How can bankruptcy help a company?

| May 18, 2020 | Chapter 11 Bankruptcy |

Contrary to what consumers may think, filing for bankruptcy does not necessarily mean a corporation will shut down. In fact, filing for Chapter 11 bankruptcy can do the opposite—it can keep the business afloat through debt reorganization.

Of course, large corporations have numerous factors to consider before making final decisions. Most of the time, companies analyze their revenue and assess their total debt. Often, the Chief Financial Officer explores all possible options and strategically chooses what is best for the company.

What makes Chapter 11 bankruptcy the best option?

Undoubtedly, each corporation has unique considerations. Generally speaking, companies assess these factors before and during bankruptcy proceedings:

  • Downsizing to reduce expenses
  • Negotiations with vendors, landlords, suppliers, lenders and others
  • Asset liquidation

Once all avenues have been explored, the corporation will determine which option best suits their needs. Many times, the decision-maker determines that complete debt reorganization through bankruptcy is the best option.

One aspect of Chapter 11 bankruptcy that may be appealing to business owners is that the corporation can continue business as usual through the bankruptcy proceedings, in most cases.

Corporations that have recently filed for bankruptcy

In the past few years, companies have begun to understand and utilize the benefits of Chapter 11. Most recently, J.C. Penny declared bankruptcy in May 2020.

The company released a statement explaining that through bankruptcy, a plan was created to reduce several billion dollars of debt, provide financial flexibility and well-position the company long-term.

Toys R Us, J. Crew, General Motors, Gymboree Group Inc, United Airlines, Neiman Marcus and many other companies have also filed for bankruptcy.

Because Chapter 11 bankruptcy is the most complex type of bankruptcy, it is advisable for corporations to reach out to experienced legal counsel. For large corporations, working with a team of legal experts is likely to result in the best possible solution for the company.