Corporate Bankrutpcy Attorneys

When a public company files for bankruptcy under federal bankruptcy laws, there are many complex and complicated issues to consider. What can happen to the company? Can the company continue to do business, or is it automatically liquidated? What about investors, vendors, and others that may have an ownership stake in the company? And those questions just scratch the surface.

In a broad stroke of explaining a corporate bankruptcy, when a company is faced with crippling debt, a downturn in the business and/or business climate and is unable to continue to be profitable a decision must be made about that company’s future. Generally speaking, the federal bankruptcy laws govern and dictate how a company handles going out of business or dealing with overwhelming debt. Depending upon the dynamics of the company, the debt, the assets and the company’s viability to continue to try to business will help to steer the decision to either Chapter 11, or "reorganization" or Chapter 7, "liquidation.

The bankrupt company, also known as the "debtor" can file Chapter 11 of the Bankruptcy Code to "reorganize" its assets and business and continue to do business. While the management continues to handle the small, dailiy details of the business, the bankruptcy court must approve of any large scale business decisions. The company’s stocks and bonds may still continue to be traded with the oversight and involvement of the SEC (Securities and Exchange Commission). Meanwhile, a plan is developed that will be the potential blueprint as to how the company will deal with the debt and emerge from the reorganization as a viable, healthy business once again.

That plan that is developed to get the company out of debt and back to profitability must be approved by the creditors, stockholders and bondholders and, of course, confirmed by the court. However, the court could confirm the bankruptcy without the approval of the other parties if they feel that the plan would be fair and actionable.

And, of course, a company may begin the Chapter 11 bankruptcy process and still end up liquidating if it is unable to turn the business around and become profitable.

The company can also file Chapter 7 of the Bankruptcy Code and cease all business operations. The court appoints a "trustee" to liquidate the company’s remaining assets to pay off debt that is owed to creditors and investors. All administrative and legal fees are paid first, then the creditors and/or investors.

In this case, after legal fees and administrative fees are handled, how are the investors paid?

1. First in line are the investors who the secured creditors because they extended the credit to the company based off of tangible assets of the company.

2. Bondholders are typically next in line as the bonds actually represent the debt of the company. The company issues the bonds with the pledge to pay interest and return their principal. The full principal may not be paid back, however, depending upon the liquidation.

3. Stockholders are next. While they own a stake in the company, it is done with much more risk. So when the company is doing extremely well, so does the shareholder. Unfortunately, when the company does poorly, or goes under, the shareholder stands to lose money, or receive nothing at all.

4. Last, but not least, are the owner(s) of the company. They would be the last to be paid if the company goes bankrupt.

This is a very broad recap of how a corporate bankruptcy works. If you, or you company, is looking into a corporate bankruptcy, you should talk immediately to a bankruptcy attorney. If you have concerns that you are doing business with a company that may be on the verge of bankruptcy, or a company that is in bankruptcy, you also have rights and should contact a bankruptcy attorney or securities attorney. If there has been any fraud involved you should know your legal options. Furthermore, if you have questions about a company entering bankruptcy or in bankruptcy and you own stocks or bonds in that company you can contact the company’s investor relations representatives, the broker who sold you your investment, even contact the bankruptcy court hearing the company’s bankruptcy. The bottom line is that a reputable bankruptcy attorney can help you understand your options whether you are the owner of the company, a vendor of the company, or an investor.