Chapter 11 cases are filed for many reasons. One reason is a for an individual or business reorganization. Another possible reason is for a business liquidation. Why would a Chapter 11 case be used for a liquidation, when Chapter 7 already is available for that purpose? The reasons are many. In most situations, more value will be gained when the business is “wound down” by the owner gradually over time, rather than sold at “firesale” prices by a Chapter 7 trustee.
Although a Chapter 11 filing can be an option of last resort for most businesses, being proactive and exploring options at the earliest opportunity can reap great rewards. Using a targeted Chapter 11 filing can work wonders, especially where asset sales are concerned. One recent example illustrates this principle very clearly. Business owners should understand that the Chapter 11 process is their friend in a crisis, not something to be avoided.