As a result of the poor economy, many New York City business owners have opted to close their doors. They must choose the appropriate approach to take in this situation. In essence, there are three methods for liquidating a business: through chapter 7 bankruptcy, by an assignment for the benefit of the creditors in a state court, or through liquidation outside of bankruptcy. Another choice for companies with more resources is to file for chapter 11 bankruptcy and liquidate the company. A bankruptcy attorney in Kingston, NY, can help!
- Business liquidation under Chapter 7
This entails submitting a chapter 7 bankruptcy petition to the bankruptcy court and supporting assets, obligations, and other data schedules. The business’s assets are then administered by a chapter 7 trustee, who sells them to generate cash to settle creditors’ claims.
One significant advantage of a chapter 7 bankruptcy is that the automatic stay is triggered as soon as the bankruptcy case is filed. This halts any ongoing lawsuits, foreclosures, and actions to enforce judgments against the debtor as well as all collection efforts against them.
- Chapter 11 Bankruptcy Liquidation
The corporation also has the choice to file for chapter 11 bankruptcy and liquidate its assets. Larger businesses often choose to go with this strategy; Circuit City is one example.
Just as in a chapter 7 bankruptcy, an automatic stay is in place as soon as the case is filed in a chapter 11 bankruptcy.
Additionally, in a chapter 11 liquidation, no trustee is usually appointed, and the debtor company’s pre-bankruptcy management will continue to oversee business operations throughout the liquidation.
- Assignment for Creditors’ Benefit
In essence, it is a state court process wherein the whole asset portfolio of the insolvent corporation is transferred to an “assignee for the benefit of creditors.” After selling the assets, the assignee settles the creditors’ claims in line with the relevant NY
- Exit the Courtroom.
The final alternative is to wind the business down without declaring bankruptcy. Compared to the other choices, this one could need less money upfront, but it also carries the most risk and uncertainty for the company’s directors, shareholders, and officers.
The state of New York prohibits the official dissolution of a corporation or limited liability company unless “sufficient provision of existing liabilities” has been made. If there are outstanding debts, the firm cannot voluntarily disband.
Simply halting operations without properly dissolving the corporation is not an acceptable choice since it leaves the firm in existence and leaves it open to further legal action.
