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Added for You - Going Bankrupt in the World
So many people want to start a business today and be rich tomorrow. Sorry, people it doesn't happen that way. If it did, everyone would do it. There is no free lunch...it takes hard work, determination and realistic goal setting. Think about the businesses you have worked at, look at the businesses in your community. I mean really look. When you go to the dry cleaners, how many other people are there also. Think about what it takes for that dry cleaner to open every day. How many people he needs to come in with their dry cleaning in order to make a profit. OK, dry cleaning doesn't excite you. How about that specialty shop you want to open! You want to open a retail store that caters to people that buy Hummels, knick knacs, bric-a-brac. Will you only handle certain types? How many will you order of each type? What are the best sellers? How many will you have to sell to make money for yourself, and to also keep that shop open, or will you sell them by mail order only from your home? Want to do business on the web? The same principles apply. How many visitors to your web site do you need to make a sale? How do you get them to visit? How do you get them to stay? You get the idea. You need goals in order to measure any progress in your business. Realistic goals come from a well thought out mission statement, whi
Chapter 7 (1978 Act) - liquidation
A District court appoints an "interim trustee" with broad powers. Such a trustee can also be appointed at the request of the creditors and by them.
The Interim Trustee is empowered to do the following:
- liquidate property and make distribution of liquidating dividends to creditors
- make management changes
- arrange unsecured financing for the firm
- operate the debtor business to prevent further losses
By filing a bond, the debtor (really, the owners of the debtor) is able to regain possession of the business from the trustee.
Chapter 11 - reorganization
Unless the court rules otherwise, the debtor remains in possession and in control of the business and the debtor and the creditors allowed to work together flexibly. They are encouraged to reach a settlement by compromise and agreement rather than by court adjudication.
Maybe the biggest legal revolution embedded in chapter 11 is the relaxation of the ages old ABSOLUTE PRIORITY rule, that say
It’s not easy convincing people to drop in at your site. We often tend to think that putting up a great site is enough to ensure a sizeable traffic dropping in at the site. But that’s far from the truth. Remember there are million and one great sites on the net, some definitely better than yours. The only way you can score over these is by making your site more visible.Putting up a website is a manual job, almost like putting up a store or a shop. You can either put up your store far away in the suburbs where no one ill notice it or you can put it right in the middle of the city. Where would you gain more customers? Obviously in the second location. The same principal holds good in the case of web promotion. Of course there are no streets here and no overcrowded streets to take advantage of, but there are ways of making yourself visible still.Before beginning to jump into the web promotion bandwagon try and understand how and why the web business seems to be working so well. The main point of the entire web revolution is how easily information is recovered. Be it recipes, news headlines, games or whatever everything is stacked up n the web and gotten back easily. While planning your promotion take into account if your site is delivering essential information. Making a site look good is important but not solely important.
As time goes by, the creditors gear up and litigate in a court of law or in a court of arbitration. This is a technical or equity insolvency status.
But this is not the only way that a company can be rendered insolvent. It could also run liabilities which will outweigh its assets. This is bankruptcy insolvency. True, there is a debate raging as to what is the best method to appraise the assets and the liabilities. Should these appraisals be based on market prices - or on book value?
There is not one decisive answer. In most cases, there is strong reliance on the figures in the balance sheet.
If the negotiations with the creditors of the company (as to how to settle the dispute arising from the company’s default) fails, the company itself can file (=ask the court) for bankruptcy in a "voluntary bankruptcy filing".
Enter the court. It is only one player (albeit, the most important one) in this unfolding, complex drama. The court does not participate directly in the script. To say its lines - court officials are appointed. They work hand in hand with the representatives of the creditors (mostly lawyers) and with the management and the owners of the defunct company.
They face a tough decision: should they liquidate the company? In other words, should they terminate its business life by (among other things) selling its assets?
The proceeds of the sale of the assets is divided (as "bankruptcy dividend") among the creditors. It makes sense to choose this route only if the (money) value generated by liquidation exceeds the (money) the company as a going concern, as a living, functioning, entity.
