Phoenix business bankruptcy: Chapter 7 or Chapter 11?
On behalf of Ellett Law Offices , P.C. posted in 1. Chapter 7 on Monday, July 16, 2012
When businesses in Phoenix decide to file for bankruptcy, a decision must be made on which bankruptcy type to file under. The two most common of these filings are Chapter 7, in which a company liquidates assets to pay off debt or Chapter 11, in which a company restructures to cut costs and pay off debt. The decision between these can be difficult, and often is based on whether the company seeks to continue business operations post-bankruptcy.
A solar module manufacturer in a state to our northeast faced this decision earlier in the month. When the company, Abound Solar, initially filed for bankruptcy it was unclear whether it would go the Chapter 7 or Chapter 11 route, as its assets and liabilities were estimated to be similar. However, it has been recently confirmed that the company will be liquidating under Chapter 7 and ending its business operations.
The Colorado company says it has between 200 and 999 creditors to which it owes an estimated $100 to $500 million in liabilities. The company’s assets are estimated to be between $100 and $500 million as well. Previously, the company had reduced its workforce to 125 workers and now those remaining employees have reportedly been laid off.
When a company in Phoenix has assets and liabilities that are similar, bankruptcy could help them reorganize their debt so that they can continue in operation and emerge from bankruptcy protection stronger and in a better financial position to succeed. For Abound Solar, high competition from foreign markets apparently made it impossible for their product to compete, a problem that other U.S. solar energy companies have also had to confront.
When situations such as this occur, Chapter 7 bankruptcy offers an orderly and structured method for liquidating assets, paying as many debts as possible with the proceeds. It’s a process that can apply in personal bankruptcy as well. In this manner, the principals can achieve debt relief and ultimately free themselves start fresh.
Source: Northern Colorado Business Report, “Abound Solar goes Chapter 7 route,” Steve Lynn, July 5, 2012
Tags: Chapter 11, Chapter 7, bankruptcy