When a company goes bankrupt, it’s not just the bottom line that suffers. Employees, customers, and even shareholders can be adversely affected. In this post, we take a look at the fallout of corporate bankruptcy. We explore the various stages of collapse and the different groups of people who are impacted. If you’re curious about how bankruptcy works, read this guide by Lincoln-Goldfinch Law.
Defining bankruptcy
So what is bankruptcy? In short, it’s a legal process that allows companies or individuals to settle their debts. There are different types of bankruptcy, but the most common for companies is in Chapter 11. This allows a company to restructure its finances and operations in order to repay its debts. Bankruptcy is often seen as a last resort, but it can provide businesses with a fresh start and help them overcome financial difficulties.
What are the different types of bankruptcy?
When a company files for bankruptcy, it’s usually because it can’t pay back its debts. There are different types of bankruptcy that a company can file, and each one has different consequences. The most common types of bankruptcy are Chapter 7, Chapter 11, and Chapter 13. Chapter 7 is known as “liquidation” bankruptcy. This is when the company sells off its assets to pay back its creditors. The proceeds from the sale are then distributed among the creditors in accordance with how much they’re owed.
Chapter 11 is known as “reorganization” bankruptcy. This is when the company tries to come up with a plan to pay back its creditors over a period of time. This can involve selling off some of the company’s assets or even renegotiating debt terms with its creditors.
Chapter 13 is known as “wage earners” bankruptcy. This is for companies that have enough assets to pay back their debts but don’t have the money to do so all at once. Under Chapter 13, the company sets up a payment plan that allows it to make periodic payments to its creditors over a period of time.
What happens to the company’s assets
When a company declares bankruptcy, all of its assets are liquidated in order to repay its creditors. This can be done in a few different ways: through a court-ordered sale, through an auction, or through a private sale. The company’s assets are usually sold off to the highest bidder, and the bankrupt company is then dissolved. Any remaining proceeds are then distributed among the company’s creditors.
How does bankruptcy affect the employees?
Employees are one of the groups most affected by corporate bankruptcy. When a company goes bankrupt, it often has to lay off workers in order to cut costs. This can lead to unemployment and financial difficulties for the employees. In some cases, the employees may also be owed money by the bankrupt company. This is known as “wage garnishment.” Wage garnishment happens when a portion of the employee’s wages is withheld in order to repay a debt that the employee owes to the bankrupt company.
How does bankruptcy affect the shareholders?
Shareholders are another group that can be negatively affected by corporate bankruptcy. When a company goes bankrupt, its shares are usually worthless. This means that the shareholders will lose all of their investment in the company. In some cases, the shareholders may be able to get some of their money back if the company is sold off in bankruptcy proceedings. However, they will typically only receive a small percentage of what they originally invested.
How does bankruptcy affect the creditors?
Creditors are often the group that is most affected by corporate bankruptcy. When a company goes bankrupt, it often can’t pay back its debts to its creditors. This can lead to financial difficulties for the creditors. In some cases, the creditors may be able to get some of their money back if the company is sold off in bankruptcy proceedings. However, they will typically only receive a small percentage of what they originally lent to the company.
Redundancy claims during bankruptcy
In some cases, employees may be able to file for redundancy payments if they were let go due to the company’s bankruptcy. This can help soften the blow of losing your job, but it’s important to note that not everyone will be eligible for these payments. If you’re concerned about what might happen to you if your company goes bankrupt, it’s best to speak with an employment lawyer who can help you understand your options.
Conclusion
While declaring bankruptcy may seem like the end of the road for a company, it’s actually just the beginning of a long and difficult process. In order to successfully navigate bankruptcy, a company must assemble a legal team, liquidate assets, and negotiate with creditors. Unfortunately, many companies are unable to overcome these challenges and eventually go out of business.