The company can, thus, go into "straight bankruptcy". The secured creditors will receive the value of the property which was used to secure their debt (the "collateral", or the "mortgage, lien"). Sometimes, they will receive the property itself - if it not easy to liquidate (=sell) it.
Once the assets of the company are sold, the first to be fully paid off will be the secured creditors. Only then will the priority creditors be paid (wholly or partially).
The priority creditors include administrative debts, unpaid wages (up to a given limit per worker), uninsured pension claims, taxes, rents, etc.
And only if there is any money left after all these payments, it will be proportionally doled out to the unsecured creditors.
The USA had many versions of its bankruptcy laws. There was the 1938 Bankruptcy Act, which was followed by amended versions in 1978, 1984 and, lately, in 1994.
Each state has modified the Federal Law to fit its special, local conditions.
Still, a few things - the spirit of the Law and its philosophy are common to all the versions. Arguably, the most famous procedure is named after the chapter in the law in which it is described, Chapter 11. Following is a small discussion of chapter 11 intended to demonstrate this spirit and this philosophy.
This chapter allows for a mechanism called "reorganization". It must be approved by two thirds of all classes of creditors and then, again, it could be voluntary (initiated by the company) or involuntary (initiated by one to three of its creditors).
The American legislator set the following goals, in writing the bankruptcy laws:
- To provide a fair and equitable treatment to the holders of various classes of securities of the firm (shares of different kinds and bonds of different types)
- To eliminate burdensome debt obligations, which obstruct the proper functioning of the firm and hinder its chances to recover and ever repay its debts to its creditors.
- To make sure that new claims received by the creditors (instead of the old, discredited, ones) equal, at least, to what they would have received in liquidation.
Examples of such new claims: owners of debentures of the firm can receive, instead, new, long term bonds (known as reorganization bonds, whose interest is payable only from profits).
Owners of subordinated debentures will, probably, become stockholders and stockholders in the insolvent firm will receive no new claims.
The chapter dealing with reorganization (the famous "Chapter 11") allows for "Arrangements" to be made between debtor and creditors: an extension or reduction of the debts.
If the company is traded in a stock exchange, the Securities and Exchange Commission (SEC) of the USA advises the court as to the best procedure to adopt in case of reorganization.
What chapter 11 teaches us is that:
The American Law leans in favour of maintaining the company as a going concern. A whole is larger than the sum of its parts - and a living business is worth more than the sum of its assets, sold separately.
A more in-depth study of the bankruptcy laws shows that they allow for three ways to tackle a state of malignant insolvency which threatens the well being and the continued functioning of the firm:
Chapter 7 (1978 Act) - liquidation
A District court appoints an "interim trustee" with broad powers. Such a trustee can also be appointed at the request of the creditors and by them.
The Interim Trustee is empowered to do the following:
- liquidate property and make distribution of liquidating dividends to creditors
- make management changes
- arrange unsecured financing for the firm
- operate the debtor business to prevent further losses
By filing a bond, the debtor (really, the owners of the debtor) is able to regain possession of the business from the trustee.
Chapter 11 - reorganization
Unless the court rules otherwise, the debtor remains in possession and in control of the business and the debtor and the creditors allowed to work together flexibly. They are encouraged to reach a settlement by compromise and agreement rather than by court adjudication.
Maybe the biggest legal revolution embedded in chapter 11 is the relaxation of the ages old ABSOLUTE PRIORITY rule, that says
One of the challenges faced by every entrepreneur who is opening a dollar store is quickly and properly restocking the sales floor. It is soon obvious that as sales grow so too does the need to continually replace sold items. Restocking high quantities of merchandise requires proper timing of buying and lots of labor.It is important to know what is selling in your store when opening a dollar store. It is even more important to have that merchandise on hand at all times. Since these products will sell quickly, the labor associated with handling during receiving and stocking should be kept to a minimum.There are several ways to minimize restocking time on the highest volume items and departments. Start by never striping items. (The exception is when large quantities arrive at the same time. Then an end cap or striping might be appropriate.) As a standard practice however, try leaving the products that come in trays or boxes displayed in those trays. If it is a box, carefully cut down the sides without damaging the product contained inside. Place those trays onto shelves and face the product inside toward the front aisle. When the tray is empty simply pull it and replace with another full tray of product. That minimizes time and handling when opening a dollar store.Slower selling merchandise and departments is anothe
They face a tough decision: should they liquidate the company? In other words, should they terminate its business life by (among other things) selling its assets?
