In my work with clients I read a lot of legal documents and a great many of those documents contain language such as: "If XYZ becomes insolvent, bankrupt or is placed in receivership..." Many people, including many business owners and executives, believe that the terms "insolvent," "bankrupt" and "in receivership" have pretty much the same meaning, but that is not truly the case. While the words are often used interchangeably, they can mean very different things. This is important for business leaders to realize, because the legal interpretation of clauses such as the one above may be much broader than they realize.
Bankruptcy Lawyer NY, California Bankruptcy Lawyer, North Carolina Bankruptcy Lawyer,
The terms "insolvent" or "insolvency" can be particularly tricky as it can mean different things under different situations. (a) One definition of "insolvent" is simply the inability to pay obligations when they become due. This could be due to temporary liquidity issues or it may be a long-term problem. (b) The other definition, referred to as the bankruptcy definition, states that "insolvency" is a condition where the liabilities of a debtor exceed the fair value of the assets of the debtor. In either case, a firm can be "insolvent" but not bankrupt. And in either case, the firm may be able to recover from the condition of insolvency without having to go through bankruptcy.
The terms "bankrupt" or "in bankruptcy" refer to the condition of a debtor after having filed for "voluntary" bankruptcy or having been forced into "involuntary" bankruptcy. A firm in bankruptcy is under the jurisdiction of the bankruptcy court or other appropriate oversight body. A firm in bankruptcy is automatically deemed to be insolvent in most jurisdictions, and, in fact, it is usually deemed to have been insolvent for some period of time prior to the filing.
The terms "receivership" or "in receivership" can have different meaning depending on the jurisdiction and on the particular circumstances. "Receivership" can refer to the appointment of an agent by a secured creditor in order to facilitate the liquidation of the secured asset with the proceeds going to the creditor. Such an action may or may not affect other creditors or stakeholders. The bankruptcy court, or other oversight body, might appoint a "receiver" to oversee the operations or liquidation of the company in bankruptcy. Finally, "receivership" may refer to actions taken under various state laws.
Of course, a business owner or CEO will know if their company is in bankruptcy or receivership, but they may not realize that the company is insolvent, particularly under definition (a) above. But understanding the financial status and condition of the company is very important for business owners, managers and board members. They should understand that the broadest interpretation of "financial condition" may be applied in certain circumstances. They should also understand that the duties and responsibilities of managers and board members may shift under certain financial conditions.
We are not lawyers and nothing in this article, or any other writings or statements by us, should be considered as legal advice. If you have questions or concerns about any of the issues raised in this article, you should discuss them with your attorney.
Is Bankruptcy Right For You? Talk to Bankruptcy Attorneys Free and Confidential. Licensed bankruptcy attorneys are available. Attorneys will call you to discuss your case for free. Find out if bankruptcy is right for your situation.
Rating of Bankruptcy Lawyer In Chicago
Get Online Application at online Bankruptcy Lawyer.
0 comments:
Post a Comment