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Assuming or Rejecting Leases and Executory Contracts in Chapter 11
A company in Chapter 11 needs flexibility to manage its obligations, including leases and executory contracts, in order to control costs, improve cash flow and enhance its prospects of emerging solvent after debt reorganization. As such, the U.S. Bankruptcy Code allows a debtor in possession to assume, reject or assign executory contracts and unexpired leases […]
Types of Adversary Proceedings and How to Defend Against Them
In bankruptcy law, an adversary proceeding is filed to litigate a major issue that affects the debtors’ and creditors’ rights. It is typically lodged by a creditor objecting to some aspect of the debtor’s entitlement to debt discharge. The proceeding is in essence a lawsuit, commenced by the filing of a complaint and involving discovery, […]
DIP Financing in Chapter 11 Offers a Lifeline, But With Strings Attached
Debtor-in-possession (DIP) financing is a special form of loan that may be available to a company going through Chapter 11 bankruptcy. Its purpose is to enable the company to meet operational needs, payroll, supplier payments and other critical expenses and eventually emerge as a viable entity. This financing is often necessary because traditional sources of […]
Using a Special Purpose Entity to Protect IP Assets During Bankruptcy
Companies facing potential financial distress have strategies available to protect their valuable intellectual property. One of these involves transferring IP assets such as patents, trademarks and copyrights to a special purpose entity (SPE) while the company is still solvent. This can keep IP assets immune from creditors while allowing the parent company to defend against […]
When Can an Individual Debtor Opt for Subchapter V Reorganization?
Subchapter V of Chapter 11 of the U.S. Bankruptcy Code, introduced by the Small Business Reorganization Act of 2019, was primarily designed to simplify and expedite the bankruptcy process for small businesses. However, it’s important to note that not only businesses but also individual debtors can qualify for this streamlined reorganization process if they meet […]
Defenses to a Motion for Relief from the Chapter 11 Automatic Stay
In a Chapter 11, the automatic stay is a critical protection that halts all collection activities by creditors against the debtor, such as foreclosures, repossessions or lawsuits. It takes effect immediately upon the filing of the bankruptcy petition and remains in force until the case is closed or dismissed or until a discharge is granted […]
Reorganizing Various Classes of Debt in a Chapter 11 Plan
Chapter 11 bankruptcy, also referred to as reorganization, is primarily utilized by corporations, partnerships and LLCs to restructure and partially repay their debts while continuing their business operations. The principle behind this remedy is that a debtor company is more valuable as an operating entity than in liquidation (i.e., through a chapter 7 bankruptcy), thereby […]
When Can a Chapter 11 Case Be Converted or Dismissed for Cause?
Chapter 11 offers a debtor the opportunity to reorganize their business and attempt to become profitable again. However, a Chapter 11 plan must be in the creditors’ best interests. There are instances where a party in interest, such as creditors or the U.S. trustee, may file a motion to convert the case to Chapter 7 […]
Possible Disputes to Anticipate in a Chapter 11 Bankruptcy
Chapter 11 bankruptcy is designed to allow businesses to shield themselves from debts while they rebuild their finances and eventually emerge in solvent condition. Although it is a potent remedy, it can be fraught with complex issues that can disrupt the process. Sometimes these arise through the filing of an adversary proceeding, which is essentially […]
Weighing Assignment for the Benefit of Creditors as a Debt Remedy
Companies facing severe financial distress have more than one relief option to consider. An assignment for the benefit of creditors (ABC) is a less commonly known alternative to bankruptcy proceedings like Chapter 11. An ABC involves a transfer of the debtor company’s assets to an assignee, who assumes responsibility for liquidating the assets and distributing […]
