Your guide to navigating bankruptcy if push ever comes to shove.
In September 2022, the CEO of crypto company Celsius, Alex Mashinsky, resigned following the company going bankrupt amid the crypto crash. He declared, “I regret that my continued role as CEO has become an increasing distraction, and I am very sorry about the difficult financial circumstances members of our community are facing.” Celsius is just one of the many companies to undergo this event. This year, many huge companies filed for bankruptcy, including cosmetic giant Revlon and JCPenney, as the post-Covid world came crashing down on them.
Given the unpredictability of our economic environment, there is no telling how your company would do financially at a given time. No one wants their company to go bankrupt, but sometimes it is inevitable. If it does happen, follow these steps to ensure that the process is as smooth as possible and minimize the negative impact of bankruptcy on both you and your company:
1. Inventory your assets and debts.
If you find yourself in the position of CEO Mashinsky, don’t despair; there are ways to ensure that your company’s bankruptcy is as considerate as possible, both to those who are affected by it and the company itself. First, take an inventory of all your assets and debts; this will be helpful in developing a plan for reorganization or liquidation.
2. Meet with your creditors.
You will need to meet with your creditors to propose a repayment plan; this is called a “meeting of the creditors”. At this meeting, you will need to provide evidence of your assets and debts as well as any proposed plans for repayment. Your creditors may vote to accept or reject your plan.
3. Develop a plan for reorganization or liquidation.
If your creditors vote to accept your plan, you will need to develop a detailed plan for how your company will be reorganized or liquidated. This plan will need to be approved by the court. It could entail selling off assets, restructuring debt or both.
4. File for bankruptcy protection.
Once you have developed a plan, you will need to file for bankruptcy protection. It will stop creditors from trying to collect on their debts and give you time to reorganize or liquidate your company. To do so, you have to file a petition with the court.
5. Notify your employees.
Your employees will need to be notified of the bankruptcy proceedings; this is required by law. It would be best if you did so as soon as possible, as they may have questions or concerns about their job security or benefits. Moreover, depending on the different laws across countries, employees might be entitled to certain benefits and protections.
6. Cooperate with the trustee.
The trustee is responsible for overseeing your company’s bankruptcy proceedings. You will need to cooperate with them to ensure the process goes smoothly. This could include providing documents or information, attending hearings or both. The trustee may also be responsible for liquidating your assets if that is the plan.
7. Discharge your debts.
Once you have met all your obligations, you will be able to discharge your debts and move on with your life. It does not mean, however, that your creditors will forget about the debt; it simply means that you are no longer legally obligated to repay it. If you cannot discharge your debts, you may be able to negotiate a payment plan with your creditors.
You can bounce back from bankruptcy
Facing bankruptcy is challenging, but it might teach you some valuable lessons, urging you to try your hand at entrepreneurship again. However, prepare to face some restrictions and, of course, skepticism from potential investors and creditors. You need to rebuild your credit score and create a reliable financial plan to reignite your business ambitions.
In June 2009, renowned automotive company General Motors filed for bankruptcy after the great depression left demand for cars plummeting. The same year, the company bounced back, having sold most of its subsidiaries to cover debt and streamlined its operations. The company did so in just 40 days. So, if you put your mind to it, you can rest assured that you can pull your company back up in no time should this happen to you.
Also read:
- Can a Startup Start Afresh? WeWork Says Yes!
- Why Do Big Companies Go Bust?
- Tips to Cope Up With Small Businesses’ Financial Struggles
Header Image by Freepik
