Chapter 11 Bankruptcies — Businesses

With the extreme disruption to the economy in recent months due to the Coronavirus Pandemic, individuals, professionals and small businesses have been having a difficult time finding credit to fund ongoing operations. This has exacerbated a problem that is typical of small businesses – obtaining the cash flow required for their operations. Many of our clients have very successful businesses that have been very profitable over time, but are now experiencing cash flow problems due to declines in revenue. Other clients have had successful businesses on the brink of failure due to some poor business decisions or lack of attention to legal or fiscal matters. And some clients have had businesses that just didn’t work and needed to be closed or restructured in order to succeed. Often the appropriate solution to a client’s problem is beyond their ability due to the complexity of the issues involved in restructuring liability. No matter how complex a financial problem may be, our lawyers have the requisite knowledge and experience to resolve it.

• Workouts
• Chapter 11 Business Bankruptcy
• Dissolution of a Business and Business Chapter 7 Bankruptcies

Workouts

For many businesses and professionals, a lack of liquidity or inability to grow due to creditor demands keeps them from successfully resolving their financial problems. As banks and other creditors begin to call loans due, clients begin to have difficulty juggling between them.  As these businesses and professionals’ cash dries up, so does their ability to keep their creditors content.  Once liquidity becomes an issue, clients do not have the time or know-how to work with creditors to restructure the liability into a more manageable plan and run their businesses at the same time.

Our firm begins by analyzing a client’s financial situation from the top down. We begin by reviewing the client’s financial information to determine their current financial position. We then analyze the client’s liability from all aspects, including:  a) how much liability they owe; b) the type of liability and its aggregate amount; c) the urgency associated with particular liability; and d) any inchoate (hidden) problems that the client might not realize.  After conducting this analysis, we then begin negotiating with the client’s creditors to restructure their lilability so that they can more effectively run their business while meeting financial obligations.

In some cases, the problems with a business may be just as much internal to the business as external to it. In these cases, we guide our clients through a complete restructuring of their business from the top down. Often, this allows the client to accomplish the same goals as would be accomplished through a liability restructuring or a Chapter 11 bankruptcy.

To the extent that no negotiation or restructuring of the business is successful, a Chapter 11 bankruptcy or dissolution of the business may be an option.

If you’re ready to speak with a professional, simply fill out our contact form and we’ll schedule a time to talk about your situation.

Chapter 11 Business Bankruptcy

In some cases, a client’s problems have become so dire that the only way to reorganize the client’s financial situation is through bankruptcy.  For professionals and businesses, this typically means a Chapter 11 bankruptcy. There are many reasons why a client may need to file a Chapter 11 bankruptcy.  Most often, this is because a client’s creditors have become so aggressive that no negotiation will stop them from taking damaging collection action or the client has allowed the problem to develop to a point that drastic action is needed to prevent the loss of cash or property. 

Chapter 11 is the chapter of the United States Bankruptcy Code that governs the process of reorganization under the bankruptcy laws of the United States.

Alternatively, Chapter 7 governs the process of a liquidation bankruptcy. The purpose of a Chapter 11 bankruptcy case is generally to permit the rehabilitation and reorganization of the debtor’s business.  The Bankruptcy Code allows the debtor to accomplish this task by creating an “automatic stay” – a cash flow dam – that prevents creditors from taking collection action against the debtor, including filing lawsuits, obtaining judgments, collecting on levies and garnishments and other actions that could cause cash to flow out of the business without the debtor’s consent.

The theory of Chapter 11 bankruptcy is that the value of a typical business as a reorganized going concern is substantially more than the value of its assets if sold individually. For that reason, Chapter 11 allows a troubled business to continue operating, cancels some of its liabilities, and transfers some or all of the newly reorganized company to the creditors whose liabilities were canceled. If the company is reorganized, rather than liquidated, jobs may be saved, assets are retained, and the remaining creditors and equity participants may have smaller losses than if the company is dismantled.

