Bankruptcy Lawyers Represent Debtors in Possession in California
Los Angeles Chapter 11 attorneys help businesses maintain control of their operations and obtain financing
One major advantage of Chapter 11 bankruptcy is that it allows owners of financially troubled businesses to remain in control of their day-to-day operations as debtors in possession while they reorganize and return to solvency. At the Law Offices of Michael Jay Berger, our experienced and knowledgeable attorneys have helped cash-strapped businesses throughout California successfully carry out their responsibilities as debtors in possession and obtain necessary financing during the Chapter 11 process.
What is a debtor in possession?
In a Chapter 11 bankruptcy, also known as a reorganization, the court approves a plan under which the business pays back some of its debts and has the remainder discharged. In most cases, the business’s owner may continue to operate it and keep control of its assets as a “debtor in possession” (DIP) during the process. The DIP has exclusive authority to propose a reorganization plan for the first 120 days after filing for Chapter 11. After the plan is confirmed, the DIP is under a duty to make all payments directed by the plan and to adhere to all other plan requirements. As your Chapter 11 attorney, we will provide reliable advice on how your business can function as a DIP and we will represent you in obtaining court confirmation and in carrying out the reorganization plan.
What limitations are imposed on a debtor in possession’s conduct?
A DIP has a duty to operate the business for the protection of its creditors, under the general supervision of the U.S. Trustee. The DIP is in charge of most decisions that need to be made in the ordinary course of business. However, the bankruptcy court must approve the following:
- Any asset sale that is not part of the ordinary course of business
- The creation or breaking of a lease
- Mortgages, liens or other security interests undertaken to finance debt
- The closure or expansion of business operations
- The creation or modification of contacts, other than for the sale of goods and services in the ordinary course of business
- Hiring of and payment to attorneys and other professionals
As a DIP in Chapter 11, it is in your interests to maintain the maximum possible freedom to operate your business while you bring it back to financial health. However, if the creditors’ committee doesn’t believe you are acting in good faith, it can ask the court to take control of the business away from you and to appoint a special trustee. We provide reliable advice on how to best carry out your responsibilities as a DIP, both in your relationships with creditors and in compliance with bankruptcy court rules.
Helping owners obtain DIP financing
A business in Chapter 11 needs sufficient cash to pay for ongoing expenses while simultaneously repaying creditors. Obtaining credit is usually difficult for a debt-laden company, but DIPs in Chapter 11 have the opportunity to obtain a special form of financing, subject to court approval. A lender that provides DIP financing must authorize the debtor’s budget before making the loan. That lender gets paid first from the debtor’s assets in the event the debtor liquidates. The lender may also be able to command a higher interest rate. However, the debtor’s current lenders must agree to the terms. We will work diligently to help you secure DIP financing by negotiating with potential lenders, responding to other creditors’ concerns and applying for court approval.
Contact a California debtor in possession attorney for assistance
From our offices in Beverly Hills, the Law Offices of Michael Jay Berger has wide experience representing debtors in possession in Chapter 11 bankruptcies throughout California. Call our firm at 310-271-6223 or contact us online to schedule a consultation.