Volatile markets, up and down exchange rates and the worldwide recession have seen to it that many enterprises have landed in a position where they find it difficult to survive. In some cases companies became unable to continue trading because they are unable to pay their creditors. In such cases either the company in trouble or its creditors can approach the bankruptcy court. In some cases, when applying for a chapter 11 reorganization NJ businesses can win time to return to a financially stable position.
Section seven of the bankruptcy act is more commonly applied, in which case the court appoints a trustee that immediately takes control of all the assets of the applicant. If the applicant is a business, then trading is normally halted immediately and all employees lose their jobs. The assets of the applicant are sold on an open auction and the proceeds are divided between the creditors.
Section eleven is different because it aims at allowing the applicant some time to restructure the business in order to return it to a financially viable entity again. No assets are confiscated. In fact, the business continues to trade and the applicant can enter into new contracts and even arrange for financing. However, the court keeps a close watch on the business and the time allowed for the breathing space is limited.
A section eleven application is not easily approved by the courts. The applicant must convince the court that they have the potential to return to profitability. The court may consult with various experts before coming to a final decision. Even if the decision is granted the court will require periodic feedback and the time allowed for the restructuring is limited. However, during this time the applicant is protected against his creditors.
Once an application is approved, the applicant is protected against lawsuits from creditors and they are also protected from a variety of other potential legal steps against them. Creditors that feel that their own survival is dependent upon payment from the applicant can approach the court, but they may not approach the applicant directly during the protection period.
The court requires applicants to submit comprehensive plans detailing the intended restructuring of the business. These plans will be evaluated by experts and even creditors have the right to examine them. Creditors that feel that the plans are not viable may petition the court and the court may order changes to the plans. The plans must include the provision of progress reports to the court.
There are numerous critics that consider this law to be extremely unfair to the creditors of the applicant and contractors that supplied it with goods and services. Contractors may lose contracts without being consulted and creditors are often small businesses that simply cannot afford the loss of cash flow. In most cases the victims of a section eleven approval have no or very little recourse.
When a large business fails everybody loses. The purpose of the law is to try everything possible to save jobs and to make sure that key industries remain operational. If a few smaller businesses and some individuals suffer in the process it is deemed an unfortunate sacrifice that will have to be made for the good of the industry as a whole.
Section seven of the bankruptcy act is more commonly applied, in which case the court appoints a trustee that immediately takes control of all the assets of the applicant. If the applicant is a business, then trading is normally halted immediately and all employees lose their jobs. The assets of the applicant are sold on an open auction and the proceeds are divided between the creditors.
Section eleven is different because it aims at allowing the applicant some time to restructure the business in order to return it to a financially viable entity again. No assets are confiscated. In fact, the business continues to trade and the applicant can enter into new contracts and even arrange for financing. However, the court keeps a close watch on the business and the time allowed for the breathing space is limited.
A section eleven application is not easily approved by the courts. The applicant must convince the court that they have the potential to return to profitability. The court may consult with various experts before coming to a final decision. Even if the decision is granted the court will require periodic feedback and the time allowed for the restructuring is limited. However, during this time the applicant is protected against his creditors.
Once an application is approved, the applicant is protected against lawsuits from creditors and they are also protected from a variety of other potential legal steps against them. Creditors that feel that their own survival is dependent upon payment from the applicant can approach the court, but they may not approach the applicant directly during the protection period.
The court requires applicants to submit comprehensive plans detailing the intended restructuring of the business. These plans will be evaluated by experts and even creditors have the right to examine them. Creditors that feel that the plans are not viable may petition the court and the court may order changes to the plans. The plans must include the provision of progress reports to the court.
There are numerous critics that consider this law to be extremely unfair to the creditors of the applicant and contractors that supplied it with goods and services. Contractors may lose contracts without being consulted and creditors are often small businesses that simply cannot afford the loss of cash flow. In most cases the victims of a section eleven approval have no or very little recourse.
When a large business fails everybody loses. The purpose of the law is to try everything possible to save jobs and to make sure that key industries remain operational. If a few smaller businesses and some individuals suffer in the process it is deemed an unfortunate sacrifice that will have to be made for the good of the industry as a whole.
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