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ARTICLE · 04 AUGUST 2023

Fraud Bankruptcies

KI Legal
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Companies facing fraud-based liabilities can file a Chapter 11 bankruptcy to rehabilitate and restructure the business and address fraud claims asserted against them.

United StatesInsolvency/Bankruptcy/Re-Structuring
Ralph Preite
Ralph Preite
Kyriaki Christodoulou
Kyriaki Christodoulou
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Companies facing fraud-based liabilities can file a Chapter 11 bankruptcy to rehabilitate and restructure the business and address fraud claims asserted against them. A Chapter 7 liquidation is also available to a company considering liquidation in light of fraud claims, but a Chapter 7 Trustee appointed in a Chapter 7 case may cause hardship for management and/or shareholders if fraud-based litigation is commenced by the Chapter 7 Trustee. Before seeking bankruptcy protection, directors, owners, and officers of corporations should consult with experienced counsel to discuss the special nuances of fraud-based bankruptcies.

The trustee appointed in the bankruptcy case, the debtor-in-possession, and creditors' committees typically use the avoidance powers of Chapter 5 of the Bankruptcy Code, as well as civil and criminal government actions, to pursue financial wrongdoing. With that said, the US Trustee and other government prosecutors may also bring charges against

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