Even the giants fall: Bankruptcy can impact any business

May 03, 2013 (Press-News.org) Even the giants fall: Bankruptcy can impact any business

Article provided by The Lobel Firm, L.L.P.
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Businesses strive for success, but even some of the largest and most successful have faced financial difficulties. Companies like Macy's and Texaco have had to file for relief through bankruptcy in the past and another large company is now joining this group: Suntech Power. Wuxi Suntech, the main subsidiary of this solar power giant, recently filed for bankruptcy.

The massive Chinese company, with a small factory in Arizona, struggled to keep factories open. The New York Times recently reported the company lost $1 for every $3 spent in sales during 2012. Although this particular bankruptcy case raises many questions about international business and investments, it also serves as a reminder that businesses of all sizes can encounter financial struggles.

Alternatives to bankruptcy

Bankruptcy is just one way to resolve the financial struggles a business may face. Three options available that may help a business to avoid filing for bankruptcy are:
-Debt workouts and restructuring
-Assignments for the benefit of creditors
-Loans to financially distressed entities

A debt workout involves developing an agreement with creditors outside of the courtroom. In order to be successful, this alternative requires two things: first, the business must develop a repayment plan and second, the creditors must agree to work with the business. In these situations, creditors often receive repayment through future cash flow or new financing.

A workout can be beneficial since it may satisfy the same goals of a Chapter 11 bankruptcy without the cost and involvement of the courts. Unfortunately, since the courts are not involved, creditors must voluntarily agree to partake in the workout. Without court involvement, the business cannot bind a creditor to take part in this plan.

The second option, assignments, allows an independent assignee to sell assets of the business. The money gained from these sales is used to pay off creditors.

Finally, businesses could attempt to find additional lenders to provide money that would be used to pay off creditors. This option leads to additional debt and may not be the best way to manage financial struggles.

Chapter 11 bankruptcy petitions

Not all businesses are able to make an alternative to bankruptcy work. In these situations, it may be wise to file for financial relief through a Chapter 11 bankruptcy petition. This type of bankruptcy petition, often referred to as a "reorganization" bankruptcy because it can help businesses survive their struggles and pay off creditors over a span of time.

Navigating the intricacies of a Chapter 11 petition is difficult. As a result, if your business is struggling it is wise to contact an experienced Chapter 11 bankruptcy attorney to discuss your situation, review possible alternatives and, if bankruptcy is the best option, provide assistance in filing for relief.