The proceeds of the sale of the assets is divided (as "bankruptcy dividend") among the creditors. It makes sense to choose this route only if the (money) value generated by liquidation exceeds the (money) the company as a going concern, as a living, functioning, entity.
The company can, thus, go into "straight bankruptcy". The secured creditors will receive the value of the property which was used to secure their debt (the "collateral", or the "mortgage, lien"). Sometimes, they will receive the property itself - if it not easy to liquidate (=sell) it.
Once the assets of the company are sold, the first to be fully paid off will be the secured creditors. Only then will the priority creditors be paid (wholly or partially).
The priority creditors include administrative debts, unpaid wages (up to a given limit per worker), uninsured pension claims, taxes, rents, etc.
And only if there is any money left after all these payments, it will be proportionally doled out to the unsecured creditors.
The USA had many versions of its bankruptcy laws. There was the 1938 Bankruptcy Act, which was followed by amended versions in 1978, 1984 and, lately, in 1994.
Each state has modified the Federal Law to fit its special, local conditions.
Still, a few things - the spirit of the Law and its philosophy are common to all the versions. Arguably, the most famous procedure is named after the chapter in the law in which it is described, Chapter 11. Following is a small discussion of chapter 11 intended to demonstrate this spirit and this philosophy.
This chapter allows for a mechanism called "reorganization". It must be approved by two thirds of all classes of creditors and then, again, it could be voluntary (initiated by the company) or involuntary (initiated by one to three of its creditors).
The American legislator set the following goals, in writing the bankruptcy laws:
- To provide a fair and equitable treatment to the holders of various classes of securities of the firm (shares of different kinds and bonds of different types)
- To eliminate burdensome debt obligations, which obstruct the proper functioning of the firm and hinder its chances to recover and ever repay its debts to its creditors.
- To make sure that new claims received by the creditors (instead of the old, discredited, ones) equal, at least, to what they would have received in liquidation.
Examples of such new claims: owners of debentures of the firm can receive, instead, new, long term bonds (known as reorganization bonds, whose interest is payable only from profits).
Owners of subordinated debentures will, probably, become stockholders and stockholders in the insolvent firm will receive no new claims.
The chapter dealing with reorganization (the famous "Chapter 11") allows for "Arrangements" to be made between debtor and creditors: an extension or reduction of the debts.
If the company is traded in a stock exchange, the Securities and Exchange Commission (SEC) of the USA advises the court as to the best procedure to adopt in case of reorganization.
What chapter 11 teaches us is that:
The American Law leans in favour of maintaining the company as a going concern. A whole is larger than the sum of its parts - and a living business is worth more than the sum of its assets, sold separately.
A more in-depth study of the bankruptcy laws shows that they allow for three ways to tackle a state of malignant insolvency which threatens the well being and the continued functioning of the firm:
Chapter 7 (1978 Act) - liquidation
A District court appoints an "interim trustee" with broad powers. Such a trustee can also be appointed at the request of the creditors and by them.
The Interim Trustee is empowered to do the following:
- liquidate property and make distribution of liquidating dividends to creditors
- make management changes
- arrange unsecured financing for the firm
- operate the debtor business to prevent further losses
By filing a bond, the debtor (really, the owners of the debtor) is able to regain possession of the business from the trustee.
Chapter 11 - reorganization
Unless the court rules otherwise, the debtor remains in possession and in control of the business and the debtor and the creditors allowed to work together flexibly. They are encouraged to reach a settlement by compromise and agreement rather than by court adjudication.
