Chapter 11 is the chapter of Title 11, United States Bankruptcy Code, which allows for reorganization under US bankruptcy laws. Chapter 11 bankruptcy is available for every business, whether set as a corporation, partnership or sole proprietorship, and for individuals, although it is most commonly used by corporate entities. Instead, Chapter 7 regulates the process of bankruptcy bankruptcy (although liquidation may run under this chapter), while Chapter 13 provides a reorganization process for most private individuals.
Video Chapter 11, Title 11, United States Code
Chapter 11 in general
When a business can not afford to pay its debt or pay its creditors, its business or its creditors may file with a federal bankruptcy court for protection under Chapter 7 or Chapter 11.
In Chapter 7, the business stops operating, a trustee sells all of his assets, and then distributes the proceeds to his creditors. Any remaining amount is returned to the owner of the company.
In Chapter 11, in many cases the debtor retains control of his business operations as a debtor in possession, and is subject to the supervision and jurisdiction of the courts.
Maps Chapter 11, Title 11, United States Code
Features of reorganization 11 Chapter
Chapter 11 retains many features that exist in all, or most, of the US bankruptcy processes. It provides additional tools for the debtor as well. Most importantly, 11 U.S.C.Ã, 1108 empowers trustee to operate the debtor business. In Chapter 11, unless a separate guardian is appointed for reason, the debtor, as a debtor in possession, acts as trustee of the business.
Chapter 11 provides debtors with ownership of a number of mechanisms to restructure its business. A debtor in possession can obtain financing and loans on favorable terms by giving the lender a first priority on business income. The court may also allow the debtor in possession to refuse and cancel the contract. The debtor is also protected from other litigation against the business through the imposition of an automatic residence. While the auto remains in place, the creditor shall stay from any collection or activity against the debtor in possession, and most litigation against the debtor remains, or is held, until it can be settled in bankruptcy court, or proceeded in the original place. An example of a process that does not need to be done automatically is a family law process against a spouse or parent. Further, the lender may apply to the court to seek assistance from staying automated.
If the business goes bankrupt, the debt exceeds its assets and the business can not afford to pay the debt when it matures, bankruptcy restructuring can cause the owner of the company to have nothing; on the contrary, the rights and interests of the owner expire and the corporate creditor is left with the newly reorganized company.
All creditors are entitled to be heard by the court. The court is ultimately responsible for determining whether the proposed reorganization plan is in accordance with bankruptcy law.
A controversy that has broken out in a bankruptcy court concerns the exact amount of disclosure that the court and others have entitled to receive from members of the ad hoc creditor committee who play a major role in many of these processes.
Chapter 11 plan
Chapter 11 usually results in the reorganization of the debtor's business or personal assets and debt, but can also be used as a liquidation mechanism. Debtors can "emerge" from the bankruptcy of Chapter 11 within a few months or in a few years, depending on the size and complexity of bankruptcy. Bankruptcy Code achieves this goal through the use of bankruptcy plans. Debtors in possession usually have the first opportunity to submit a plan during the exclusivity period. This period allows the debtor 120 days from the date of filing for chapter 11, to propose a reorganization plan before any other interested party can submit a plan. If the debtor proposes a plan within a 120-day exclusivity period, a 180-day exclusivity period from the filing date for Chapter 11 is provided to enable the debtor to obtain confirmation of the proposed plan. With a few exceptions, the plan can be proposed by any interested party. The interested creditor then chooses a plan.
Confirm
If the judge approves the reorganization plan and if the creditor all agrees the plan can be confirmed. If at least one creditor class voted against the plan and thereby refused, the plan could still be confirmed if the termination requirements were met. In order to be confirmed on their objections, the plan should not discriminate against the creditor class, and the plan must be found equitably and equally for that class.
After confirmation, the plan becomes binding and identifies debt treatment and business operations during the duration of the plan.
If the plan can not be confirmed, the court may turn the case into liquidation under chapter 7, or, if in the best interest of the creditor and the property, the case may be dismissed so as to return to the status quo before the bankruptcy. If the case is dismissed, creditors will see non-bankrupt laws to fulfill their claims.
Auto stay
Like other forms of bankruptcy, the petition filed under chapter 11 asks to remain automatic from Ã, § 362. The automatic stay requires all creditors to stop collection efforts, and make a lot of post-petition debt collection efforts null and void. In certain circumstances, some lenders, if not, the United States Trustee may ask the court to turn the case into liquidation under chapter 7, or appoint a trustee to manage the debtor's business. The court will give a motion to convert to chapter 7 or appoint a trustee if any of these actions are in the best interests of all creditors. Sometimes a company will liquidate under chapter 11, where pre-existing management may be able to help get a higher price for divisions or other assets than might be achieved by the liquidation of chapter 7. The appointment of the trustee requires some error or mismanagement roughly on the part of existing management and relatively rare.
Execution contract
Some contracts, known as an executor contract, may be denied if canceling them will be financially profitable for the company and its creditors. Such contracts may include union contracts, supply or operating contracts (with vendors and customers), and real estate leases. The standard feature of an execution contract is that each party to the contract has a job that still exists under the contract. In the event of any refusal, the parties remaining in the contract become unsecured creditors of the debtor. For example, in some districts the contract for deed is an executorial contract, while in others it is not.
