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When is Chapter 11 a smart business strategy?

On Behalf of | Sep 2, 2022 | Corporate Bankruptcy & Restructuring

Movie theater giant Cineworld, owner of Regal Cinemas, made a reported $1.8 million in revenue in 2021 and reports strong box office numbers the first half of 2022 with the releases of Minions: The Rise of Gru and Top Gun: Maverick. Even with these numbers, leaders within the organization recently announced that they are in talks to consider filing for bankruptcy to help rebuild the business.

If they choose to move forward, the business will likely pursue relief through Chapter 11 bankruptcy. The announcement serves as an opportunity to discuss Chapter 11 as an option for struggling businesses.

Why would a business that is making money need to file for bankruptcy?

Bankruptcy can serve as an opportunity to help businesses that are making money but are not making enough to afford their expenses. A common current reason is the continued impact of the coronavirus.

In these situations, a Chapter 11 petition for relief through bankruptcy can offer more than just a lifeline, it can serve as a smart business strategy. This option focuses on restructuring instead of shutting down the business and when used wisely can serve as a tool to help guide negotiations with creditors. If the negotiations are not fruitful, the business can move forward with Chapter 11 to reach their desired outcome — restructure and move forward.

What would a Chapter 11 look like in this situation?

The bankruptcy process always begins by stopping the collection process. This is done through an automatic stay, a court order that prohibits creditors from continuing collection efforts. Next, this bankruptcy process generally includes with reorganization and can include some form of downsizing or asset sale to pay off some creditors. The ultimately goal is to come up with a plan approved by the Bankruptcy Court, creditors, and petitioner.

Why do I need a bankruptcy attorney? Won’t any attorney be able to handle this?

Bankruptcy is more than just filing forms and paying fees. A Chapter 11 bankruptcy can be complicated. The process involves putting together a reorganization plan that requires approval. If the process involves a large case, a court appointed U.S. Trustee will likely put together a creditors’ committee and expect the petitioner to work with this group. Legal issues can also arise throughout the process including creditors violating the automatic stay. An attorney specialized in this unique area of law can advocate for your interests and better ensure a reorganization plan that sets your business up for future success.