Maybe the biggest legal revolution embedded in chapter 11 is the relaxation of the ages old ABSOLUTE PRIORITY rule, that say
Working with the owners of small businesses, I find that their companies have problems with change for two reasons: Most change is imposed on them from outside and All change appears chaotic to them so they cannot understand it. As I worked with my client called Joey, I gave him a conceptual model comprising seven words beginning with S.As he understood what change could cost him, he found that he could control its impact. I aimed to coach Joey to avoid being a victim of change, to learn to survive its surprises and then to find he could thrive on change!My three Hard factors Strategy Starting with the harder factors, I asked Joey about his business Strategy "What business goals do you want to achieve?" and "What sort of market are you in?".This led to a review of Joey's Business Plan, noting the changes that had happened (or were about to happen) since he last updated his plan. As we noted each change, I kept asking questions to encourage Joey to find ways of working with the changes not against them. Joey spotted that a plan which does not respond to market, customer and supplier changes is a waste of space.Structure Next I got Joey to review his company Structure, asking him "How does your organisation support eac
The USA had many versions of its bankruptcy laws. There was the 1938 Bankruptcy Act, which was followed by amended versions in 1978, 1984 and, lately, in 1994.
Each state has modified the Federal Law to fit its special, local conditions.
Still, a few things - the spirit of the Law and its philosophy are common to all the versions. Arguably, the most famous procedure is named after the chapter in the law in which it is described, Chapter 11. Following is a small discussion of chapter 11 intended to demonstrate this spirit and this philosophy.
This chapter allows for a mechanism called "reorganization". It must be approved by two thirds of all classes of creditors and then, again, it could be voluntary (initiated by the company) or involuntary (initiated by one to three of its creditors).
The American legislator set the following goals, in writing the bankruptcy laws:
- To provide a fair and equitable treatment to the holders of various classes of securities of the firm (shares of different kinds and bonds of different types)
- To eliminate burdensome debt obligations, which obstruct the proper functioning of the firm and hinder its chances to recover and ever repay its debts to its creditors.
- To make sure that new claims received by the creditors (instead of the old, discredited, ones) equal, at least, to what they would have received in liquidation.
Examples of such new claims: owners of debentures of the firm can receive, instead, new, long term bonds (known as reorganization bonds, whose interest is payable only from profits).
Owners of subordinated debentures will, probably, become stockholders and stockholders in the insolvent firm will receive no new claims.
The chapter dealing with reorganization (the famous "Chapter 11") allows for "Arrangements" to be made between debtor and creditors: an extension or reduction of the debts.
If the company is traded in a stock exchange, the Securities and Exchange Commission (SEC) of the USA advises the court as to the best procedure to adopt in case of reorganization.
What chapter 11 teaches us is that:
The American Law leans in favour of maintaining the company as a going concern. A whole is larger than the sum of its parts - and a living business is worth more than the sum of its assets, sold separately.
A more in-depth study of the bankruptcy laws shows that they allow for three ways to tackle a state of malignant insolvency which threatens the well being and the continued functioning of the firm:
Chapter 7 (1978 Act) - liquidation
A District court appoints an "interim trustee" with broad powers. Such a trustee can also be appointed at the request of the creditors and by them.
The Interim Trustee is empowered to do the following:
- liquidate property and make distribution of liquidating dividends to creditors
- make management changes
- arrange unsecured financing for the firm
- operate the debtor business to prevent further losses
By filing a bond, the debtor (really, the owners of the debtor) is able to regain possession of the business from the trustee.
Chapter 11 - reorganization
Unless the court rules otherwise, the debtor remains in possession and in control of the business and the debtor and the creditors allowed to work together flexibly. They are encouraged to reach a settlement by compromise and agreement rather than by court adjudication.
