Business bankruptcies in Florida
Video Description
Bankruptcy is an integral part of modern business disputes. The party that files the bankruptcy is called the debtor. The party that is owed money is called the creditor.
Business bankruptcy is an effective way for a business experiencing financial difficulties to obtain relief from its creditors. While bankruptcy generally may have a negative connotation it is nevertheless a valid legal remedy that is available to any businesses that qualifies for the relief.
In this video Board Certified expert Florida business attorney David Steinfeld defines what happens in the most common business bankruptcies of Chapter 7 liquidations and Chapter 11 reorganizations. He also explains what to expect if your business is named as a creditor in a business bankruptcy.
Business bankruptcy is an effective way for a business experiencing financial difficulties to obtain relief from its creditors. While bankruptcy generally may have a negative connotation it is nevertheless a valid legal remedy that is available to any businesses that qualifies for the relief.
In this video Board Certified expert Florida business attorney David Steinfeld defines what happens in the most common business bankruptcies of Chapter 7 liquidations and Chapter 11 reorganizations. He also explains what to expect if your business is named as a creditor in a business bankruptcy.
Video Transcript
Hello, I'm Dave Steinfeld a Florida Bar Board Certified business litigation attorney. That means I'm recognized in the State of Florida as an expert in the area of business litigation law. This video you're about to watch is from a talk I gave entitled “A primer on business litigation law”. The topic of this video is what a business can expect as a creditor in a bankruptcy proceeding. This video is not intended to provide you with legal advice but to merely give you some background information on this topic. After you have had an opportunity to watch the video please take a look at my other videos and articles on my website at www.DavidSteinfeld.com. Thanks for watching,
Business bankruptcy basics
Bankruptcies are becoming more common in business and going hand in hand with business litigation. Therefore businesses have to understand the process that they'll face as a creditor in a bankruptcy and what they can expect. More often than not when a business goes through a litigation process sues other business at some point the other business contemplates or attempts bankruptcy and that can have a great impact on the business that is suing them. That's not to say that all bankruptcies are automatic and that's not to say that all bankruptcies simply eradicate all debts.
The process of a bankruptcy very generally speaking is that once the debtor in the bankruptcy qualifies and that's done through the debtors counsel generally to determine what debts they have then if they qualify they can file the bankruptcy and open the bankruptcy estate. The effect of that is to amass the debtors assets to put them together so that when the creditors file their claims and the creditors are broken out in a different line of priority and who has priority within those creditors the assets can then be liquidated and paid to them.
The process of a bankruptcy very generally speaking is that once the debtor in the bankruptcy qualifies and that's done through the debtors counsel generally to determine what debts they have then if they qualify they can file the bankruptcy and open the bankruptcy estate. The effect of that is to amass the debtors assets to put them together so that when the creditors file their claims and the creditors are broken out in a different line of priority and who has priority within those creditors the assets can then be liquidated and paid to them.
The two common kinds of business bankruptcies
There are two basic kinds of bankruptcies that businesses face and I just wanted to briefly thank my friends who are bankruptcy practitioners with their insights in this part Nadine White-Boyd and Randy Fisher who are local bankruptcy practitioners they represent debtors whereas I represent creditors more often than bankruptcies. There are two basic kinds of bankruptcies that businesses can find themselves involved in, one is a liquidation which is under Chapter seven of the Bankruptcy Code the other is a Chapter 11 reorganization. The difference between these is the net result the outcome.
Chapter 7 liquidations
They start out in very similar fashion with the bankruptcy estate being opened and the assets assembled sometimes with a trustee or without trusting. In a Chapter 7 liquidation an individual that qualifies for that and files that obtains a discharge of the debts that are dischargeable. There are non-dischargeable debts and dischargeable debts but the dischargeable debts get discharged and they’re finished. For a corporation interestingly in a Chapter 7 liquidation the business does not obtain a discharge. The bankruptcy is simply closed. Why then would a business you ask want to go through a Chapter 7 liquidation. Sometimes a business wants to show to its creditors that it has no assets and that's why some of the debtors counsel will take that business into a Chapter 7 liquidation to clearly demonstrate to the world that it has no assets.
Chapter 11 reorganizations
Conversely in a reorganization the debt is not discharged but the debt is repackaged in such a way that it gets paid off in a plan. Most Interestingly that in the Chapter 11 reorganization bankruptcy the debtor has to propose a plan that the creditors have to accept. You can find yourselves as a business as one of the creditors or on a creditors committee and there are different priorities within those creditors. Once the plan is approved then the plan has to be executed in order to include bankruptcy. Prior to that in repackaging the debt the debt itself, depending on the scenario and depending on the creditors, can be reduced or restructured in what's called a cram down. That doesn't necessarily mean that the debt goes away or it gets eliminated or is made more favorable to the debtor but the terms can be restructured in such a way so that it still benefits the creditor but the debtor is able to meet those obligations and pay the debt.
One example I'll give you is of a institutional client of mine that was foreclosing on some commercial real property that I was handling for that client. On the eve of the foreclosure the borrower sought Chapter 11 bankruptcy protection. So that stopped the foreclosure process and pushes it into the bankruptcy. Ultimately that debtor in the bankruptcy was able to restructure the debt in such a way that the debtor could meet those obligations and pay my client who was the sole secured creditor back. However in that process my client was entitled to protection payments during the bankruptcy of the interest that was due on the loan because the value of the property was worth less than the loan. The loan itself interestingly enough was an interest only mortgage with the balloon at the end. So the net effect of the bankruptcy to my client was minimal if anything at all because all the payments that weren't being made were then caught up and made through the bankruptcy and now there is a plan approved by the bankruptcy court that that must be paid and it must be paid in full at the end. So bankruptcies are not a bad event they're not necessarily a negative event for businesses they can wind up being a positive for a business if the business is the creditor.
One example I'll give you is of a institutional client of mine that was foreclosing on some commercial real property that I was handling for that client. On the eve of the foreclosure the borrower sought Chapter 11 bankruptcy protection. So that stopped the foreclosure process and pushes it into the bankruptcy. Ultimately that debtor in the bankruptcy was able to restructure the debt in such a way that the debtor could meet those obligations and pay my client who was the sole secured creditor back. However in that process my client was entitled to protection payments during the bankruptcy of the interest that was due on the loan because the value of the property was worth less than the loan. The loan itself interestingly enough was an interest only mortgage with the balloon at the end. So the net effect of the bankruptcy to my client was minimal if anything at all because all the payments that weren't being made were then caught up and made through the bankruptcy and now there is a plan approved by the bankruptcy court that that must be paid and it must be paid in full at the end. So bankruptcies are not a bad event they're not necessarily a negative event for businesses they can wind up being a positive for a business if the business is the creditor.
