Corporate bankruptcy may occur when an organization is insolvent and on the verge of dissolution. Bankruptcy can also involve restructuring to help a company become profitable again. Organizations can prevent debt-related lawsuits, modify debts and discharge eligible financial obligations during business bankruptcy proceedings.
Creditors owed money by a struggling organization may feel anxious when they learn about impending corporate bankruptcy proceedings. Typically, a bankruptcy filing in progress prevents ongoing collection activity. Creditors may have to cease sending collection letters or dismiss pending lawsuits.
However, there are scenarios in which creditors may still be able to collect on outstanding debts. If there is reason to suspect that inappropriate transfers occurred prior to a bankruptcy, there may be grounds for predators to take legal action despite the pending bankruptcy case.
What constitutes a fraudulent transfer?
Businesses frequently conduct sizable transactions, including shareholder buyouts and executive severance payouts. Transfers conducted as part of typical business operations are likely not fraudulent. That being said, significant transfers that occur after an organization assumed responsibility for a debt could constitute fraudulent transfers.
In some cases, there may be large transfers of assets or money that occur as a means of preventing creditors from laying claim to certain assets or a company’s liquid capital. Sizable transfers that occur while an organization has financial obligations it allegedly cannot fulfill might be fraudulent. The courts may be able to reverse those transfers or hold the organization liable for the value of the resources transferred.
Exploring the possibility of fraudulent transfers before organizational bankruptcy is one way to effectively respond to a debtor organization’s pending corporate bankruptcy. Creditors may need help seeking financial accountability from businesses that have begun the bankruptcy process, and that’s okay. With the right guidance, it may be possible to secure payment despite the bankruptcy case in progress.