Chapter 11 Bankruptcy Flashcards

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.

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.