Seth Kleinman of Morrison & Foerster LLP spoke to Natural Products Insider about an involuntary Chapter 7 bankruptcy petition filed against sports nutrition brand Redcon1 by three of its creditors.

An involuntary bankruptcy petition is typically filed “when several unsecured creditors of a company believe that the management of the company itself is doing something with the funds of the company that are improper and that the company is already insolvent or will become insolvent because of one of these improper transactions,” Seth explained.

Though Redcon1 and its creditors reached an agreement and filed a motion to dismiss the bankruptcy petition, the stakes could have been colossal for the company, especially if the case proceeded in Chapter 7 and the judge appointed a bankruptcy trustee.

According to Seth, a bankruptcy trustee assumes management of a company, including its books and records, and its job is to wind down the company’s operations.

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