When is the last time you heard someone describe bankruptcy as a chance to “wipe your slate clean?” It’s an analogy that is bandied about so frequently by people talking about bankruptcy that people don’t think about the fact that it has been decades since school students actually wiped slates clean.
Aside from being outdated, the expression is also inaccurate. Filing for bankruptcy is not as simple or worry-free as wiping a slate. Bankruptcies are time-consuming and messy, and they carry a stigma that is hard to live down.
Wisconsin companies having financial difficulties have the opportunity to avoid bankruptcy by filing instead for a Wisconsin Statutes Chapter 128 Receivership.
What is a Chapter 128 receivership?
Chapter 128 is a relatively unique program that allows struggling businesses (and individuals actually) to push the pause button on their debts so a plan can be developed to get their financial house back in order.
Receiverships get their name from the fact that a central part of the program is the hiring of a receiver who will oversee the filer’s business.
Once the receivership is established, the receiver is required to take an inventory of all assets and assemble a list of all creditors. Just as in bankruptcy, creditors must prove they have a claim against the estate in order to maintain their right to collect.
After they get an idea of the state of the business, a receiver may operate the business in receivership while a plan for satisfying creditors is worked out, sell the business as a whole, or liquidate the business’s assets and satisfy creditors as the statute provides.
What are the benefits of receiverships?
The most appealing aspect of a Chapter 128 receivership is the fact that it is not a bankruptcy. There is less of a stigma that comes with going into receivership.
Troubled business owners often turn to Chapter 128 when they want to sell their business, particularly when there are lots of bank and creditor claims. The receiver oversees the sale, which gives buyers and creditors more confidence that a clean, fair deal is being reached.
Creditors claims can then be paid off or at least paid down, which the creditors like better than going through the bankruptcy process and risking getting nothing.
While a receivership is in effect, creditors may not collect interest, or attempt to get payment without going through the receiver.
Receiverships are cheaper and quicker than bankruptcies because there are fewer hoops to jump through, and less oversight from the court system.
Different rules regarding preferential transfers apply to receiverships, and that can benefit some businesses.
Who can be a receiver?
Anyone who is a Wisconsin resident can be a receiver. However, smart business owners and creditors will generally want whoever is appointed to be the receiver to have experience with the task they are undertaking, and skills that are relevant to the particular industry the business is involved in.