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Bankruptcy Reorganizations and Arrangements in California

Bankruptcy Reorganizations and Arrangements in California

What is Bankruptcy Reorganization?

Bankruptcy reorganization occurs when a corporation is unable to pay its outstanding debts or a company’s passives exceed actives. As such, bankruptcy proceedings are likely to be initiate. These proceedings are conducted by a bankruptcy court.

In the framework of bankruptcy reorganization, the insolvent corporation is given a chance to draft and submit a reorganization plan to the court. The latter is aimed at the financial recovery of a corporation. If the given reorganization plan is approved by the court, the corporation can continue its business activity since the payment of debts impeding corporate operations is adjourned.

What Should a Reorganization Plan Include?

The reorganization plan must include all the necessary measures deemed necessary to decrease costs and increase the income of the corporation. The measures may refer to:

  • Changes in ownership of shares;
  • Financial restructuring;
  • Merger and acquisitions;
  • Recapitalization;
  • Substitution of management.

What If a Reorganization Plan Is Not Rejected?

If a reorganization plan is rejected by the court, the corporation is doomed to liquidation. That said, its assets will be sold to satisfy the claims of the creditors.

Who Undertakes the Responsibility for Carrying out a Reorganizations Plan?

Pursuant to Corporation Code of California section 1400 of the trustee or trustees of a corporation appointed in the reorganization proceeding are vested the authority to exercise a reorganization plan or court orders without further consent by the corporation board or shareholders.

What Kind of Powers Do Trustees of a Corporation Have?

The powers of trustees, among other things, may include:

  • Alteration or amendment of bylaws;
  • Constituting or reconstituting the board;
  • Substituting directors and officers;
  • Changing capital stock;
  • Authorizing to issue bonds;
  • Electing to wind up and dissolve the corporation.

Dissolving a Corporation

If the reorganization does not succeed, or the trustees have elected to dissolve, the corporation should elect to “wind up” the corporation. As such, the trustees would file a certificate of dissolution with the Secretary of State.

What Requisites Are There for the Certificate of Dissolution?

The trustees sign and verify the certificate of dissolution when the corporation has been completely wound up. It shall state the following:

  • Corporation’s name;
  • The identification of the court in which the order for relief was entered;
  • Court’s file number for the matter;
  • An order confirming a reorganization plan has been entered in that case;
  • The undersigned has been appointed by the court as a trustee;
  • The shares of the corporation have been canceled pursuant to the terms of the plan;
  • The assets of the corporation have been distributed pursuant to the terms of the plan;
  • The corporation is dissolved.

Get in Touch with a Los Angeles Corporate Attorney

If you need help in the bankruptcy reorganization and arrangements process in California we invite you to contact our Los Angeles business lawyer at (310) 943-1171.

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