It is more than private individuals who end up in court for settling legal matters. Often, businesses big and small end up going to court as well, often for such matters as bankruptcy filing, environmental law, employment law disputes, or other cases that require arbitration and legal representation in the court. Environmental law, in particular, deals with federal or state regulations on how a business’s activities impact the natural environment, whether land, water, or the air itself, and environmental law often aims to protect the air that people breathe and the water that is used for public utilities. Water with toxic elements or chemicals in it, for example, are hardly suitable for channeling into water treatment plants for the public to use. And bankruptcy court can also be useful for settling bankruptcy cases. How might a company navigate court for these and other cases?
There are disputes about the exact details of pollution, climate change, and related topics, but it is fair to say that a substantial number of Americans are concerned about the natural world that they live in. In fact, over 40% of Americans are concerned about indoor and outdoor air quality, with hazards such as sulfur oxides, radon, methane emissions, particulate matter, and more. Pollution became infamously severe in the 1960s until then-president Richard Nixon created the EPA and other bodies and law to protect the natural world, at least across the United States. Today, companies may be sued by environmental law firms for such acts as exceeding carbon emission regulations or dumping harmful chemicals or compounds into bodies of water, especially those used for public utilities or fishing, or bodies of water that host a lot of wildlife that may be difficult to replace. But what may happen if a company declares itself bankrupt?
A company, often a smaller one, may declare itself bankrupt if its managers realize that its debts are impossible to pay off on time or at all, and a company declaring bankruptcy can file the correct paperwork to seek out bankruptcy relief in a court of law. Chapter 11 is a popular route for this, often used by smaller companies or, more rarely, wealthy individuals. Most companies that declare chapter 11 bankruptcy have under $10 million in assets and liabilities, make under $10 million in annual revenue, and have under 50 employees. Sometimes, it is theft that drives such a company to bankruptcy, as cyber-criminals have been known to break into business networks and steal money or information, which can cost a lot to bigger companies and completely devastate a smaller company.
A debtor company in bankruptcy court may, if it has acted honestly and fairly until now, be considered DIP, or “debtor in possession,” meaning that the debtor company may continue operations as normal and remain in control of its assets, but there are some conditions attached to this. The debtor company may not, without permission from the court or creditors, take out any new loans, hire lawyers, or buy or sell anything outside of its normal business operations. A debtor company that violates these terms have have its DIP status revoked.
As the court case proceeds, the debtor company may hire bankruptcy lawyers to represent its side, and the creditor company will be tasked with creating and presenting what is known as a reorganization plan. The debtor company may have a few months’ time to create such a plan, and may request and receive an extension. Such a plan will downsize the company and restructure it so that the debts will be easier to pay off, and once the plan is presented to the creditors and court and accepted, it can be set into motion. In rare cases, this plan may be rejected and the creditors will create their own plan. Either way, a plan will be set into motion that will downsize or even liquidate the company so that debts can be paid, and in some cases, even total liquidation will not produce enough to fully pay off the debts. If this is the case, the debtors will have to be satisfied with a partial repayment of their loans.