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.
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:
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.
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.
The powers of trustees, among other things, may include:
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.
The trustees sign and verify the certificate of dissolution when the corporation has been completely wound up. It shall state the following:
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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