Corporate Bankruptcy

Corporate Bankruptcy

A company can face Corporate Bankruptcy either voluntarily or involuntarily.

In order to become bankrupt voluntarily, the board of directors passes a resolution authorizing the company to file for Bankruptcy. Any company that owes at least $1,000 and is unable to pay its debts as they become due, or that has assets which at fair value are insufficient to discharge all of its liabilities, can file for Bankruptcy. A company becomes bankrupt involuntarily when a proposal put forth by the company is rejected by its creditors, or if one or more creditors apply to the Court for an order to put the company into Corporate Bankruptcy.

Regardless of how a company becomes bankrupt, it is necessary to have a Licensed Insolvency Trustee in Bankruptcy directly involved in the process.

Corporate Bankruptcy Will be the End of the Company’s Existence.

Generally, upon the company becoming bankrupt, the Trustee will take possession or control of the company’s assets. Secured creditors, providing that they have properly registered their security are generally entitled to obtain possession of their collateral from the Trustee and then proceed to realize (sell or liquidate) that collateral to recover their loans.

The Trustee will proceed to “realize” upon the company’s other assets (those not held as security for a loan) in consultation with the inspectors of the bankruptcy estate. The Trustee will also review all claims filed against the bankruptcy estate and admit them or disallow them, in whole or in part. Once all of the assets have been liquidated and claims determined, the Trustee will make its final distribution to creditors and proceed to close the administration of the bankruptcy estate. Good to know! In exceptional circumstances, a bankrupt company could make a proposal in order to exit bankruptcy. Creditor approval is required for this to occur.