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.
Section eleven is completely different. Applicants do not lose control of their business. Instead, they are allowed to continue operations, but under strict rules imposed by the courts. The purpose is to allow the applicant to recover financially and to provide protection whilst recovery takes place. This legislation is commonly used by corporate companies in order to gain relief from their debts while they restructure their businesses.
The main purpose of this section is to allow applicants to recover and to restructure in order to become more viable. They need to show that they have the potential to survive and that their plans will put them on a road where they will become able to honor their financial obligations. Applicants have access to new financing and they may even enter into new contracts, but always under the supervision of the court.
Applicants are also protected in other ways. While they are under administration their creditors may not take legal action against them. Creditors that feel that their own survival is placed in jeopardy have to approach the bankruptcy court before any payments can be demanded. Applicants are also protected against other types of legal action, such as compensation claims from consumers.
Applicants are not left to their own devices to implement changes and to reorganize their businesses. They have to provide the court with comprehensive plans before they are allowed to proceed. In some cases the court may order the plans to be changed or even done again from scratch. Creditors are also allowed to study the plans and if they are of the opinion that the plans are unrealistic they may petition the court.
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.
When you are looking for a Chapter 11 reorganization NJ locals should pay a visit to the web pages online here today.