Bankruptcy
Proprietary Finance Ventures
123 Mission Street
San Francisco, CA 94105
(202) 596-7511
Bankruptcy Code 11 -DIP
Bankruptcy Code 11 -DIP (Debtor-In-Posession)
United States Bankruptcy Code 11 allows a troubled company to continue running, cancel some of its debts, and give ownership of the newly reorganized company to the creditors whose debts were canceled. State bankruptcy-liked proceedings generally require less filings, however, cases involving more than $50 million in assets are almost always handled in federal bankruptcy court.
Debtors in Chapter 11 have the exclusive right to propose a plan of reorganization for a period of time (in most cases 120 days). As with other forms of bankruptcy, petitions filed under Chapter 11 invoke the automatic stay of section 362. The automatic stay provides a period of time in which all judgments, collection activities, foreclosures, and repossessions of property are suspended, and post-petition debt collection void.
If the company's stock is publicly traded, a Chapter 11 filing generally causes it to be delisted from its primary stock exchange (New York Stock Exchange or NASDAQ). In many cases, Chapter 11 plan, when confirmed, terminates the shares of the company, rendering shares worthless.
The largest bankruptcy to date was that of investment bank Lehman Brothers Holdings Inc., which listed $639 billion in assets as of its Chapter 11 filing in 2008.It should be noted, however, that stock and commodity brokers are prohibited from filing under Chapter 11 and are restricted to Chapter 7. (11 U.S.C. Section 109(d).
Always consult an attorney that specializes in bankruptcy code when considering filing. The Bankruptcy Code permits applications for fees to be made by certain professionals during the case. Thus, a trustee, a debtor's attorney, or any professional person appointed by the court may apply to the court at intervals of 120 days for interim compensation and reimbursement payments.
In a recent case brought before us, the plan called for secured debt to be converted to common stock and for general unsecured debt to be discharged in exchange for warrants, interests in a litigation trust and cash for certain creditors.
Section 1107 of the Bankruptcy Code places the debtor in possession (DIP) in the position of a fiduciary, with the rights and powers of a Chapter 11 trustee, The U.S. trustee conducts a meeting of the creditors, "section 341 meeting," 11 U.S.C. Sect. 341. Creditors' committees can play a major role in Chapter 11 cases. The Committee is appointed by the U.S. trustee and ordinarily consists of unsecured creditors who hold the seven largest unsecured claims against the debtor :11 U.S.C. section 1102. The debtor in possession (DIP) may use, sell, or lease property of the estate in the ordinary course of its business, without prior approval, unless the court orders otherwise. 11 U.S.C. section 363(c). If the intended sale or use is outside the ordinary course of its business, the debtor must obtain permission from the court. Executory contracts (i.e.labor union contracts, supply or operating contracts and real estate leases), may be rejected if canceling them would benefit the debtor. In the event of a rejection, the remaining parties to the contract become unsecured creditors of the debtor.
United States Bankruptcy Code 11 allows a troubled company to continue running, cancel some of its debts, and give ownership of the newly reorganized company to the creditors whose debts were canceled. State bankruptcy-liked proceedings generally require less filings, however, cases involving more than $50 million in assets are almost always handled in federal bankruptcy court.
Debtors in Chapter 11 have the exclusive right to propose a plan of reorganization for a period of time (in most cases 120 days). As with other forms of bankruptcy, petitions filed under Chapter 11 invoke the automatic stay of section 362. The automatic stay provides a period of time in which all judgments, collection activities, foreclosures, and repossessions of property are suspended, and post-petition debt collection void.
If the company's stock is publicly traded, a Chapter 11 filing generally causes it to be delisted from its primary stock exchange (New York Stock Exchange or NASDAQ). In many cases, Chapter 11 plan, when confirmed, terminates the shares of the company, rendering shares worthless.
The largest bankruptcy to date was that of investment bank Lehman Brothers Holdings Inc., which listed $639 billion in assets as of its Chapter 11 filing in 2008.It should be noted, however, that stock and commodity brokers are prohibited from filing under Chapter 11 and are restricted to Chapter 7. (11 U.S.C. Section 109(d).
Always consult an attorney that specializes in bankruptcy code when considering filing. The Bankruptcy Code permits applications for fees to be made by certain professionals during the case. Thus, a trustee, a debtor's attorney, or any professional person appointed by the court may apply to the court at intervals of 120 days for interim compensation and reimbursement payments.
In a recent case brought before us, the plan called for secured debt to be converted to common stock and for general unsecured debt to be discharged in exchange for warrants, interests in a litigation trust and cash for certain creditors.
Section 1107 of the Bankruptcy Code places the debtor in possession (DIP) in the position of a fiduciary, with the rights and powers of a Chapter 11 trustee, The U.S. trustee conducts a meeting of the creditors, "section 341 meeting," 11 U.S.C. Sect. 341. Creditors' committees can play a major role in Chapter 11 cases. The Committee is appointed by the U.S. trustee and ordinarily consists of unsecured creditors who hold the seven largest unsecured claims against the debtor :11 U.S.C. section 1102. The debtor in possession (DIP) may use, sell, or lease property of the estate in the ordinary course of its business, without prior approval, unless the court orders otherwise. 11 U.S.C. section 363(c). If the intended sale or use is outside the ordinary course of its business, the debtor must obtain permission from the court. Executory contracts (i.e.labor union contracts, supply or operating contracts and real estate leases), may be rejected if canceling them would benefit the debtor. In the event of a rejection, the remaining parties to the contract become unsecured creditors of the debtor.