One of the principal benefits of a Chapter 11 bankruptcy is that it allows a debtor to keep all or a portion of the its assets; it is unlike Chapter 7 which permits the retention of only a limited amount of the individual debtor’s “exempt” property (businesses are not allowed to exempt property under the United States Bankruptcy Code). Rehabilitation of the debtor’s business is accomplished through the creation of a Chapter 11 Plan that provides for the treatment of all claims against the debtor and the terms that will govern reorganization of the debtor’s financial structure and operations. In most instances, the debtor’s Chapter 11 Plan will be the result of a consensual arrangement between the debtor and its creditors and equity security holders. 

However, Chapter 11 does have certain provisions that allow the debtor to impose its Chapter 11 Plan on dissenting claimants in certain circumstances.

The court can grant complete or partial relief from most of the company’s liabilities and its contracts so that the company can make a fresh start. In many cases involving large business enterprises or publicly held companies, the result of the Chapter 11 reorganization is the transfer of all or a substantial portion of the company’s equity ownership from its prior owners (stockholders) to its bondholders and other creditors.  In those cases, the company’s creditors accept ownership of the company in lieu of payment on its claims in the hopes that it will eventually succeed financially and provide them with compensation for their losses. The debtor can also elect to terminate certain contracts and leases. Typical liabilities and contracts canceled in a Chapter 11 bankruptcy include unsecured loans, union contracts (when cancellation would be financially favorable to the company), supply or operating contracts (involving both vendors and customers), and long-term real estate leases.

After filing a Chapter 11 and obtaining plan confirmation, the company may emerge from bankruptcy. Sometimes this takes only a few months, in other situations it may take several years. At times, the process can be long and complex, and at times, the reorganization fails and the company is liquidated, but the goal of Chapter 11 is to preserve the ongoing value of the business enterprise, preserve jobs and assets, and to result in a new reorganized, healthy business.  To help small businesses needing to reorganize under Chapter 11, Congress has recently enacted the Small Business Reorganization Act which makes it much easier and less expensive for many small businesses to reorganize under Chapter 11.  

To learn more, contact our firm to request a consultation to discuss your situation and see how filing for Chapter 11 might impact your financial situation.

Dissolution of a Business and Business Chapter 7 Bankruptcies

As in the field of medicine – where further treatment may be deemed “medically futile” – in the field of financial restructuring, it sometimes becomes apparent to the practitioner that no negotiation, bankruptcy plan or other action will solve the business’ financial problems. Accordingly, the only solution is to allow nature, financially speaking, to take its course.  Again, as in medicine, the goal is to make sure that the death of a business causes as little pain to the business, its employees, and its owner(s). 

Daniel Rosefelt, Attorney & CPA has years of experience in helping businesses close their doors in the manner that is most advantageous to the owner(s) of the business with the least amount of impact possible on its employees.  Typically, this takes the form of an orderly winding up of the business’s affairs until the ultimate dissolution of the business.  Alternatively, we may determine that a Chapter 7 bankruptcy to liquidate the business’ assets is appropriate. In either event, we endeavor to limit the impact on the owner’s personal life and finances.

Daniel Rosefelt Attorney & CPA has extensive experience in guiding individuals and businesses through bankruptcy minefields. Daniel Rosefelt, Attorney & CPA has also helped many taxpayers solve both their tax and financial problems through the bankruptcy process. In addition to his law degree, Mr. Rosefelt is a Certified Public Accountant, former Adjunct Professor of Law, and has published articles concerning bankruptcy tax relief in national tax journals. Mr. Rosefelt has also spoken to a variety of professional tax and accounting organizations nationally about the discharge of taxes in bankruptcy and the treatment of federal tax liens and levies in the bankruptcy process. 

Looking for a Maryland, Washington DC or Florida bankruptcy attorney? With offices in Bethesda, Maryland and Saint Petersburg, Florida, Rosefelt Tax Law routinely helps clients in Maryland, Washington, DC and Florida.  Contact Rosefelt Tax Law to learn more about our services and for an initial case review. Contact us by calling our offices at 866-995-0061 or completing our Contact Form contained on this website.