Chapter 11 is a form of business bankruptcy. It is a way for struggling businesses to restructure their debt and potentially continue to operate. It also protects companies from creditor actions against the company.
Recently, a palm tree farmer, Cocopah Nurseries Inc., filed for Chapter 11 bankruptcy. This filing followed an attempt to restructure the business debt without liquidating to save the business.
Cocopah Nurseries Inc. not only grows and sells palm trees but it also grows citrus fruit. Their revenue fell from $57 million in 2006 to $23 million last year. Their revenue mainly comes from the sale of trees to commercial, residential and retail developments including the San Diego Convention Center. Many of their holdings are in California.
But the recent recession has left Cocopah Nurseries Inc., and many others, in financial turmoil. Owning a business can be difficult financially at any time, but the difficulties business owners have faced in the recent economic downturn have been for some catastrophic.
Even minor changes in a business's revenue can result in payments not being made to creditors and vendors not sending needed supplies. Missing a payment to a creditor can lead to creditors initiating collections proceedings. These proceedings can be daunting for a business owner. Creditors can be seeking their payments and pressuring the owner for payments when the company does not have liquid assets.
This is where a Chapter 11 bankruptcy plan is most advantageous. Once a company files for Chapter 11 protection, all creditors collection actions must stop. This is commonly referred to as an "automatic stay." The stay stops all collection action and includes mechanic's liens and repossession actions. Filing for Chapter 11 can also help to create a debt repayment plan to allow the business to save some assets and continue operation.
Source: Wall Street Journal, "Palm Tree Farmer Files for Chapter 11," Stephanie Gleason, July 10, 2012