bankruptcy is one of the most important interests to company’s owners and
managers. Business bankruptcy can be noticed by the company’s failure to
achieve its strategies and goals and by its inability to deal with its
understandable debts. This paper examines the main factors which can cause
corporate failure and the serious influences that are produced from filing
bankruptcy. This paper also discusses the controversial benefits of filing
bankruptcy, despite the fact that the company will lose not just its funds and
assets, but also the right of being existed. The paper concludes by strongly
recommendations that every companies should follow to avoid being bankrupt
“Everything great was accomplished by fools
who dream,” said Emily Dana. Optimism is the faith that leads to achievement. Nothing
can be done without hope and confidence. People can be what they want only if
they insist and struggle in order to reach the desired state that they aim for.
Achieving a desired state or aim cannot be happen without passing by three bold
steps which are seeing it, believing in it and acting on it. Acting on the
desired state means that people need to put themselves in the future state that
they want to be in and do their things as they live in it.
People usually start doing things with the intention of success.
Entrepreneurs also found their business with hope of becoming a successful business.
In business, however, bankruptcy is the flipside of success which the most
frequently occurs. Bankruptcy is a legal proceeding involving a person or business
that is unable to repay their outstanding debits. People usually suffer from
two kinds of bankruptcy, which are debtor bankruptcy and corporate bankruptcy.
Both of them can be a catastrophe. In USA and in
2010, there were 1,434,000 filing bankruptcy from both kinds. The average age
of debtors filing bankruptcy is 38. About 44 percent of all fillers are couples
while 26 percent are single men and 30 percent are single women. So, these big
numbers of bankruptcy attract me to read about bankruptcy especially corporate
bankruptcy which has the worst effects.
Statistics show that the odds of starting a thriving business
without knowing background information about bankruptcy are too small. So,
being aware of the meaning of bankruptcy can be a light which makes the company
in the right way toward being thriving. As a consequence, many consultants urge
business’ owners to collect information about
bankruptcy before starting a new business. Corporate bankruptcy occurs by
various factors and has diverse effects. Nevertheless, it has remarkable
Business bankruptcy probably occurs as a consequence of various and
numerous factors. These factors usually are classified to internal causes,
outside causes, and financial causes. Each cause has serious damages in the financial state and also in the
sustainability of the company. Avoiding bankruptcy depends on the company’s
ways of dealing with these factors. Financial consultants determine some common
factors and warn entrepreneurs from them.
Poor management, which is one of the internal business conditions,
can also lead to corporate bankruptcy. Effective management is the magic wand
for strong business, decisions, and strategies. Many decision makers often do
not know the importance of creating long-term strategies and a clear,
achievable goals. However, should the company not have an experienced team, the
company will not be able to achieve its goals and strategies. Choosing the
right people in the management’s team can be the success key and the magical
drug which drive the company far away from bankruptcy filing.
Nokia bankruptcy is one of the best exemplars for poor management
as a factor which leads the corporation to bankruptcy. Nokia was the
predominant, pioneer corporation in terms of mobile technology. In 2007, when
Stephen Elop, who was the executive manager of Nokia, had become the head of
the company, Nokia stated losing the competition with other companies. The
deterioration of Nokia was a result of poor decision which the administration took.
Stephen Elop was hesitated about developing Nokia’s software or having a deal
with Google to provide them with its software (Android). While Nokia was hesitated,
Apple produced IPhone, and that was the beginning of the end of Nokia.
Corporations and companies often go bankrupt because of the
increasing in competition. Increasing in competitors means that the company’s
proportion will be decreased because of popping new products up which belong to
the company’s competitors which will affect the company’s sales and that in
turn will affect the profits and surely that will drive the company directly
Everything moves and changes fast in today’s new world products and
services. Investors and entrepreneurs have to keep up with the times. If the
company’s product or service has decreasing or dying customer base then what
are the benefits of producing or doing the same things. Most business do nothing
about losing their consumers including some of the giant corporations until it
is too late. For instance, Kodak was the pioneer company in photography field
and one of the most famous, successful companies around the world.
Nevertheless, Kodak went bankrupt in the 2nd of January
2012, yet that was not surprising news. Kodak stated losing the photographic
market immediately when Steven Sasoon invented the digital photography which
Sony, Canon, Nikon adopted faster than Kodak. Whatever these corporations were
in the past. The cost of being unfixable or being late in changing and adapting
with market’s desires, is bankruptcy. Should the company want to success, it
has to be the first which the changes and challenges. Management has to be able
to understand its market and the desires of its customers.
Financial problems such
as loss of capital or inability to secure new capital in the perfect time can
drive the company to sudden bankruptcy. Many small businesses suffer from the
primary changes in the financial state of their companies. Also, many business
owners take out loans to help finance their operations. If a business struggles,
its owners may not be willing to grant additional funding, which could lead to
bankruptcy. Even if an owner can secure more financing to keep their company
afloat in short-term, high debt makes it more difficult for a company to be
profitable because it has to pay interest on the debt.
Legal problems can be quite expensive and can lead to bankruptcy.
