It can be extremely difficult to build a business from the ground up. Typically, the process requires obtaining investors and taking on enormous amounts of debt with hopes that the business' success will pay off in the long run. Sometimes this risk is rewarded and a business succeeds. But other times, kinks in the system, problems with investors, a slow economy, or issues with creditors cause the business to fail. As seen by a recent case, when the business is struggling with debt and unable to pay it off, a bankruptcy may be in its best interest.
Hoku, a company that focused on renewable energy and sold polysilicon, the ingredient found in solar panels, has filed for Chapter 7 bankruptcy. The company was struggling to build a $700 million plant after the price for polysilicon plunged as a result of global oversupply. According to court documents, Hoku owes more than $507 million in debt and it feels that the value of its plant may not be recoverable. Luckily, a successful filing will give the company debt relief and allow its owners to escape their financial challenges.
A Chapter 7 bankruptcy is a viable option for businesses struggling with overwhelming debt. Under Chapter 7 for businesses, the business ceases operations and a trustee is appointed by the court to sell the business' assets. Proceeds from the sale of these assets go towards paying creditors, but any remaining debt after that is cancelled. This process is known as liquidation.
Attempting to run a business while it is drowning in debt can be extremely stressful. A business owner may have many sleepless nights and may spend his days being harassed by creditors and struggling to find money to pay overwhelming bills. Luckily, an experienced bankruptcy attorney can help walk a business through the bankruptcy process so that its owners can get back on the road to financial security.
Source: The Wall Street Journal, "Hoku Files for Chapter 7 With Unfinished Polysilicon Plant," Katy Stech, Jul. 5, 2013