CORPORATIONS BANKRUPTCY PROCEEDINGS

Corporations Bankruptcy Proceedings

Corporations Bankruptcy Proceedings

Bankruptcy

In law, settlement of the liabilities of a person or organization wholly or partially unable to meet financial obligations. The purposes are to distribute, through a court-appointed receiver, the bankrupt's assets equitably among creditors and, in most instances, to discharge the debtor from further liability. In the United States, bankruptcy is controlled by a federal law adopted in 1898 and amended several times, as by the Chandler Act (1938) and the Bankruptcy Reform Act (1978).

Bankruptcy proceedings may be voluntary (instituted by the debtor) or involuntary (instituted by creditors). The debtor may be insolvent—i.e., unable to pay all debts even if the full value of all assets were realized—or may become insolvent when current obligations mature. Bankruptcy is also permitted when the discharge of debts would otherwise be unduly delayed, e.g., if the debtor has fraudulently transferred property to put it out of a creditor's reach. When a person or corporation has declared or been adjudged bankrupt, preferred creditors (e.g., unpaid employees, or the federal government) are paid in full, and the other creditors share the proceeds of remaining assets (Thompson, 2007, Pp. 159).

Corporations Bankruptcy Proceedings - Canada

Bankruptcy

In practice, filing for bankruptcy triggers the automatic stay provisions which freeze all unsecured creditors' rights against the firm's assets. The trustee, selected by the petitioning creditors, takes possession of the debtor's assets, sells them and distributes the proceeds among creditors following the allocation schedule set out in section 136 of the Bankruptcy Act (Katherine and Thorne, 2006, Pp. 127). Subject to the rights of secured creditors, the order in which the proceeds are to be distributed among unsecured creditors is summarized as follows:

i) in the case of a deceased bankrupt, funeral and testamentary expenses;

ii) the costs of administration in the following order, the expenses and the fees of the trustee, and the legal costs;

iii) the Superintendent levy,

iv) wages, salaries, commissions and compensations, up to a maximum of $500 per worker for services rendered three months prior to the bankruptcy. Travelling salesmen are entitled to an additional $300 in expenses;

v) municipal taxes or levied within the two years preceding the bankruptcy;

vi) arrears of rent for a period of three months preceding the bankruptcy;

vii) federal deductions at source for Income tax, Unemployment insurance and employees contributions to the Workers' Compensation Board;

viii) claims of the federal and provincial government not previously mentioned. All the above claims are referred as preferred claims. Ordinary creditors are last, and their claims are set on a pro rata basis. Secured creditors, as a rule, are not subject to the stay provisions; they can enforce their liens against the debtor's assets at any time during the proceedings (Juliet, 2006, Pp. 39).

Reorganization

In Canada, firms in financial distress have one means for commercial reorganization under the Bankruptcy Act: a proposal pursuant to Part III of the Act.

A proposal is a legal procedure which has the effect of staying proceedings by unsecured creditors while enabling the firm to ...