Can Corporate Insolvency Turn Advantageous?

By Author: Paul Smythe
Total Articles: 10
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Can corporate insolvency turn advantageous in the long run? But, before we start to evaluate the various factors related to it, we need to understand what insolvency is. When a company fails to repay its debts or where the assets are unable to meet its liabilities, it can be termed as insolvency.

The factors contributing to insolvency can be numerous. The most recent times have witnessed the collapse of the economy that has made a huge impact on every industry. While a large portion of the efficiently run companies had to pull down the cost of its products and services, the incompetent ones were forced to make their exit from the scene. Other factors for insolvency can be the increase in interest rates, the general policies affecting the industry, etc. The management must be efficient and capable of visualizing things on a longer perception to turn the events profitable.

When the debt problem becomes acute, the management may sell out a portion of its assets to meet its obligations. Another option that lies in the hands of the management is to utilize the cash reserves for settling the obligations. The creditors ...
... may be willing to opt for a lower payment in lieu of the total amount outstanding or may extend the date of payment, offering better advantage for the company to make a comeback. With money being a major issue, these informal settlements create the opportunity to invest them wisely for increasing the returns.

But, where the creditors or the company has filed for bankruptcy under Chapter 11, the law transfers the handling of the debtor's business to the hands of a trustee. The trustee is given the powers to attain financing and loans on favorable terms, besides the freedom to reject and cancel contracts.

When a company is forced through the bankruptcy procedure, it does not cease to function, but continues as a going concern. Typically, the companies that get the opportunity to go through a good bankruptcy process will make the attempt to sell off the part of business that is running on the loss, and work to enhance the quality of the products that offer better prospects. With the profitable products identified, the company is saved from marking its exit and holds better prospects in the future.

Under other circumstances, the insolvent companies through the efforts of an insolvency practitioner may attempt to merge with another and improve the chances for its future growth.

But, in the event of the failure to turnaround, the companies will be forced to cease its operation under Chapter 7. It is the opportunity provided for a rebirth that can be said to be advantageous in insolvency under Chapter 11.

The author of this article has dealt with many Debt Problems. Being an Insolvency Practitioner the author writes great articles on Liquidation and insolvency.