Volatile markets, up and down exchange rates and the worldwide recession have seen to it that many enterprises have landed in a position where they find it difficult to survive. In some cases companies became unable to continue trading because they are unable to pay their creditors. In such cases either the company in trouble or its creditors can approach the bankruptcy court. In some cases, when applying for a chapter 11 reorganization NJ businesses can win time to return to a financially stable position.
Section seven of the bankruptcy act is more commonly applied, in which case the court appoints a trustee that immediately takes control of all the assets of the applicant. If the applicant is a business, then trading is normally halted immediately and all employees lose their jobs. The assets of the applicant are sold on an open auction and the proceeds are divided between the creditors.
Section eleven in totally different. This section makes provision for the recovery of applicants, albeit under the supervision of the court. The applicant continues to run his business and he can even negotiate for financing and he can enter into contracts with clients and suppliers. The idea is that the applicant is given breathing space to restructure the business and to return to profitability.
A section eleven application is not easily approved by the courts. The applicant must convince the court that they have the potential to return to profitability. The court may consult with various experts before coming to a final decision. Even if the decision is granted the court will require periodic feedback and the time allowed for the restructuring is limited. However, during this time the applicant is protected against his creditors.
Applicants are protected in many other ways. During the restructuring the company may not be sued by creditors. If creditors are also under financial pressure because they have not been paid they have no option other than to approach the court themselves. In some cases the applicant is also allowed to declare previous agreements with clients and suppliers null and void, but only if such agreements are hindering the restructuring process.
Before an application is approved the applicant has to submit detailed business plans. These plans must spell out the steps that applicant intends to take in order to make sure that the business recovers. The plans must also make provision for honoring the debt that triggered the application in the first place. Creditors have access to these plans too, and if they consider them to be unrealistic they may approach the court.
There are numerous critics that consider this law to be extremely unfair to the creditors of the applicant and contractors that supplied it with goods and services. Contractors may lose contracts without being consulted and creditors are often small businesses that simply cannot afford the loss of cash flow. In most cases the victims of a section eleven approval have no or very little recourse.
When a large business fails everybody loses. The purpose of the law is to try everything possible to save jobs and to make sure that key industries remain operational. If a few smaller businesses and some individuals suffer in the process it is deemed an unfortunate sacrifice that will have to be made for the good of the industry as a whole.
Section seven of the bankruptcy act is more commonly applied, in which case the court appoints a trustee that immediately takes control of all the assets of the applicant. If the applicant is a business, then trading is normally halted immediately and all employees lose their jobs. The assets of the applicant are sold on an open auction and the proceeds are divided between the creditors.
Section eleven in totally different. This section makes provision for the recovery of applicants, albeit under the supervision of the court. The applicant continues to run his business and he can even negotiate for financing and he can enter into contracts with clients and suppliers. The idea is that the applicant is given breathing space to restructure the business and to return to profitability.
A section eleven application is not easily approved by the courts. The applicant must convince the court that they have the potential to return to profitability. The court may consult with various experts before coming to a final decision. Even if the decision is granted the court will require periodic feedback and the time allowed for the restructuring is limited. However, during this time the applicant is protected against his creditors.
Applicants are protected in many other ways. During the restructuring the company may not be sued by creditors. If creditors are also under financial pressure because they have not been paid they have no option other than to approach the court themselves. In some cases the applicant is also allowed to declare previous agreements with clients and suppliers null and void, but only if such agreements are hindering the restructuring process.
Before an application is approved the applicant has to submit detailed business plans. These plans must spell out the steps that applicant intends to take in order to make sure that the business recovers. The plans must also make provision for honoring the debt that triggered the application in the first place. Creditors have access to these plans too, and if they consider them to be unrealistic they may approach the court.
There are numerous critics that consider this law to be extremely unfair to the creditors of the applicant and contractors that supplied it with goods and services. Contractors may lose contracts without being consulted and creditors are often small businesses that simply cannot afford the loss of cash flow. In most cases the victims of a section eleven approval have no or very little recourse.
When a large business fails everybody loses. The purpose of the law is to try everything possible to save jobs and to make sure that key industries remain operational. If a few smaller businesses and some individuals suffer in the process it is deemed an unfortunate sacrifice that will have to be made for the good of the industry as a whole.
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