Can a Business Liquated in Bankruptcy Be Undone by the Trustee?
The trustee in charge of business's Chapter 7 bankruptcy estate has powers to continually review company financial records to ensure the bankruptcy estate includes all non-exempt assets. A trustee discovering fraud or misleading financial information may attempt to convert the bankruptcy case, dismiss the filing or levy criminal charges against the business owners, depending on where the bankruptcy is in its process.
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Review Of Business Finances
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The trustee in charge of a business's bankruptcy has broad powers to review the company's financial records, including business profits, income from investment and total debts, to make decisions regarding the company's solvency. A trustee believing the company to have the financial capability to make payments on debts may appeal to the court to convert a Chapter 7 bankruptcy case into a Chapter 11 business reorganization. If the court agrees with the trustee's assessment, the business must develop a plan to repay its debt and remain open. If the company refuses, the court will dismiss the bankruptcy case outright.
Discovering Bankruptcy Fraud
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Emerging from bankruptcy successfully depends greatly on the business providing accurate financial records to the trustee overseeing the liquidation of business assets. A trustee discovering misleading information in a business's bankruptcy documentation has the authority to question business owners and request records that provide a clearer picture of the company's finances. If the trustee discovers evidence of willful fraud, the trustee may appeal to the court to immediately dismiss the Chapter 7 bankruptcy case and assess a penalty period against the business, preventing the company from filing for bankruptcy again for a fixed period of time.
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Meeting with Creditors
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As a bankruptcy is in process, the trustee will meet with the company's creditors. This meeting -- known as the 341 hearing -- places the company's owners under oath and requires these individuals to answer questions from the trustee and any creditors that decide to send representatives to the hearing. Providing false or intentionally misleading information during the 341 hearing not only places the business's bankruptcy in jeopardy but may also net the offending parties federal perjury charges.
Business Emerging From Bankruptcy
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All sales during the bankruptcy liquidation of business assets are usually final. The trustee takes the money obtained from the sale of business assets to pay off the company's debts. Getting the money back from creditors to then buy back assets sold from the bankruptcy estate is usually impossible. A trustee discovering bankruptcy fraud may instead bring the information before the court for the filing of formal criminal charges against the business's owners.
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