A Chapter 11 business bankruptcy is a process for a business to restructure its debts while continuing to operate. Anyone can file for Chapter 11 bankruptcy, including individuals, small businesses, and limited liability companies. There is no debt limit or required income, but it is the most complex and expensive form of bankruptcy. That’s why it’s often associated with large companies.
A reorganization plan is what the debtor must present as a way of explaining how they will make the business more cost-efficient going forward. This process has been used by many companies to keep them from going under and to keep their associates employed. Let’s look at some of the processes behind Chapter 11 and creating a reorganization plan.
What Is Reorganizing?
Reorganizing is a broad corporate management term that indicates a company is changing something about its current structure. Either it is changing its organizational structure, which can mean reallocating resources from one part of the business to another, or it is changing its financial structure, meaning it’s selling assets or refinancing debt. Reorganization plans are done when the company has become inefficient and can no longer pay its debts under the current organization. A court will only accept a Chapter 11 reorganization plan if the plan is expected to pay more to the company’s creditors than a liquidation would.
How To Create A Reorganization Plan
The first step is to look at the original business strategy. Assess how the company has veered from this initial vision and what steps are needed to put it back on the right path. Without defining the problem, there is no metric for measuring the plan’s success. Identify what is working in the company’s current organization and what would be better changed.
With a plan in place, it’s time to execute it. This involves creating awareness in your employees of the need for change, reinforcing the change over time, and providing employees with the knowledge and skills necessary to change. If possible, assign a team to monitor the reorganization efforts looking for setbacks or deviations in the plan.
If the court accepts the reorganization plan, anything that falls outside of that plan will need court approval. The court may restrict compensation to the debtor’s “insiders,” like shareholders or business directors. Furthermore, any selling of assets that were not mentioned in the reorganization plan will be restricted by the court.
For more information about Chapter 11 bankruptcy, or the specifics of a reorganization plan, call Natural State Law, PLLC at (501) 916-2878.