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Bankruptcy can prevent eviction and allow for reorganization

One of the benefits of Chapter 11 for a Pennsylvania business is that the company generally can continue operating during the bankruptcy proceedings. During that time, it can attempt to devise a plan to restructure its debt and reorganize the company's financial and operational activities so as to emerge from the bankruptcy in good working condition. However, there are many factors to consider during the challenging dynamic of a successful reorganization.  

There are also pitfalls that may spell failure to a corporation's efforts. Thus, an initial Chapter 11 may sometimes be followed by conversion to a Chapter 7 for final closing and liquidation. Notably, however, some businesses do achieve dramatic success within the Chapter 11 process, and many have emerged in much stronger financial condition than before the filing.

Theater operators may take advantage of the strong protections available in a Chapter 11. When movie revenues are thin, cinema complexes sometimes run into cash flow problems that cause a default in rental payments to the landlord. That happened recently to an operator in another state, the Baltimore Eastpoint 10 Movies LLC. The company filed a Chapter 11 in the U.S. Bankruptcy Court for the District of Maryland.

The theater operator owed $50,926.42 for back rent plus legal fees, which was entered as a court judgment. The filing of the bankruptcy on May 8 stopped the company's imminent eviction. The theater has remained open since the bankruptcy filing. The real estate management corporation that owns the property reportedly had another theater operator ready to take over the premises on June 1, but that attempt was also prevented by the filing.

If the company can find fresh financing, make a proposal for restructuring the current debt, and show how it will continue operating, it may prevail in reorganizing successfully. It may demonstrate the booking of upcoming blockbuster movies to assure increased income flow. Experienced bankruptcy counsel is an indispensable force in devising and negotiating the proposals and agreements that will comprise a reorganization plan. A Pennsylvania business facing financial challenges may benefit decisively by consulting with a commercial bankruptcy firm to learn the prospects for a possible reorganization effort.

Source: bizjournals.com, "Eastpoint 10 Cinemas operator files for Chapter 11 bankruptcy", Sarah Meehan, May 15, 2015

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