Can small businesses survive Chapter 11 bankruptcy?

On behalf of Macdonald Fernandez LLP posted in business and commercial bankruptcy on Friday, March 25, 2016.

Our last post highlighted the potential for sporting goods retailer The Sports Authority to emerge from Chapter 11 bankruptcy. Stemming from a prior post bemoaning how retailers struggle to make it through the bankruptcy process, the prospects are not promising for a happy ending. This is primarily because of how a retailer's assets may be leveraged to prevent an effective restructuring.

Despite these difficulties for large businesses, Chapter 11 bankruptcy may still be a viable option. For the uninitiated, small businesses are described as those with 500 employees or less, and they still make up the large majority of Chapter 11 filings across the U.S. Indeed, many of these petitions are converted to Chapter 7 liquidation proceedings, but not every small business is doomed to failure.

A successful Chapter 11 reorganization depends on strictly adherence to filing requirements, which includes the preservation (and presentation) of balance sheets, tax returns for the business, accurate cash flow statements and operations statements that explain the viability of the reorganization plans.

With that, small business owners should understand that Chapter 11 bankruptcies for small businesses tend to garner more scrutiny than large enterprises. While big corporations may have legal departments to deal with this scrutiny, small business owners can depend on the experience of a skilled bankruptcy attorney to lead them through the process. The advice and guidance that a bankruptcy lawyer can provide can mean the difference between the business emerging stronger and actually closing down.

The preceding is not legal advice. Specific questions about bankruptcy should be directed to an attorney.