Chapter 11 bankruptcy proceedings can be initiated by creditors when the debtor company has continuously defaulted on repaying their debts. One of the major points of distinction between Chapter 11 bankruptcy proceedings and Chapter 7 bankruptcy is that most Chapter 7 cases result in the liquidation of the debtor company’s assets, Chapter 11 still allows the debtor to reorganize their assets in order to help debt repayment.
Texas power giant Energy Future Holdings Corp. has been involved in a Chapter 11 bankruptcy case for over a year now. In a recent judgment, the bankruptcy court judge ordered the parties to try and come up with an amicable mediation process in order to settle the proposed $805 million bankruptcy filing.
The corporation claimed that weak power prices led to their exorbitant debt of over $42 billion. The company also has unregulated power plants that can help settle their bankruptcy mediation. Because the debtor company already has assets under its various subsidiaries, the judge deemed it appropriate to explore all methods of alternative dispute resolution before going through the court procedure.
Mediation with a neutral third party supervising the entire procedure has proven to be successful in several bankruptcy cases and helped the parties come to an amicable settlement. Time will tell whether mediation will work in this case, but for other businesses going through a bankruptcy, it could be a viable option to settling the case.
Although most bankruptcies do not involve debts as large as what is at stake in this case, business bankruptcies can be very complex. Even smaller business owners should thoroughly research the applicable laws and understand all of their bankruptcy options.
Source: REUTERS.com, “Judge orders mediation in Energy Future bankruptcy,” Tom Hals, May 4, 2015