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.
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.