If your business is in financial trouble and struggling to stay afloat, then you might have thought about declaring bankruptcy. If you think you’ve exhausted every other option, this may be the only path left for you to take.
In the UK we’re familiar with the administration process, but around the world, there are different courses of action for this event. In the United States, for example, this is called Chapter 11.
What is Chapter 11?
Chapter 11 is a part of the United States Bankruptcy Code – it allows for reorganisation to take place under US bankruptcy laws. This law applies to businesses as well as individuals. By filing for Chapter 11, you will still be involved in the day to day activities of your business but will need to have decisions approved by the bankruptcy court.
The law is flexible – there’s no limit to the debt you can acquire to apply for Chapter 11. However, this flexibility is costly, and you risk adding fees to an already overwhelming pile of debt.
Businesses and individuals should do extensive research and look into alternatives before settling on the costly process. Chapter 11 is a useful tool for getting businesses back into shape, but it should only happen as a last resort. With such a big price tag attached, the risk of further financial difficulties is considerable.
In the UK, filing for bankruptcy is called administration, and similar to the US, this law requires approval by a third body for business decisions. In the UK, the third body is called a creditor. Creditors will review how your business is functioning and put together a plan detailing how the debt is to be paid off. However, in comparison to the US, business owners retain a moderate level of control over the operations of their business, while UK law rejects this structure with the creditor overseeing most of a business’s operations.
The administration law is effective in supporting businesses in paying off debts and not being dissolved. However, this is not always able to pay off and will leave some business having to sell their assets and go into liquidation.
Both Chapter 11 and administration are safety nets when trying to reorganise your business finances; however, you should work towards minimising financial difficulties to avoid this costly route.
Take note of how your business is performing and whether you’re making enough profit to last. ‘Getting by’ with just enough money in the bank is likely to lead to debt. If you’re unable to pay the money back, talk with creditors and other financial experts to understand your options before jumping in at the deep end.
If your business is unable to pay off debt or is trying to avoid bankruptcy, it’s critical that you seek professional guidance as soon as possible. For further support, speak to one of Irwin Insolvency’s experts today on 0800 009 3173.