Maybe the biggest legal revolution embedded in chapter 11 is the relaxation of the ages old ABSOLUTE PRIORITY rule, that say
Your financial integrity is extremely valuable and if you need help getting back on track the best people to go to for debt consolidation credit counseling is a professional, accredited agency. There are so many options that you can take to sort out your debts that it may seem overwhelming and a debt consolidation credit counseling service can help you to decide which is the best route for you to take.A debt consolidation credit counseling agency will go through your financial situation and work with you, and your creditors, to create a repayment plan that you can keep to until your debts are paid off. There are literally hundreds of debt consolidation credit counseling agencies and it is important to choose the best one for you. One of the major factors that you should consider when searching for the best debt consolidation credit counseling agency to suit your needs is to check if they are accredited to a third party organization. Accreditation means that the services of the debt consolidation credit counseling agency are endorsed by another organization that confirms their high standards.There are a number of organizations that a debt consolidation credit counseling agency can be accredited by but the most well known is the Council on Accreditation of Services for Families and Children, Inc. (COA). This guarantees that
Examples of such new claims: owners of debentures of the firm can receive, instead, new, long term bonds (known as reorganization bonds, whose interest is payable only from profits).
Owners of subordinated debentures will, probably, become stockholders and stockholders in the insolvent firm will receive no new claims.
The chapter dealing with reorganization (the famous "Chapter 11") allows for "Arrangements" to be made between debtor and creditors: an extension or reduction of the debts.
If the company is traded in a stock exchange, the Securities and Exchange Commission (SEC) of the USA advises the court as to the best procedure to adopt in case of reorganization.
What chapter 11 teaches us is that:
The American Law leans in favour of maintaining the company as a going concern. A whole is larger than the sum of its parts - and a living business is worth more than the sum of its assets, sold separately.
A more in-depth study of the bankruptcy laws shows that they allow for three ways to tackle a state of malignant insolvency which threatens the well being and the continued functioning of the firm:
Chapter 7 (1978 Act) - liquidation
A District court appoints an "interim trustee" with broad powers. Such a trustee can also be appointed at the request of the creditors and by them.
The Interim Trustee is empowered to do the following:
- liquidate property and make distribution of liquidating dividends to creditors
- make management changes
- arrange unsecured financing for the firm
- operate the debtor business to prevent further losses
By filing a bond, the debtor (really, the owners of the debtor) is able to regain possession of the business from the trustee.
Chapter 11 - reorganization
Unless the court rules otherwise, the debtor remains in possession and in control of the business and the debtor and the creditors allowed to work together flexibly. They are encouraged to reach a settlement by compromise and agreement rather than by court adjudication.
Maybe the biggest legal revolution embedded in chapter 11 is the relaxation of the ages old ABSOLUTE PRIORITY rule, that say
Given the development in technology, especially in communications, small businesses can now have capabilities that only bigger companies could access. New technology has been designed to cater to the requirements of small businesses at very low prices. In addition to this, intense competition among companies that offer various services to businesses have led to a price war meaning that companies compete by offering some of the lowest prices for their services.One benefit that technology has afforded to small businesses are call center solutions.One of the recent developments in communications technology is the Voice over Internet Protocol (VoIP) -- a technology that allows businesses to communicate with clients from different locations without having to incur huge long distance bills. In addition, it has allowed small businesses to set up mini call centers providing immediate solutions to their clients because VoIP allows businesses to set up a number of toll free lines using a VoIP connection. This allows a business to establish a presence in a number of locations and on a 24/7 basis. In addition, software has been developed to help businesses maximize the benefits they can get out of using VoIP.Given the large number of companies that provide similar services, especially within the call center industry, a compe
Chapter 7 (1978 Act) - liquidation
A District court appoints an "interim trustee" with broad powers. Such a trustee can also be appointed at the request of the creditors and by them.
The Interim Trustee is empowered to do the following:
- liquidate property and make distribution of liquidating dividends to creditors
- make management changes
- arrange unsecured financing for the firm
- operate the debtor business to prevent further losses
By filing a bond, the debtor (really, the owners of the debtor) is able to regain possession of the business from the trustee.
