There are many reasons to file a business bankruptcy case. Business owners whose companies no longer return a profit may pursue Chapter 7 bankruptcy as they begin the process of dissolving the organization.
Bankruptcy is also a common solution in cases where restructuring might be necessary to make debt manageable and operations profitable in the future. Business leaders sometimes file for bankruptcy in response to collection efforts and creditor lawsuits.
Creditors owed money by an organization sometimes ask the courts to appoint a receiver to assume control over the company. Bankruptcy can help a business owner retain control and prevent a receivership.
Receivership strips an owner of immediate control
A receivership involves the courts appointing a receiver to take control over business operations. They should be a competent professional with the goal of helping correct the company’s financial hardship. Receivers have the power to make major decisions about the company’s operations and assets.
Receivership can help streamline company operations and address short-term financial challenges in some cases. However, receiverships do not always result in companies becoming solvent again.
Receivers who have limited familiarity with company operations could potentially even cause major setbacks by terminating the most important workers or making other decisions that undermine future opportunities for success. A timely bankruptcy filing can prevent the courts from initiating a receivership. It can allow the current owner to remain in control of the company while they address their debts and work to make the company profitable again.
Business leaders aware that their creditors may take drastic actions may want to file for bankruptcy first as a means of protecting the company and their interest in it.