Acc 621 Chapter 11 Bankruptcy

Chapter 11 Bankruptcy

Allows, under the supervision of the bankruptcy court, for the debtor’s financial affairs to be reorganized rather than liquidated. Chapter 11 proceedings are available to individuals and most enterprises except for financial instutions.

What happens once a petition for reorganization (chapter 11) is filed?

The court usually appoints:

1. A committee of creditors holding unsecured claims and

2. A committee of shareholders of the enterprise

Additionally, the debtor is responsible for developing a plan for handling creditor’s claims and shareholder interests (paying for administrative expenses of the business)

Requirements of a reorganization plan

1. Divide the creditors into classes

2. Set forth how each creditor will be satisfied

3. State which claims, or classes of claims, are impaired or adversely affected by the plan

4. Provide the same treatment to each creditor in a particular class, UNLESS THEY CONSENT to different treatment

How long can a debtor file a reorganization plan after the chapter 11 petition is filed?

120 days after the petition filing

How long does a debtor have to solicit acceptances of the reorganization plan from creditors after filing the chapter 11 petition?

180 days.

What happens after the time periods pass?

creditors are free to propose plans and seek acceptance of them by other creditors.

What is a prepackaged plan?

When the debtor solicits acceptance from creditors before filing for bankruptcy

How does a reorganization plan become confirmed by the court (and therefore becomes effective)?

1. Voluntary agreement of creditors 

2. a Cram Down, which is when the court FORCES dissenting creditors whose claims would be impaired by a proposed plan to accept the plan when the court can find that it is fair and equitable to the class of creditors whose claims are impaired.

Confirmation through acceptance by Creditors

1. Each class of creditors or interests has either accepted the plan or such class is not impaired under the plan

2. Each impaired class of claimants has either unanimously accepted the plan or will receive or retain under the plan property of a value not less than the holders of the claims would receive or retain if the debtor was liquidated under chapter. 7

3. All secured creditors have either accepted the plan or their class is not impaired under the plan

4. if any classes are impaired, then at least one impaired class must have voted to accept the plan. If more than one-half the number of creditors who vote to accept the plan represented at least 2/3 of the dollar amount of claims in the class, then its accepted.

5. The plan must be feasible. The court must conclude that it will be sufficient and not result in further reorganization or liquidation.

all of these conditions must be met!!!

Confirmation of a plan by a Cram Down

A class of creditors interests are impaired and they do not accept. the court may still confirm the case if it concludes that the plan is equitable and fair to the impaired class. Requirements to be considered fair and equitable:

1. Allows the class to retain its liens in securing the claims and each holder of a claim in the class receives deferred cash payments totaling at least the allowed amount of claim. OR

2. Provides for the sale of any property subject to liens securing such claims free and clear of such liens with the liens to attach to the proceeds of the sale, OR

3. Provides for the realization by the holders of the “indubitable equivalent” of such claims

A plan is considered to be fair and equitable to a CLASS of impaired claimants with UNSECURED claims if:

1. the plan provides that each holder of a claim will receive ro retain on account of the claim property of a value equal to the allowed amount of such claim, OR

2. The holder of any claim that is junior to the claims of such class will not receive or retain any property on account of the junior claim or interests.

A plan is considered to be fair and equitable to equity holders if

The plan provides that shareholder receives/retains property of a value equal to the greatest amount of any fixed liquidation preference to which the holder is entitled, OR

the holder of any interest that is junior to the interests of such a class will not receive any property on account of such junior claim.

Can bankruptcy trustees prepare the debtor’s taxes?

yeauhs

order of priority in bankruptcy

1. Secured creditors

2. Administrative expenses (attorneys, trustee)

3. Involuntary Case Gap creditors (goods/services provided after the involuntary petition is filed but before the order for relief is entered

4. unsecured creditors

5. shareholders

Subrogation (surety law)

The right of a surety, after payment, to succeed the legal rights of the creditor against the principal debtor, cosureties, or collateral.