There are several ways we address financial problems business face.
Chapter 11 and Small Business Bankruptcy – Subchapter V
Chapter 11 is the bankruptcy remedy for business problems. Under chapter 11,we formulate a plan for payment of some or all business debts over a period of time. The plan is binding on all creditors as long as a majority in number and two-thirds in amount vote for the plan. All chapter 11 cases are handled under strict supervision of the court. A trustee or creditors’ committee might be appointed but in small business bankruptcy, there is no creditors committee. And in Subchapter V bankruptcy, the trustee’s job is to facilitate a plan. We have enjoyed success in representing small and medium sized businesses in chapter 11.
Read more about chapter 11 here:
Chapter 11 – Bankruptcy Basics | United States Courts (uscourts.gov)
Assignments for the Benefit of Creditors
Companies an avoid bankruptcy by making an assignment of all their assets to an assignee who will liquidate them for the benefit of creditors. In Illinois, there are no statutes that address this. It is a “common law” process. A general assignment for the benefit of creditors creates an express trust with the assignee acting as trustee. Since 1839, the Illinois Supreme Court has recognized the validity of common law assignments.
The assignee must sell or liquidate assets, usually in an auction process. Creditors get paid pro rata from the proceeds of sale. Sometime, the owner of the debtor company may organize a new venture with new capital to bid at the auction thereby regaining control of the company. If there are no competing bids or the new venture makes the highest bid, the new venture might be able to take over where the old company left off. We have to address possible “successor liability” claims but frequently, this concern can be overcome.
Orderly Liquidation Under the Illinois Business Corporation Act
Illinois law allows a corporation to liquidate and wind up its business without bankruptcy. This is done through Article 12 of the Business Corporation Act. The fee for this is rather low. All creditors are given a chance to file claims. The corporation closes down and the officers and directors liquidate assets. Then they pay a pro rata dividend to the creditors who file claims. When this process is handled effectively and efficiently, it is a much better alternative to chapter 7 bankruptcy for most corporations.
Chapter 7 Bankruptcy
Sometimes, liquidation under bankruptcy with the appointment of a trustee is the only answer. It is the last resort and we don’t usually recommend this as there are many other ways of finalizing a corporation’s affairs. If you insist on this approach, we will counsel you about it and advise you of the alternatives that are available.