Chapter 7 bankruptcy of a business involves its liquidation and should be viewed as a last resort
when all other reasonable and realistic alternatives to chapter 7 have been explored and
exhausted. Alternatives to chapter 7 for a business may include obtaining new sources of debt
financing or capital investment, sale of assets or sale of the business in whole or in part, an outof-court workout with creditors, or a restructuring under chapter 11 or 13. If none of these
alternatives are viable, management or owners of a business may want to file a chapter 7
liquidation for a financially troubled business that is unable to pay its debts or has debts greater
than assets (i.e., insolvent). If a business is insolvent or in the zone of insolvency, there is a
developing body of case law that holds that management no longer has a duty to the owners
(i.e., shareholders or other equity holders) of the business, but rather to its creditors. By filing a
chapter 7 bankruptcy, management can ensure that creditors’ claims are dealt with in a single
unified proceeding and that the debtor’s assets are not stripped apart by different creditors
pursuing their individual legal remedies, such as by judgment enforcement. The decision
whether a chapter 7 is appropriate for a particular business must be made based on the facts
applicable to that business.
Depending on the extent of the assets and debts, sometimes it makes sense to negotiate
settlement of debts outside of the bankruptcy proceeding. The benefit of this may be that
creditors receive a higher dividend on their claims than they would receive if the assets were
sold by a Chapter 7 Trustee. This makes sense if there is time and corporate management that
is able to assist in the voluntary liquidation process.
The attorneys at Evans Law have over 35 years of combined legal experience in dealing with
business closures and corporate bankruptcy. Chapter 7 Corporate bankruptcy may pose some
challenges requiring the assistance of a bankruptcy attorney to ensure that no mistakes are
made. In addition, the attorneys at Evans Law are experienced with bankruptcy litigation
including trials on dischargeability issues that may be disputed by creditors. The debtor in
bankruptcy needs a practitioner that can and will deal with any of the legal issues that might
occur, rather than having a different attorney for the primary filing, and another attorney if
litigation becomes necessary.
