​

Chapter 11 is most often used as a reorganization tool, but there are other situations where an entity might need the relief only Chapter 11 can provide. These involve the sale of an operating business or significant assets, or when a company seeks to go out of business in an orderly manner.

 

Selling a business or assets inside Chapter 11 can be beneficial for two reasons. First, the protection afforded by Chapter 11 gives a financially distressed company time to market and find the right buyer, and thereby maximize value. And second, Chapter 11 allows assets to be sold "free and clear" of liens and claims. This ability to have a clean sale and cut off potential successor liability can add tremendous value to the sale process.

 

It's a fact that businesses fail, and going out of business can be difficult and complicated. Winding down in an organized fashion typically includes fulfilling remaining orders or contracts, collecting outstanding receivables, selling assets, and paying claims. This can be impossible in the face of lawsuits and other pressure from creditors. Chapter 11 protection provides the time and structure to wind down a business in a way that maximizes value, ties up loose ends, and delivers finality.