There are many reasons why companies fold. In some cases, economic conditions simply make it impossible to cope. Others make mistakes or miscalculate trading situations. Yet others become the victims of aggressive competitors. Whatever the reason, when a company becomes unable to honor its financial obligations, it is in serious trouble and may even be bankrupted. The laws governing insolvency are complex. For a chapter 11 reorganization NJ businesses need to fulfill very strict criteria.
There are different sections of the bankruptcy law. Section eleven is much different from the better known section seven. In the latter case the applicant will have to forfeit all assets. If the applicant is a business all trading is stopped and in most cases the assets are sold to pay the debts of the applicant. The court appoints a trustee to handle the matter and the interests of the creditors are deemed to be the only important consideration.
In the case of a section eleven application the business remains in operation and the owners even retain control, albeit under strict supervision of the court. These applications are only considered when the court is convinced that the applicant will recover and become able to honor its financial obligations. Many large corporates have used this form of application for temporary relief when they experience financial pressure.
The main purpose of this section is to allow applicants to recover and to restructure in order to become more viable. They need to show that they have the potential to survive and that their plans will put them on a road where they will become able to honor their financial obligations. Applicants have access to new financing and they may even enter into new contracts, but always under the supervision of the court.
Applicants are also protected in other ways. While they are under administration their creditors may not take legal action against them. Creditors that feel that their own survival is placed in jeopardy have to approach the bankruptcy court before any payments can be demanded. Applicants are also protected against other types of legal action, such as compensation claims from consumers.
Applicants have to develop extremely detailed plans before they are allowed to commence with reorganization. These plans have to be submitted to the court and the court will often appoint experts to evaluate them and to advise the court. Creditors too, have access to these plans and they are allowed to petition the court if they are of the opinion that the plans are not realistic.
Critics say that this law allows applicants to dodge their responsibilities. They say that contractors and clients of the applicant are sidelined and that their needs are not taken into account. Many smaller companies therefore go under and many people lose their jobs whilst a major debtor is enjoying the protection of the federal courts.
It makes sense that everything possible is done to protect organizations that provide employment to large numbers of people. Certain industries perform key functions and manufacture strategically important products. Such organizations must be protected when they experience financial crises.
There are different sections of the bankruptcy law. Section eleven is much different from the better known section seven. In the latter case the applicant will have to forfeit all assets. If the applicant is a business all trading is stopped and in most cases the assets are sold to pay the debts of the applicant. The court appoints a trustee to handle the matter and the interests of the creditors are deemed to be the only important consideration.
In the case of a section eleven application the business remains in operation and the owners even retain control, albeit under strict supervision of the court. These applications are only considered when the court is convinced that the applicant will recover and become able to honor its financial obligations. Many large corporates have used this form of application for temporary relief when they experience financial pressure.
The main purpose of this section is to allow applicants to recover and to restructure in order to become more viable. They need to show that they have the potential to survive and that their plans will put them on a road where they will become able to honor their financial obligations. Applicants have access to new financing and they may even enter into new contracts, but always under the supervision of the court.
Applicants are also protected in other ways. While they are under administration their creditors may not take legal action against them. Creditors that feel that their own survival is placed in jeopardy have to approach the bankruptcy court before any payments can be demanded. Applicants are also protected against other types of legal action, such as compensation claims from consumers.
Applicants have to develop extremely detailed plans before they are allowed to commence with reorganization. These plans have to be submitted to the court and the court will often appoint experts to evaluate them and to advise the court. Creditors too, have access to these plans and they are allowed to petition the court if they are of the opinion that the plans are not realistic.
Critics say that this law allows applicants to dodge their responsibilities. They say that contractors and clients of the applicant are sidelined and that their needs are not taken into account. Many smaller companies therefore go under and many people lose their jobs whilst a major debtor is enjoying the protection of the federal courts.
It makes sense that everything possible is done to protect organizations that provide employment to large numbers of people. Certain industries perform key functions and manufacture strategically important products. Such organizations must be protected when they experience financial crises.
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