Chapter 11 Bankruptcy Flashcards

Questions and Answers

Which of the following are types of Chapter 11 bankruptcy?

Freefall (correct)

Term Sheet ('Bear Hug') (correct)

Prepackaged (correct)

Chapter 7

What is the Debtor in Possession (DIP)?

The president of the business with the exclusive right to propose a repayment plan.

How does the DIP's responsibility shift when Chapter 11 starts?

From being accountable to officers and shareholders to being accountable to creditors.

The DIP is authorized to run the business.

True Signup and view all the answers

The DIP can enter into contracts outside the regular course of business.

False Signup and view all the answers

The DIP is authorized to use, sell, and lease property.

True Signup and view all the answers

For what reasons could the DIP be removed?

For cause, including fraud, dishonesty, incompetence, or gross mismanagement. Signup and view all the answers

What are some first day motions the DIP will want to make?

Employee pay, press release, lawyering fees, and approval of the plan. Signup and view all the answers

What should be remembered about first day motions?

They should address immediate problems without skewing the context of bankruptcy. Signup and view all the answers

What is a Chief Restructuring Officer?

An experienced individual hired to make the company profitable again. Signup and view all the answers

What is the role of the United States Trustee in Chapter 11?

Oversees the DIP, especially in smaller companies. Signup and view all the answers

What is the Unsecured Creditor's Committee?

A committee representing the seven largest unsecured creditors. Signup and view all the answers

What about Secured Creditors?

They act independently without a committee because they are secured by collateral. Signup and view all the answers

Utility companies can't turn off utilities within the first ______ days after filing bankruptcy.

20 Signup and view all the answers

What constitutes adequate assurance?

Cash deposit, letter of credit, or other agreed security forms. Signup and view all the answers

What security interest does a creditor want?

Inventory, Accounts Receivable, Proceeds. Signup and view all the answers

The DIP is entitled to sell what types of collateral?

Hard Collateral within the ordinary course of business and Cash Collateral with court or lender approval. Signup and view all the answers

A good budget will give the creditor adequate ______ in the debtor's cash.

interest Signup and view all the answers

Study Notes

Chapter 11 Bankruptcy Types

Three types of Chapter 11 filings: Freefall (no plan), Prepackaged (creditors agree pre-filing), Term Sheet ("Bear Hug") (agreement with lead creditors).

Debtor in Possession (DIP)

DIP acts as president of the business, proposing repayment plans for creditors within 120 days.
Functions as a trustee under Chapter 11, with responsibilities akin to those in Chapters 13 and 7.

DIP's Responsibility Shift

Pre-Petition: Answers to officers and shareholders.
Post-Petition: Accountable primarily to creditors, focusing on reviving the company for debt repayment.

DIP's Authority

Authorized to operate the business in the ordinary course, as per § 1108.
Must seek court approval for actions outside everyday business operations.

Contracts and Transactions

Cannot enter contracts outside ordinary business; such transactions may be reversed under § 549.
Can utilize, sell, and lease property as per § 362d.

Grounds for Removal of DIP

May be removed for cause, including fraud, dishonesty, incompetence, or gross mismanagement (mismanagement alone is insufficient for removal).

First Day Motions

Key motions include employee compensation, public relations, upfront lawyer fees, conflict of interest checks, and plan approvals.

Importance of First Day Motions

Must maintain context of bankruptcy, focusing on stabilization and addressing immediate issues to prevent irreparable harm.

Chief Restructuring Officer (CRO)

A CRO may be hired for their expertise in making the company profitable during restructuring.

Role of the United States Trustee

Oversees the DIP, particularly active with smaller companies to ensure compliance.

Unsecured Creditor's Committee

Comprised of the seven largest unsecured creditors who represent the interests of all unsecured creditors, chaired by the creditor with the highest claims.

Secured Creditors

Do not have a formal committee; each acts independently, secured by their collateral. § 506 (a) governs their rights.

Utility Services & Assurance

Utilities cannot be discontinued within 20 days of filing; after this, utilities can be cut off unless the debtor provides adequate payment assurance.

Adequate Assurance of Payment

May include cash deposits, letters of credit, certificates of deposit, surety bonds, prepaid utility consumption, or mutually agreed security forms.

Creditor's Security Interest

Creditors seek security in inventory, accounts receivable, and cash collateral from inventory sales, as defined by § 363.

DIP's Sale Entitlements

Can sell hard collateral in the ordinary course of business.
Cash collateral requires court or lender approval for sale.

Importance of a Good Budget

Ensures creditors have sufficient interest in the debtor's cash flow, facilitating approval from lenders.

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Description

Test your knowledge on Chapter 11 bankruptcy concepts with these flashcards. Explore the types of Chapter 11 filings and the role of the Debtor in Possession. Perfect for law students and professionals looking to reinforce their understanding of bankruptcy procedures.