Reading about how the bankruptcy system works in the UK a few years ago (when Thomas Cook collapsed) was mind blowing. How could any system where the firm has to cease operations immediately no matter the circumstance be considered a good idea?
It's based in Old law where your assets were physical stock and tools not brand name and ongoing business. It's also based on the British system where the upper class run everything, and they were more likely to be creditors than debtors.
It's not even just the pure bankruptcy itself. If you've ever been bankrupt you can't be a company director. You can't access all sorts of financial products (car insurance!?) until long after the bankruptcy is discharged. It's a mess.
What do you do if you are a person who runs out of money and can't pay debt? Surely you have your assets repossessed and some form of debt charge hanging over you for some time so you can't get into that position again (or rather that others will know not to lend you money again)
"In a Chapter 11 bankruptcy, the debtor corporation is typically recapitalized so that it emerges from bankruptcy with more equity and less debt, a process through which some of the debtor corporation's debts may be discharged."
They can. This is the distinction between unsecured and secured debt (outside of your primary residence, which has special protections). For most unsecured debt, an individual can get it wiped out in bankruptcy court. The main exception to this is student debt. Good luck ever getting any type of loan for the next decade or so though. This is what's called Chapter 7 in the US. There's a means test here ostensibly to prevent abuse.
There's also Chapter 13, which is more of an adjustment plan. You keep your assets, but you agree to pay some portion of your debts over 3 to 5 years. If you don't make your payments, the judge can dismiss the plan and creditors can pursue you under state law for the debt.
US Chapter 11 Bankruptcy gives a firm that has a chance of surviving some respite from its creditors to reorganise and try and emerge as a going concern.
This makes creditors more likely to be reasonable (as no one is getting paid) rather than all race to be the most demanding (because if anyone is getting paid you want it to be you!).
There is also Chapter 7 which governs liquidation. Even that allows room for the company to seek a buyer or similar opportunity rather than just give up and die. British law has moved a bit more on this direction in the last 10 years.
This is important because in modern companies are usually valued much higher than the sum of their parts. Actual assets you can repossess are much less important than the brand name, staff that know the job and each other, on going relationships with customer etc. Grabbing the assets gets you 10% of the value and burns the other 90%...
Edit:
Even British bankruptcy protects a workers tools. Because a few second hand hammers is worth a lot less than the bankrupt blacksmith could earn if he kept them (and hopefully pay you back). This is the same concept.
