How does a corporation go bankrupt?
June 25th, 2010
I can’t find it anywhere on google, just reasons to go bankrupt. I need to know HOW a corporation goes bankrupt. Why is nice too. (Why? Because of embezzlement or something like that. But with detail.) Thanks!
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It’s very simple. Because their operating costs are higher than their income. They lose more each year than they gain. They are in debt. Either you pay off the debt or file for bankruptcy.
Imagine having a credit card. You lose your job but still use your credit card. You are in debt and will have to file for bankruptcy if you have no way of paying off the credit card company.
well repeated operating losses will cause a company to not have enough cash to pay bills. it does not have enough money and is unable to borrow to raise cash. what happens is the company asks a court to declare them bankrupt. that tells the creditors to back off.
In the end our court system declares a company bankrupt. company will then sell everthing and creditors are paid in a certain order (ones wth collateral are paid first)
A company has to file with the state court for chapter 11 or chapter 7.
Usually more than not a company files due to bad management practices. Occasionally it is due to embezzlement but more often than not it is just that they have really unqualified people at the top that have no business running a company.
I worked for one such company in Bridgeport Ct. They filed Chapter 11 two years ago because they have highly unqualified people at the top but the company owners are too proud to admit they made bad judgment calls on who to trust. 200 people lost their jobs due to incompetence at the top.
There are alot of differnt ways and it depends on the type of business you are talking about. You can file Ch 11. bankruptcy protection with the court, which will allow you to do business and protects you from creditors while you are re-orgnanizing. You can just close up shop, and hand in your business license. You can not pay creditors and then you have no business.
Lack of reinvestment into the business for improvements can be a reason that leads to decreased profits. K-Mart for example didn’t put any money into upgrading or modernizing their stores over time and started letting them become run down and slummy, thus driving customers to other retail chains.
They failed to computerize their inventory systems as well, which didn’t keep the company’s level of efficiency on par with Wal-Mart and other retailers.