With news that Gawker is filing for Chapter 11 bankruptcy protection after losing a $140 million dollar judgment to Hulk Hogan for defamation, now is a good time to introduce New York businesses to what a Chapter 11 bankruptcy is, and how it may save your NY business.
Chapter 11 of the U.S. Bankruptcy Code is titled “Reorganization,” because it created legal tools for businesses to remain in possession of their assets and restructure so it may continue operating. This is available for all sizes of businesses.
The goal is to obtain permission to reorganize your business based upon a court-approved plan that sets out the terms and duration for debt to be repaid. Plans can include discounted payment amounts, modification of debt, reductions in principal or interest.
Filing a Chapter 11 Petition in U.S. Bankruptcy Court is not a simple matter. That requires your active involvement in terms of time and money. Your business will need an attorney who knows the process, which is long, meticulous and complicated.
For example, the Petition must be accompanied by an affidavit detailing the business’s income, expenses, operations and may require projections. Other documents that must be prepared along with the Petition are balance sheets, profit and loss statements, and cash flow statements. Businesses must also then file monthly operating reports and payment of post-filing taxes promptly with the Court – this is critical because failure to do so may result in the Court converting your action to a Chapter 7 Bankruptcy (Liquidation Proceeding) or even dismissing your case altogether.
In many cases, the Court may allow your business to operate as a “debtor in possession.” But, the business will lose control over major decisions to the Bankruptcy Court, like sale of assets, leasing transactions, shutting down or expanding business operations, and modifying contracts.
Alternatively, the Court may appoint a U.S. Trustee to take over operation if it finds sufficient cause. The role of the U.S. Trustee is to act as a fiduciary for the benefit of creditors. The U.S. Trustee will set up an Initial Debtor Interview, where an appointed U.S. Trustee will confirm your knowledge and understanding of the guidelines of the proceeding. The U.S. Trustee will also send notice to creditors of the proceedings and set up a Creditor’s meeting. Creditors will play a major role in your reorganization plan.
We haven’t even scratched the surface of the Chapter 11 Bankruptcy process – as you can see, it is a complex process that you must have an attorney walk you through.
If your company is becoming insolvent, but you believe that it can still operate if you can get some debt relief, consult with an attorney as soon as you can to see if a Chapter 11 bankruptcy can save your NY business.
*Gene Berardelli may be contacted at: GeneBerardelli@ipglegal.com.
Gene is a New York street-smart attorney with an extreme passion for success. Gene specializes in litigation, arbitration and general corporate law for New York-based and international clients. He, also, is the host of a popular New York talk radio program.
- New York Debt Collection Definitions And Basics
- Buying or Selling A Business? Do Your “Due Diligence”
- When Must Your NY Business Agreements Be In Writing?
- A Good Business Plan May Turn your Startup Into Dollars
- Business Management Basics: Investment Money Is For The Business, Not Strip Clubs
- Vital Agreements Before Starting a Business in the Tri-state Area: Startup Basics