What small businesses should know about Chapter 11 bankruptcy

In a prior post, we highlighted a few trends that could spell the end of Chapter 11 bankruptcies for large businesses. Essentially, these enterprises have levered their assets in a way that makes the business difficult to reorganize because so many other unrelated parties may be required to agree to a plan that makes it unfeasible to execute.

For small businesses, however, Chapter 11 bankruptcy may still be an option. Small businesses are described as those having fewer than 500 employees and still make up the vast majority of Chapter 11 filings. However, these petitions are often dismissed and converted to Chapter 7 liquidation bankruptcies because the court finds there is little or no chance that the business will emerge to be profitable. 

However, not every small business that seeks Chapter 11 bankruptcy protection is doomed to failure. Part of the success of a potential reorganization plan involves strict adherence to filing requirements, which includes providing detailed recent balance sheets, a statement of operations, multiple cash flow statements and, of course, recent tax returns.

It should be noted that small business bankruptcies generate a higher level of scrutiny than large scale reorganizations. Indeed, this may not be fair, but it exemplifies the need for experienced legal counsel in these situations. Large organizations have legal departments to help with all the reporting and minutiae that comes with a bankruptcy filing and reorganization. For small businesses without this luxury, it is essential to have the proper guidance and advice, and the attorneys of Shulman Bastian Friedman & Bui LLP can provide it.  

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