IN BRIEF: NEED-TO-KNOW NEWS FOR THE ENTREPRENEUR
Reorganization eats most costs
Tribune staff, wire reports
Published March 5, 2007
Small companies that reorganize themselves under Chapter 11 of the U.S. Bankruptcy Code usually end up giving everything to the tax collector, leaving unsecured creditors empty-handed, a recent study found.
In Chapter 11 cases involving companies with assets of less than $200,000, "little or nothing" is left over after the Internal Revenue Service has done its work, according to the study by Douglas Baird, a bankruptcy law professor at the University of Chicago. Non-priority general creditors receive less than 10 percent of their claims, the study found.
When a company has assets worth more than $5 million, secured creditors, those whose claims are backed by collateral, receive 94 percent of what they are owed, and unsecured creditors typically recover half.
The study, co-written by Arturo Bris of the Yale International Center for Finance and Ning Zhu of University of California, looked at 139 corporate Chapter 11 bankruptcies in the District of Arizona and the Southern District of New York, which includes Manhattan, between 1995 and 2001. Eleven of the companies were publicly traded.
Copyright © 2007, Chicago Tribune
