What are the laws governing corporate insolvency?
In Washington, corporate insolvency is governed by state statutes, federal bankruptcy laws, and common law. Corporate insolvency occurs when a business cannot pay its debts as they come due and does not have enough assets to cover the debts. Under the Washington Business Corporation Act, a corporation can file for insolvency by filing a statement with the Secretary of State. The statement must include the name and address of the corporation, the date on which the corporation became insolvent, the reasons for the insolvency, and the name and address of the person responsible for preparing the statement. Under federal bankruptcy laws, the court can decide to liquidate the business and distribute the remaining assets to creditors. This process is known as liquidation bankruptcy, or Chapter 7 bankruptcy. The court may also be able to reorganize the business, allowing it to continue to operate and pay off its debts over time, which is known as reorganization bankruptcy, or Chapter 11 bankruptcy. Common law, which includes case law and other legal principles developed by judges over time, also provides guidance on corporate insolvency. For example, the common law concept of fraudulent conveyance provisions makes it illegal for a business to transfer its assets to avoid paying creditors. Courts may also order a stay, which prevents creditors from taking steps to collect on a debt for a certain amount of time. In conclusion, corporate insolvency in Washington is governed by a combination of state statutes, federal bankruptcy laws, and common law. This combination of laws ensures that creditors, the business, and all other stakeholders involved in the situation are given the proper protection.
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