Reorganization. Tracey Service Co filed a petition for a Chapter 11 reorganization. Acar Supply Co, one of Tracey's creditors, filed a motion to convert the case to a Chapter 7 liquidation. The court found that the debtor corporation had no place of
business, no inventory, no equipment, no employees, and no business phone. Should Tracey Service be permitted to reorganize under Chapter 11? Explain.
Reorganization
Without a reasonable amount of assets and an operating business, there is no logic in proceeding with a Chapter 11 reorganization. Chapter 11 allows for rehabilitation when there is a reasonable likelihood that the business can be turned around. If the business is not currently operating and does not have the assets to engage in an active business, Chapter 11 is inappropriate. The court converted this case to a Chapter 7 liquidation. This case was decided before the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, but the result under that act would likely have been the same.
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