Many legal courts exist in the United States, and they handle more than just criminal prosecution. Courts today are used to handle employment law, environmental law (usually concerning a company polluting the natural environment), bankruptcy filings, and more. Some of these cases may call for arbitrators, and while some cases such as family law or criminal law aren’t typically arbitrated, other cases might be settled with an arbitrator firm. Such an arbitrator firm may be used in place of a court of law if so desired, and there are reasons to try that. If a company is facing bankruptcy, for example, it may either seek debt relief in a court of law or find an arbitrator firm that can handle matters. Why does bankruptcy happen, and why might an arbitrator firm be used? In other cases, though, a bankruptcy court will handle it.
Why Bankruptcy Happens
One might first consider why a company or a wealthy individual might find themselves declaring bankruptcy. It may be noted that bankruptcy doesn’t necessarily mean “broke and hopeless.” In fact, many debtors may take the initiative and file for bankruptcy in court to seek debt relief, and the creditors may not even have to take the case to court themselves. A bankrupt party is officially declaring that it cannot pay off its debts with its current financial state, and must get relief somehow. Chapter 11 bankruptcy is common in the United States for smaller companies. Typically, those companies have under $10 million in annual revenue and under 50 employees. Such a company may simply have taken out ill-advised loans or suffered a loss of its intended market, but it may have been a victim instead.
Some companies go bankrupt because of crime. In some cases, white collar crime such as embezzlement or stock broker fraud may take place, and a company may undergo an audit to figure out the problem and find who was responsible. The white-collar criminal will undergo a different court case than the company at large, though. And in other cases, a company may be the target of cyber-crime, when criminals break into secure data centers or Cloud data storage to steal sensitive bank account information, personal information, and more. Such crimes may result in huge losses of money that can harm larger companies and drive smaller ones into bankruptcy entirely. If this happens, it is is time for either arbitration or court.
Settling the Debt
A debtor company may pursue debt relief in court or turn to an arbitrator firm. Such a firm may replace a judge with a panel of arbiters, which may be helpful if the debtor feels that the creditors would choose a court judge who would be unfair to them (or something similar). Such arbitrator firms keep the matter private, which may be desirable, and a case may be more quickly resolved with an arbitrator firm than with a court of law. The case may be settled there with an arbitration agreement.
In other cases, the debtor company will hire a bankruptcy attorney and go to bankruptcy court, where it will seek debt relief. During this process, the debtor might undergo an audit to determine the full nature of its finances and its debt. Also, the debtor company may be considered DIP, or “debtor in possession” during this time if it has been behaving honestly and transparently. That DIP company may not, however, take on new loans or buy or sell property outside of what it normally does for business purposes. Violating these terms or breaking the law may result in DIP status being revoked.
During bankruptcy court, the debtor company will be asked to form and later present a reorganization plan, which is just that: a plan to restructure and downsize the company to make debt repayment easier. The debtor may be given a few months to work on that plan, and may ask for and receive a time extension. The plan, if approved when presented, may be set into motion and this may involve liquidating the debtor company partly or in full to repay the debt to any extent possible. In some rare cases, the debtors’ reorganization plan will be rejected and the creditors may devise one of their own.