.
Alternatively, a liquidating Chapter 11 or Chapter 13 could provide breathing room for the business assets to be sold as a going concern, as opposed to a Chapter 7 type of fire sale. The resulting proceeds could pay taxes or unpaid salaries; sale of the business could provide ongoing jobs for the work force under new ownership. The bankruptcy could then be converted to Chapter 7 or dismissed if bankruptcy protection is no longer needed. The court will probably condition dismissal of the case on payment to creditors of the sale proceeds.
Allow us to review your business’s financial situation during a free consultation and determine the best course of action for your company. Contact us by emailing Moretsky Law today or calling for a free consultation.
We serve clients throughout Philadelphia, Montgomery, Bucks, Delaware and Chester counties.