Business Chapters

Corporate Bankruptcy

Building a successful business is very difficult and when doing so some may encounter financial hardship. The law has established a process that can help rescue businesses. This is called bankruptcy. What is bankruptcy to a company? How does bankruptcy rescue businesses? The reader will understand the meaning of bankruptcy to a corporation, be familiarized with types of proceedings, and identify with businesses that have been rescued by bankruptcy proceedings.

Bankruptcy is a federal system of statutes and courts which permits persons and businesses which are unable to pay debtors or in some cases face potential insolvency, to place their financial responsibilities under the control of the bankruptcy court (www.law.com). The way this works is that when the business's debts exceed its assets or is unable to pay, the business can file a petition with the bankruptcy court. This called filing for voluntary bankruptcy.

If a business does not file for bankruptcy the unpaid creditors can file an "involuntary" petition to force the business into bankruptcy (www.law.com). It is better and most common for businesses for file voluntary bankruptcy (www.law.com).

There are three types of petitions: Chapter 7, Chapter 11 and Chapter 13 (www.law.com). The most popular is for business to petition is under Chapter 7 (www.law.com). In Chapter 7, businesses are appointed a trustee by the court (www.law.com). The trustee is like a financial wizard. The trustee counts up the businesses assets with the plans of keeping them from the bankruptcy, pays debts the business owes with paying taxes first (www.law.com). The trustee then focuses on paying secured debts such as mortgages and lastly unsecured debts (www.law.com).

Then the court officially declares the business bankrupt and discharges the unpayable debts, this is a lost for the creditors (www.law.com). Filing a bankruptcy petition will suspend all existing legal actions like foreclosure and other imposition of judgment. Businesses cannot file for bankruptcy again for seven years (www.law.com).

Chapter 11 bankruptcy allows a business to reorganize and refinance to prevent dislocation of the organization (www.law.com). Most of the time there is no trustee appointed, but the business is given time to present a plan of reorganization (www.law.com). This does not always work well for business (www.law.com). The final plan usually causes the creditor to decrease the amount owed or take monthly payments over a long period of time (www.law.com).

"Chapter 13 is similar to Chapter 11, but is for individuals to work out payment schedules, which is more likely to be worthwhile. Bankruptcy law has become a specialty due to complex regulation as well as administration" (www.law.com).

With these three options for an organization to rescue itself from financial hardship has this help any businesses save itself. There are a few organizations of whom have been rescued by bankruptcy and a few that are currently experiencing hardship. In this paper you will read about 3M, NationsRent and Kmart. These three businesses has filed a bankruptcy petitions and was rescued.

3M Company, what a remarkable corporation and when faced with financial hardship they persevered. 3m is an international corporation with subsidiary companies in more than 60 countries and are in nearly 200 markets, not to mention their international operations (http://galenet.galegroup.com/servlet/BCRC). Their products range from post it notes and scotch tape to transdermal patches of nitroglycerin. This corporation has seven different business divisions with fifty different department. How did this corporation who is now the largest manufacture in Minnesota come to life?

It was 1902 and five industrious and tenacious northern Minnesota businessmen with diverse occupations came together and founded 3M Company (http://www.3m.com./about3M/histroy/founders.jhtml). They were not very bright entrepreneurs they first attempted to mine the rare mineral corundum or so they thought, the material turned out to be a low grade anorthosite, a virtually useless igneous rock (http://galenet.galegroup.com/servlet/BCRC). This almost bankrupt the company but they did not give up.

In 1905 principle investor named Edgar B. Ordway convinced friend Lucius Pond Ordway a self made millionaire to join with him rescuing 3M (http://galenet.galegroup.com/servlet/BCRC). Ordway paid the company's debt of thirteen thousand dollars and added twelve thousand dollars as capital (http://galenet.galegroup.com/servlet/BCRC). He went on to invest an additional two hundred and fifty thousand dollars to grow the business and add profit. Ordway did this for 3M without a salary and in 1910 he moved the company to St. Paul after World War I (http://galenet.galegroup.com/servlet/BCRC).