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.
Most people are more familiar with a section seven application. In such cases the courts appoint trustees that immediately take control of all the finances of the applicant. In the case of businesses trading is halted immediately and employees lose their jobs. The assets are sold on auction in order to pay the creditors. In rare cases the business may be sold as a going concern. Individuals, too, lose all their assets in the process.
The terms of section eleven allows the applicant to remain in control of the business. However, this control is maintained under strict supervision of the court. The bankruptcy courts will only entertain this type of application if there is a reasonable chance that the business will survive and become able to honor its financial obligations. Corporates use this type of application when they experience immense financial pressure.
The purpose of this section is to not only protect the applicant, but also its employees and contractors that depend upon it for their own survival. However, applicants must convince the court that there are real and compelling reasons to believe that they will recover. For this reason applicants are allowed to enter into contracts and to even apply for finance. In some extreme cases previous agreements can be canceled.
There are other benefits afforded to applicants. They may not be sued by their creditors as long as they remain under administration. They are also protected against legal action from their suppliers and all other stakeholders. Creditors that are of the opinion that their own survival depends upon collecting debts from the applicant have no choice other than to approach the court.
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.
When a large business fails the consequences can be disastrous for the entire industry and region. That is why everything possible is done to prevent this from happening. It is not in the interest of the state or other businesses to allow a key player to go under.
Most people are more familiar with a section seven application. In such cases the courts appoint trustees that immediately take control of all the finances of the applicant. In the case of businesses trading is halted immediately and employees lose their jobs. The assets are sold on auction in order to pay the creditors. In rare cases the business may be sold as a going concern. Individuals, too, lose all their assets in the process.
The terms of section eleven allows the applicant to remain in control of the business. However, this control is maintained under strict supervision of the court. The bankruptcy courts will only entertain this type of application if there is a reasonable chance that the business will survive and become able to honor its financial obligations. Corporates use this type of application when they experience immense financial pressure.
The purpose of this section is to not only protect the applicant, but also its employees and contractors that depend upon it for their own survival. However, applicants must convince the court that there are real and compelling reasons to believe that they will recover. For this reason applicants are allowed to enter into contracts and to even apply for finance. In some extreme cases previous agreements can be canceled.
There are other benefits afforded to applicants. They may not be sued by their creditors as long as they remain under administration. They are also protected against legal action from their suppliers and all other stakeholders. Creditors that are of the opinion that their own survival depends upon collecting debts from the applicant have no choice other than to approach the court.
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.
When a large business fails the consequences can be disastrous for the entire industry and region. That is why everything possible is done to prevent this from happening. It is not in the interest of the state or other businesses to allow a key player to go under.
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