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Many recently filed chapter 11 cases, which presumably began as intended reorganizations, have become going-out-of-business liquidations shortly after filing.
Liquidations of struggling enterprises can take several forms.
While many people are familiar with the concept of a "bankruptcy liquidation," the structure of a liquidation in bankruptcy may vary depending upon the specific type of case.
Additionally, bankruptcy is not the only forum for liquidation of distressed companies, only the most common.
This article provides a synopsis of some of the various types of liquidations.
Among the requirements for confirmation of a plan is that administrative priority creditors be paid in full.
In the event that insufficient funds exist to pay administrative creditors, the case is referred to as being "administratively insolvent." Administratively insolvent cases are typically converted to chapter 7.
Similarly, jewelry store operator Christian Bernard filed for chapter 7 bankruptcy just after Christmas in 2008, as did the U. Often, however, a case is converted from chapter 11 to chapter 7 where the administrative costs of chapter 11 have resulted in a scenario in which general unsecured creditors are likely to receive little or no distribution.
Unlike a chapter 11 liquidation, in which the debtor's management remains in control of the business during the liquidation process, in a chapter 7 bankruptcy case, an independent trustee is automatically appointed at the outset of the case.
Companies often use chapter 11 to liquidate their assets because management remains in place during the bankruptcy process.
Some argue that this results in a more orderly liquidation that increases the ultimate return to creditors.
Most of these retailers began the bankruptcy process with the hope of reorganizing or selling some stores as going concerns, but were quickly forced to liquidate.