A company may decide to cease operations for a variety of reasons. If the company does not have the funds to pay all creditors in full, then the company needs to provide for dealing with creditors. In addition, the company needs to take measures to dispose of any remaining assets, and winddown its business. We help companies decide how best to winddown their affairs.

Chapter 7 Bankruptcy

A chapter 7 bankruptcy provides for the liquidation of a company’s assets and distribution to creditors. The Chapter 7 bankruptcy enables the company to turn over the winddown process to an independent person, a bankruptcy trustee. The company ceases operations as of the filing. Any litigation against the company will be stayed as of the filing. A trustee is appointed at the time of the filing and will be responsible to sell or dispose of the assets and disburse funds to creditors. The Trustee will also investigate whether there are any claims that can be pursued for creditors’ benefit and will investigate transactions between the company and its owners and officers. The company is obligated to provide information to and cooperate with the trustee, but the trustee will make the decisions regarding the winddown.

Other Alternatives

There are other alternatives to a Chapter 7. As with reorganization, a company can negotiate agreements with its creditors. Typically the company will liquidate assets and ask creditors to accept a pro rata share. Alternatively, the company can take a more formal step and enter into an assignment for benefit of creditors. In an assignment, a third party agrees to act as assignee and will liquidate the assets for the benefit of creditors who assent. Creditors who agree to the assignment receive a pro rata share of any funds available. Typically these options are less costly than a chapter 7 and less public. The risk is that creditors may continue litigation against the company or can seek to put the company in bankruptcy.