Corporations that get into deep financial trouble have the option of filing for Chapter 11 bankruptcy protection. This is basically the process of the courts ordering the company’s creditors to cease their pursuit of monies extended to the business in the form of credit.

This often happens because the company’s finances get mismanaged and the debt piles up until it becomes too overwhelming to repay. As a result, the court appoints a trustee to oversee the company’s debts and assets in order to help repay the creditors in a timely and efficient manner.

Corporate bankruptcy involves much of the same process that personal bankruptcy does. The main difference, however, is that creditors can force a business into Chapter 11 bankruptcy because it ensures that the court will take control of the finances.

When this happens, the creditors have a better chance of being repaid by the business. This type of business bankruptcy often allows the company to continue generating revenue for the creditors while the business gets its finances and assets in order.

When a business files for corporate bankruptcy in which its debts are greater than its assets, the stockholders receive nothing after the bankruptcy is completed. Essentially, they lose all rights that they had to the company and its assets. As a result, the creditors take control of the company in order to help it retrieve the monetary losses incurred by extending credit to it. This is also done to help save the jobs that the corporation provides and to help retain the profit-making capabilities of the business.

Although it is a good idea for a failing business, bankruptcy has many critics who feel that it is harmful to allow corporations to file for the court’s protection from its creditors. Many critics say that it is unfair for a company to continue to operate once it has filed for bankruptcy. The reason is that the company can cease paying its debts and use that money for improving the business.

As a result, the company has an advantage over its competitors because it has more money to unduly put into acquiring more customers, planning better products, and much more. Others say that Chapter 11 bankruptcy only perpetuates the problem of bad financial management in the upper tiers of the corporation’s executives. Filing for bankruptcy protection only adds to this problem by maintaining the practice of bad financial management.

The reasons for Chapter 11 bankruptcy vary among the different corporations in need of the services that it provides. Whether or not it is good for the economy, it is still a practice that does not go unused. This is proven by recent occurrences, such as K-Mart and WorldCom, in which major corporations filed for business bankruptcy protection in order to have their debts reorganized while remaining in business and creating revenue.

While it may provide unfair advantages and a continuing practice of financial mismanagement, it is sometimes a necessary method to save some corporations from a complete shutdown.

Mike Selvon is the owner of various niche portals. Our bankruptcy portal is a great resource for more information on the basics of chapter 11 bankruptcy. While you are there don’t forget to claim your free gift.

After doing her best to combat these changes, Sandra then had to face a struggling economy, complete with some of her most loyal customers telling her they could no longer afford to use Service West, an Arizona-based courier-services company that ships freight and hazardous materials within the state and to southern California.

After coming out of retirement to purchase Service West about ten years ago, Sandra, now 65, quickly realized that the delivery industry was more than just picking up, dropping off and driving trucks-all of which she previously knew how to do. The company’s annual revenue dropped, increased, then dropped again, and Sandra was basically stumped on what to do next. “My biggest mistake was to think I knew what I was doing.” She had spent her entire career-her “old life”-working in top positions for large companies, a far different circumstance than owning and running one’s own business, despite the wealth of accumulated knowledge and experience. “At that point, I had just kind of sat back and said, ‘Somebody help me.’“ With the weight of the world-or at least that of a flatbed truck-on her shoulders, she sought the services and advice of a management-consulting company, only to be taken for $10,000.

With practically nowhere else to turn, Sandra came upon the services of SCORE, based on the recommendation of a close friend. As so often happens when SCORE becomes involved, the resulting plans and goals have provided invaluable clarity and direction. The organization immediately set Sandra up with their SMART group, designed to look at every aspect of her business and makes recommendations on what to do next. Soon, seven members from SCORE came in and analyzed everything from Service West’s financial records and marketing to the company’s trucks, and came up with the report that would eventually stabilize them.

“They sat with me every day and asked questions. They were very active, very supportive… they kind of held my hand and told me, ‘Don’t give up, don’t fall apart, and just keep holding on.’”

With the help of SCORE, Sandra was able to make any number of tough decisions and keep her business intact. She relegated almost all aspects of the courier service to focus more on the other facets of her business. She also now leases trucks instead of owning them, a move that helps to combat the constant cost of maintenance and the associated loss of delivery capability, as well as the loss of customer trust.

The economy has certainly taken its toll on Sandra and Service West, but with her crucial blend of great energy, business knowledge and dependable employees, they are forging ahead. In fact, Sandra stresses the motivation to provide her loyal employees with an environment where they can continue to be productive and in which she can keep rewarding their loyalty are two of the things that keep her going, day in and day out.  

Another key experience that Sandra draws upon to keep her fresh perspective on business is her world travels. She feels fortunate to have visited every continent and countless countries and cities worldwide, and continues to learn from her exposure to so many different kinds of thinking, as well as from the close friends everywhere with whom she still keeps in contact.

Sandra still works 12-hour days, and hopes to soon take her business to the point where she can either pass it on to her family or sell it. She also still meets with two members of SCORE at least twice a year, and acknowledges with gratitude their guidance and encouragement.

“Everybody who asks, I say, ‘You’ve gotta go to SCORE. It’s the best-kept secret in the United States today.”

Written by: Gabriel Katz (for uwemp.com)