As of August 19, 2023, there are several SPAC space economy businesses on the verge of bankruptcy, e.g. Astra, Momentus, and others. What happens after bankruptcy is declared?
The declaration of bankruptcy by a space economy business in the United States follows the same legal process as other types of businesses. Here’s an overview of what it means and the steps and timelines involved in the bankruptcy process.
Definition of Bankruptcy
Bankruptcy is a legal process that allows individuals or businesses, including those in the space economy, to seek relief from debts they cannot pay. This process is governed by federal law, under Title 11 of the United States Code, and is designed to provide an orderly way for businesses to either liquidate their assets to pay creditors or reorganize their financial affairs under the protection of the bankruptcy court.
Types of Bankruptcy
The two most common types of bankruptcy for businesses are Chapter 7 and Chapter 11.
Chapter 7 (Liquidation)
- Filing a Petition: The business files a petition with the bankruptcy court, including schedules of assets, liabilities, and other financial information.
- Appointment of a Trustee: A trustee is appointed to oversee the liquidation of the company’s assets.
- Creditors’ Meeting: A meeting of creditors is typically held within 20 to 40 days after the filing.
- Selling Assets: The trustee sells the company’s assets and distributes the proceeds to creditors according to the priority established by law.
- Discharge: Remaining debts are discharged, and the business is dissolved. This process typically takes several months.
Chapter 11 (Reorganization)
- Filing a Petition: The business files a petition with the bankruptcy court, seeking protection and time to reorganize.
- Continued Operations: The business may continue to operate under the supervision of the court.
- Creditors’ Committee: A committee of unsecured creditors may be formed to represent their interests.
- Reorganization Plan: The business has 120 days to propose a reorganization plan, which may be extended to 18 months with court approval.
- Confirmation of the Plan: Creditors and shareholders vote on the plan, and the court must confirm it.
- Execution of the Plan: The business carries out the reorganization plan, which may take several years.
Summary
Declaring bankruptcy is an important legal procedure that provides a structured way for businesses to deal with insolvency. For space economy businesses, the process would be the same as for other industries. Chapter 7 allows for a relatively quick liquidation of assets, while Chapter 11 provides a more complex pathway for businesses that seek to continue operations while reorganizing their debts. Both processes are subject to strict timelines and procedures overseen by the bankruptcy court, and the choice between them depends on the specific circumstances of the business.