Chapter 11 - reorganization
Unless the court rules otherwise, the debtor remains in possession and in control of the business and the debtor and the creditors allowed to work together flexibly. They are encouraged to reach a settlement by compromise and agreement rather than by court adjudication.
Maybe the biggest legal revolution embedded in chapter 11 is the relaxation of the ages old ABSOLUTE PRIORITY rule, that says that the claims of creditors have categorical precedence over ownership claims. From now on, the interests of the creditors have to be balanced with the interests of the owners and even with the larger good of the community and society at large.
And so, chapter 11 allows the debtor and creditors to be in direct touch, to negotiate payment schedules, the restructuring of old debts, even the granting of new loans by the same disaffected creditors to the same irresponsible debtor.
Chapter 10
Is sort of a legal hybrid, the offspring of chapters 7 and 11:
It allows for reorganization under court appointed independent manager (trustee) who is responsible mainly for the filing of reorganization plans with the court - and for verifying strict adherence to them by both debtor and creditors.
Despite its clarity and business orientation, many countries found it difficult to adopt to the pragmatic, no sentiments approach which led to the virtual elimination of the absolute priority rule.
In England, for instance, the court appoints an official "receiver" to manage the business and to realize the debtor’s assets on behalf of the creditors (and also of the owners). His main task is to maximize the proceeds of the liquidation and he continues to function until a court settlement is decreed (or a creditor settlement is reached, prior to adjudication). When this happens, the receivership ends and the receiver loses his status.
The receiver takes possession (but not title) of the assets and the affairs of a business in receivership. He collects rents and other income on behalf of the firm.
So, British Law is much more in favour of the creditors. It recognizes the supremacy of their claims over the property claims of the owners. Honouring obligations - in the eyes of the British legislator and their courts - is the cornerstone of efficient, thriving markets. The courts are entrusted with the protection of this moral pillar of the economy.
Economies in transition were in transition not only economically - but also legally. Thus, each one adopted its own version of the bankruptcy laws.
In Hungary - Bankruptcy is automatically triggered. It is not allowed to swap debt for equity. Moreover, the law provides for a very short time to reach agreement with creditors about reorganization of the debtor. These features led to 4000 bankruptcies in the wake of the new law - a number which mushroomed to 30,000 by 5/97.
In the Czech Republic- the insolvency law comprises special cases (over indebtedness, for instance …). It delineates two rescue programs:
- A Debt to Equity Swap (an alternative to bankruptcy) supervised by the Ministry of Privatization.
- The Consolidation Bank (founded by the State) can buy a firm’s obligations if it went bankrupt at 60% of par.
But the law itself is toothless and lackadaisically applied by the incestuous web of institutions in the country. Between 3/93 - 9/93 there were 1000 filings for insolvency, which resulted in only 30 commenced bankruptcy procedures. There hasn’t been a single major bankruptcy in the Czech Republic since then - and not for lack of candidates.
Poland is a special case, always pitting horses against tanks, always losing the war, as a result. The pre-war (1934) law declares bankruptcy when confronted with a state of lasting illiquidity and excessive indebtedness. Each creditor can apply to declare a company bankrupt. An insolvent company is obliged to file a maximum of 2 weeks following cessation of debt payment. There is, indeed, a separate liquidation law which Allows for voluntary procedures.
Bad debts are transferred to base portfolios and have one of three fates:
- Reorganization, debt-consolidation (a reduction of the debts, new terms, debt for equity swaps) and a program of rehabilitation.
- Sale of the corporate liabilities in auctions
- Classic bankruptcy (happens in 23% of the cases of insolvency).
No one is certain what is the best model. The reason is that someone has yet to come with answers to the questions: are the rights of the creditors superior to the rights of the owners? Is it better to rehabilitate than to liquidate?
Until such time as these questions are answered and as long as the microeconomic debt crisis deepens -we will witness a flowering of versions of bankruptcy laws all over the world.
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