In the new millennium airlines have fallen under close scrutiny for what many see as abusing Chapter 11 Bankruptcy as a simple tool for escaping labor contracts, typically 30-35% of airline operating costs. Every major US carrier has filed an application for Chapter 11 since 2002. Within 2 years (2002 - 2004) US. Airways filed for bankruptcy twice leaving the AFL-CIO, pilot union and other airline employees claiming Chapter 11 rules have helped turn the United States into a corporatocracy.
Priority
Chapter 11 follows the same priority scheme as the other bankruptcy chapters. The priority structure is defined primarily by Ã,§ 507 of the Bankruptcy Code (11 U.S.C.Ã,§Ã, 507.)
As a general rule, administrative costs (which are actually, the costs necessary to preserve bankruptcy real estate, including costs such as employee wages, and case litigation charges chapter 11) are paid first. Secured creditors - creditors who have security interests, or collateral, on the property of the debtor - will be paid before the creditors are not guaranteed. Unsecured creditors' claims are prioritized by Ã, § 507. For example, claims of a supplier of a company's product or employee may be paid before another unsecured creditors are paid. Each priority level must be paid in full before the next lowest priority level can receive payment.
Section 1110
Section 1110 (11 U.S.C.1110) generally provides guaranteed parties with an interest in aircraft the ability to take ownership of the equipment within 60 days of filing bankruptcy unless the airline heals all defaults. More specifically, the creditor's right to take over the secured equipment is not impeded by the automatic retention of the US Bankruptcy Code.
Stock
If a company's stock is publicly traded, the Chapter 11 appeal generally results in it being removed from its main stock exchange if it is listed on the New York Stock Exchange, the US Stock Exchange, or NASDAQ. On the NASDAQ, identifying the fifth letter "Q" at the end of the stock symbol indicates the company is in bankruptcy (formerly "Q" is placed in front of the existing stock symbol; the famous example is Penn Central, whose symbol is initially "PC" and becomes "QPC" after the company filed Chapter 11 in 1970). Many deleted shares immediately proceed as a list of over-the-counter (OTC) shares. The actual value of the stock does not reach zero unless the likelihood of restructuring is so low that the filing of Chapter 7 will surely follow.
Individuals may file Chapter 11, but due to the complexity and cost of the process, this option is rarely chosen by debtors eligible for Chapter 7 or Chapter 13 relief.
Rationale
In enacting Chapter 11 of the Bankruptcy Code, Congress concluded that sometimes the case that the value of a business is greater if it is sold or reorganized as a business continuity rather than the value of the sum of its parts if the business assets are sold is turned off one by one. It may therefore be more economically efficient to allow the troubled company to continue running, cancel some of its debt, and give ownership of the newly reorganized company to creditors whose debts are canceled. Alternatively, a business may be sold as a business continuity with net proceeds from sales that are distributed to creditors appropriately in accordance with the priorities of the law. In this way, the work can be saved, the profitability engine (previously mismanaged) which is business maintained (perhaps under better management) rather than dismantled, and, as a supporter of Chapter 11 plan is required to demonstrate as a precursor for planning confirmations, business lenders end up with more money than they would in the liquidation of Chapter 7.
Considerations
Reorganization and litigation can take an awful lot of time, limiting the likelihood of successful outcomes and sufficient debtors in ownership financing may not be available during an economic recession. The pre-planned and pre-contract approach between the debtor and its creditor (sometimes called the pre-packaged package bankruptcy) can facilitate the desired outcome. A company undergoing reorganization Chapter 11 effectively operates under "protection" of the courts until it appears. An example is the aviation industry in the United States; in 2006, more than half of the industry's seating capacity was in the airline in Chapter 11. The airline could stop making debt payments, violate previously agreed trade union contracts, free up cash to expand routes or face price wars against competitors - - All with the approval of bankruptcy court.
The study of the impact of preventing the right of creditors to enforce their security reaches a different conclusion.
Deadline
Within 60 days of filing for Chapter 11 bankruptcy, the debtor must submit a written disclosure statement with a court containing information on assets, liabilities and business dealings.
Statistics
Frequency
Chapter 11 cases fell 60% from 1991 to 2003. One 2007 study found this was because businesses turned to processes such as bankruptcy under state law, rather than federal bankruptcy proceedings, including those under chapter 11. The bankruptcy process under state law, the study says it is faster, cheaper and more personal, with some states not even requiring court prosecution. However, a 2005 study claimed that the decline might be due to an incorrect classification of many bankruptcies as a "consumer case" rather than a "business case".
Cases involving more than US $ 50 million in assets are almost always handled in federal bankruptcy courts, and not in a state like the ongoing state.
Biggest case
The biggest bankruptcy in history is from US investment bank Lehman Brothers Holdings Inc., which recorded $ 639 billion in assets in chapter 11 filings in 2008. 16 largest corporate bankruptcies as of December 13, 2011:
Enron, Lehman Brothers, MF Global and Refco have suspended all operations while others are purchased by other buyers or emerging as a new company of the same name.
Enron's assets were taken from 10-Q filed on November 11, 2001. The Company announced that its annual finance is being examined at the time of filing for Chapter 11.
See also
- 722 redemption
Similar programs in other countries
- For similar programs in the UK, Australia and New Zealand, see Administration (legal)
- For similar programs in Ireland, see Checking
- For similar programs in Italy, see Concordato preventivo (in Italian)
- For similar programs in Canada see Canadian bankruptcy law
References
External links
- The United States changed the bankruptcy protection law, through BBC News.
- Complete Title 11 â € <â € <(ZIP file), via www.house.gov
Source of the article : Wikipedia
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