Lawsuits, which are high-paid, are risky for the company because they can
affect the financial state or can lead to shut down the company. For example,
if the company crosses the government statues such as health laws or safety
laws whether that intentionally or unintentionally. This will make the company
in a hard situation which is being liable to tough punishments whether they are
financial penalty or legal penalty and these in turn will make the company
liable to bankruptcy.
Economic problems are the hardest problems to deal with them
because entrepreneurs often feel powerless to do anything about them. Changing
in currency exchange rate usually leads to tremendous loss which makes the company
unprofitable. Furthermore, changing in spending can be one of these economic factors
which lead to bankruptcy. When consumers become unwilling to purchase products
due to the economic conditions such as recession, the company’s sales will be
decreased. This decreasing in sales means that the company will not be able to
sustain and carry its expenses and that will deplete the company’s capital. As
a result of the erosion of capital, the company will often go bankrupt. In
addition, “environmental economic instability can lead to corporate bankruptcy.
The reason being that any downturn in the economy can create some form of
financial distress due to a firm’s inability to sell its products,” (Caballero
Whatever Bankruptcy factors are, corporate bankruptcy has
devastating, hazardous impacts on owners, creditors, employees and on the
aggregate economy. When the company declares bankruptcy, the company’s
management department will be prevented from taking any decision about its
properties and funds. Furthermore, these funds and properties, which owned by
the company’s owners, will be transferred to trustee. This trustee has the
full-right to sell the company’s assets and to distribute their proceeds to
creditors. This process, which is selling and distributing the owners’
properties, calls liquidation of bankruptcy. In addition and after declaring
the bankruptcy, owners will suffer from temporarily weakened credit, and the
bankruptcy filing will appear on the owners’ credit reports for seven to ten
years. Therefore, the company’s owners will have difficulties in getting loans
because of the bankruptcy filing, which appears in their credit reports,
especially on the months directly following bankruptcy.
On the other hand, creditors also will be affected by losing their
money or part of their money. Not all creditors will regain their money
similarly, secured creditors, such as employees, will take the advantage to get
the money back first, and that is determined by the commercial laws. The unsecured
creditors will get the remaining money back should there is rest.
Filing in bankruptcy has enormous impact on companies’ employees.
Many employees could be unemployment immediately after declaring bankruptcy and
that will be a catastrophe. For example, Kodak in 1973 employed 120000
employees and that number decreased to 18800 employees in 2011. This huge gap
between the numbers shows the serious damage which resulted by one corporation
Bankrupt business lead to dangerous issues in the economy.
Recession, unemployment, and low purchasing power are problems resulted by many
reasons including lack of vacancies which is related to filing bankruptcy of
corporations and business. And this is the reason which makes most governments
help corporations that are under-bankruptcy in order to avoid the whole
country’s economy from these issues.
Despite the fact that corporate bankruptcy has harmful and
hard-accepted impacts, it has controversial, positive side. Bankruptcy is the
fastest way to get rid of many debts. Declaration of bankruptcy can be an open
door for the company’s owners by preventing creditors from taking any action to
collect their debits and from repossessing the company’s properties such as
cars and lands. Also, declaration of bankruptcy prevents the creditors from
calling and sending messages to the company which is bankrupt. In addition,
bankruptcy can make old tax liabilities (older than three years) go away.
Although, the company’s properties could be sold, bankruptcy gives the owners a
chance to reorganize and make an adequate plan to end with minimum losses.
Moreover, bankruptcy protection will stop most legal actions against the
owners. This protection from unsecured creditors and some debts give the owners
a chance to start again but with another business surely.
Finally, the writer
recommends that the company, which is facing bankruptcy, have to seek for any
alternatives that can avoid the company from bankruptcy. Should one of these
bankruptcy’s alternatives save the company, it is better to take it, even if it
will take a little longer or cost a little more to get rid of the company’s
debts. The company should take an action immediately when the company notices that
it cannot afford to make payments anymore. For instance, if selling properties
can pay off the company’s debts, owners have to take this action immediately.
Furthermore, the company can get help from creditors by asking them to help the
company in its financial problem. Also, the company can ask for help from one
of the owners, family, and friends to provide the company by funds which can
make the company able to pay off its debts. Because if the company wait until
it is behind on payments it could lose the opportunity of overcoming the
that the number of bankruptcy filing decreases year by year. This decreasing is
resulted by the raising awareness of bankruptcy’ factors and effects. For instance
and in USA, the number of companies which filing bankruptcy in 2011 was 74,281,
while the number of bankrupt companies in 2017 decreased to 38,036. The writer
totally agreed with this statistic and expects more decreasing in the number of
bankrupt companies in the next years.
In conclusion, the
writer hopes that he discusses very beneficial information about different
causes of bankruptcy and the harsh effects that can affect different people and
companies. This paper also gives some controversial benefits of filing
bankruptcy. In addition, the writer absolutely agrees with people or investors
who are confident and optimistic about the success which they will achieve from
their new companies. However, the writer stipulates that success of the company
be linked to the previous knowledge and information that is related to