Regaining Business Health After A Corporate Bankruptcy

A successful New York bankruptcy filing involves more than just signing a few papers and going about your business. An organization’s primary responsibilities have changed and the business philosophy must change as well.

The Typical Business Climate

A private business is designed to generate profits for the owner. The culture of the organization is built around this idea of benefiting the business owner. All decisions are made for the owner’s benefit, whether executives consciously recognize this or not.

In most cases, privately held companies issue stock and are owned collectively by hundreds or thousands of individuals. The average corporation in this country is all about what is best for the shareholders and not the executives. This means making decisions that increase stock price and generate dividends. If the management isn’t doing things right, the major stockholders can vote them out and put in a team more to their liking.

But everything changes after a bankruptcy filing.

Duty to the Creditors

Part of the philosophy of bankruptcy filing is the corporation’s change in duty. Chapter 11 bankruptcy is a commitment to the creditors. The organization is given some breathing room to get stronger financially, but their ultimate goal is to repay their debts.

This duty to the creditors supersedes the organization’s duty to any shareholders or individual owners. Executives must put the creditors first, ahead of their own interests and those of shareholders. This means they must suspend dividend payments in order to pay debts down faster. Actions which might hurt stock prices should be taken if they will make it easier to pay creditors.

Of course the corporation may have other duties that are more important than what is owed the creditors. Tax obligations, legal liabilities and other responsibilities must be met as well.

Changing Corporate Culture

Businesses can’t continue to operate as before after a bankruptcy filing. Past actions led to this state of financial need so changes must be made to ensure future profitability. However there is more to the situation. Officers have an instinctive reaction to preserve stock value, and that instinct must be overcome after a business bankruptcy.

Organizations that have emerged from bankruptcy filing successfully are those that have adopted a fundamental change in corporate attitude. They have worked hard to fulfill their obligation to their creditors, met the conditions of reorganization, and come out of bankruptcy stronger than before. Once Chapter 11 bankruptcy is complete, they return to their previous commitment to the shareholders.

Corporate officers who understand and embrace this change in philosophy have the best chance of success after a New York bankruptcy filing. Although it may be hard to adopt the new attitude, ultimately it is in the best interest of the shareholders. As the business recovers, share values become strong and shareholders benefit.