How to Handle Organizational Insolvency
When a corporation can no longer afford financial debts or obligations it is considered to be insolvent.
Typically, before a business is formally considered to be in a state of insolvency, the company will work with financial institutions, including debtors and creditors, to restructure debt and update corporate finance policies.
Corporate bankruptcy or insolvency is often the result of inadequate management of cash or a loss of income. Conversely, it could be due to unexpected rate increases from vendors, suppliers, or services.
If your corporation is edging upon a financial crisis or bankruptcy, the specialty consultants at Hunter Stevens can provide support. Our expertise lies in debt advisory and litigation. We work with your team to ideate debt restructuring options and investigate bankruptcy solutions.
Types of Corporate Bankruptcy
Believe it or not, many public companies go bankrupt.
Frequently, corporations and businesses suddenly find themselves in damaging financial situations. Often, the shift from functional to unfortunate happens very quickly, too.
The first step is to acknowledge that your business is not alone or unique in having financial difficulties, and that panicking will not resolve the issue.
There are two common ways to file bankruptcy for those corporations in financial distress. Each of the two types of bankruptcy, Chapter 7 and Chapter 11, takes a different approach to recover lost funds.
Read through this review of the different types of bankruptcy to get a better understanding of which type of insolvency could serve the best interest of your corporation.
Chapter 7: Liquidation Bankruptcy
This form of bankruptcy applies to corporations or partnerships where no financial reparations can be made.
In this case, non-exempt assets belonging to the company are liquidated, hence the name. Any cash revenues collected from the sale of the assets are paid to the creditors.
Chapter 11: Reorganization Bankruptcy
This form of bankruptcy applies to corporations and partnerships and allows for a reorganization of assets, rather than a forced liquidation.
With approval from debtors, creditors, and litigants, a plan involving the reorganization of debt can be established.
Insolvency vs. Bankruptcy
It’s also useful to note the legal differences between insolvency and bankruptcy.
According to the IRS, a person is insolvent when the total liabilities exceed total assets.
On the other hand, bankruptcy refers to a person or corporate entity which has been deemed insolvent and outlines a formal plan of how they will reorganize debt, or repay financial obligations.
An entity must be regarded as insolvent before it can be considered bankrupt.
How to Handle Corporate Finances During Insolvency
If you are considering bankruptcy as a viable financial option, perhaps your attempts to optimize financial outcomes went awry.
There are some specific items that many corporations are concerned about when a company goes bankrupt. Review these considerations before taking the next steps.
What To Do If Your Business Is Bankrupt
There are a few immediate steps to take when you become aware that your organization is bankrupt and can no longer pay bills, or debt liabilities exceed assets.
According to the SEC, you’ll need to alert governing bodies and report the situation as quickly as possible.
It’s also useful to take these preparatory steps:
- Stop or limit all unnecessary spending and alert your creditors of the situation.
- Do not take on further expenses.
- Stop salary payments, including to staff, management, and c-level employees.
- Keep a record of steps, payments, and litigation hearings.
- Hire an experienced consulting firm that can provide debt advisory services.
As long as you follow the procedures and proper protocol for filing bankruptcy, you will be able to move forward within standard legal operating conditions.
If you need support to work through liabilities and procedural concerns regarding your corporate bankruptcy, the Hunter Stevens team of specialist consultants can help.
Paying Employees During Business Bankruptcy
One of the major concerns companies have, beyond the financial burden they will incur, is how to rightfully pay employees owed wages if the cash flow is at a deficit.
In the event of corporate bankruptcy, your employees may still be owed wages at the time of closure. In this instance, your unpaid employees become creditors and must be repaid as part of the restitution plan.
You may also be required to pay former employees for lost wages, lost benefits, or paid leave/paid time off. Talk with your consulting team about how to properly pay back employees upon filing bankruptcy.
Corporate Debt Advisory, Bankruptcy and Insolvency Solutions with Hunter Stevens LLC
Though there’s a negative stigma surrounding poor corporate financial management, corporate bankruptcy and insolvency are much more common than you’d think.
Whether you’re running a corporation that recently incurred unexpected loss or financial duress, or simply had a poor cash management system in place, the expert team at Hunter Stevens is here to provide you with debt advisory, corporate insolvency support, and organizational consulting services.
This way you can turn your position around, relieve the liability, and get back in good standing with financial institutions.