What is a corporate reorganization?

Most often, a corporate reorganization means a chapter 11 (if your business is a very small sole proprietorship, a chapter 13 may be possible). There has been some attempt to simplify procedures for small businesses. But in general, chapter 11’s are fairly complicated and rarely inexpensive. Remember each of those companies is still in business. Think of General Motors, Delta Airlines or the Texas Rangers.

Chapter 11 could free up cash from servicing old debt to permit current operations and allow rejection of leases or contracts that are no longer advantageous, or prevent the loss of vital assets or cash to creditor collection actions. But reorganization can't create a market, increase revenue, or make a bad business good. If a business is to survive chapter 11, it must be financially viable. Our experience is that many businesses wait until they are at death's door and it may be too late. It is best for a business to plan its way into bankruptcy.

The ultimate concept is that we will present creditors and the court with a business plan which proves that it is better for everyone that the business continues. There are many formal requirements, but Mark Agee is a certified business bankruptcy lawyer with 25 years of experience in corporate reorganizations. He has worked on some of the largest cases in the countries, and even more of the smallest. If your business is financially viable, it is likely it can be reorganized.

How does a liquidation apply to a business?

If a business files for chapter 7, it will be permanently closed and its assets will be liquidated, either by a secured creditor or a trustee. Often, there may not be much point to using bankruptcy procedures in such instances. There is always a right way to close a business; doing it incorrectly can result in protracted proceedings and perhaps liability to the owners.

What happens to my business if I personally file for bankruptcy?

Many of our clients own their own businesses. If your business did not file for bankruptcy itself, it should not be directly affected by your bankruptcy. It may continue to operate normally. Your ownership interest (for instance, your stock) is not exempt and the Trustee may sell it. The question is who will buy it? If your business is Microsoft, it may be many people. If your business is “Bob’s Drywall” the answer is probably “no one.” If you live in Texas and your business is a sole proprietorship, it is very likely that the assets of the business are exempt and no one may take them from you (there are good reasons for a small business to be a sole proprietorship in Texas).

What happens to me if my business files for bankruptcy?

That depends on the type of bankruptcy. If the business files for chapter 7 liquidation, it is closed and all employees (including you) are unemployed. If a creditor has a lien on the assets, it will eventually foreclose. Otherwise, the bankruptcy trustee may sell the assets of the business to pay creditors. Again, however, if the business is a sole proprietorship, the assets may be exempt in Texas.

If your business must close (with or without bankruptcy), a much more significant concern is what will happen to the owners. If you have personal guaranties (and most creditors require them of small businesses), it is likely that guarantied creditors will look to you for payment. That is a real problem, and people will often call to discuss a “business bankruptcy” but we end-up discussing a “personal bankruptcy.”

If the business has filed for reorganization, you will probably continue to work and be paid, as long as the business is viable. The essential goal of reorganization is for that to continue.

Please note: All of these are very complex issues and require that you obtain professional legal advice.