People and businesses often get into a situation where they simply cannot continue to survive financially and pay their debts. In such cases an application for bankruptcy is often made. Such an application can also be made by the creditors if they feel that they need to lay their hands on whatever is left before everything is gone. The United States has very strict bankruptcy laws. In order to apply for a chapter 11 reorganization NJ companies need to comply with several 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.
In the case of a section eleven application the business remains in operation and the owners even retain control, albeit under strict supervision of the court. These applications are only considered when the court is convinced that the applicant will recover and become able to honor its financial obligations. Many large corporates have used this form of application for temporary relief when they experience financial pressure.
This section can only be applied to applicants that can convince the courts that they are able to recover if given the chance to restructure their businesses and if they are protected against their creditors while to process is completed. In such cases the applicant is allowed to continue with business activities and they may apply for finance and enter into contracts with new suppliers and clients.
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 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.
There are many critics against this law. They are of the opinion that the law provides unfair protection to large companies that are simply trying to avoid their financial obligations. They also point out that it often happens that smaller businesses that are dependent upon the applicant also suffer when they are not being paid. In many cases jobs are lost and smaller businesses fold while the applicant is protected by the court.
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.
In the case of a section eleven application the business remains in operation and the owners even retain control, albeit under strict supervision of the court. These applications are only considered when the court is convinced that the applicant will recover and become able to honor its financial obligations. Many large corporates have used this form of application for temporary relief when they experience financial pressure.
This section can only be applied to applicants that can convince the courts that they are able to recover if given the chance to restructure their businesses and if they are protected against their creditors while to process is completed. In such cases the applicant is allowed to continue with business activities and they may apply for finance and enter into contracts with new suppliers and clients.
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 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.
There are many critics against this law. They are of the opinion that the law provides unfair protection to large companies that are simply trying to avoid their financial obligations. They also point out that it often happens that smaller businesses that are dependent upon the applicant also suffer when they are not being paid. In many cases jobs are lost and smaller businesses fold while the applicant is protected by the court.
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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