About the Process

What is Chapter 11?

Chapter 11 is a tool that allows a company to restructure finances or operations while continuing to operate as it did before the filing. During the chapter 11 process, a company’s operations continue the same as before the filing. Services remain in place while employees and vendors continue to receive payment.

What are some key attributes of Chapter 11?

Fairness: Chapter 11 provides a level playing field for creditors and the court is there to ensure fairness and that the laws are honored. For example, all creditors receive notice of any action the company takes that might impact them or limit their rights.

Management Remains in Control: Chapter 11 leaves the company’s management in control of the business and all business decisions throughout the process. The judge does not make the company’s business decisions.

Versatility: Chapter 11 is a versatile tool that can be used by companies to improve their operations or financial structures while treating all creditors fairly. Companies have the ability to construct a plan for emergence that is in the best interest of the company and its creditors.

What is the difference between Chapter 11 and Chapter 7?

Chapter 11 helps companies survive and restructure. A company that has filed chapter 11 has not “gone bankrupt.” Companies “go bankrupt” and liquidate under chapter 7, not chapter 11. Chapter 11 helps businesses strengthen their operations and finances, while continuing to operate in the same capacity.

What is the goal of a Chapter 11 filing?

The goal of chapter 11 is to improve a company’s financial health and operational capabilities to ensure profitability and growth for years to come. A goal during the chapter 11 process is for the filing company to develop a “plan of reorganization” for satisfying creditor claims.

What is the general chronology of events in a Chapter 11 when the goal is to recapitalize the company?

Phase 1- Filing and Transition

• Filing of chapter 11 petition
• Filing triggers “automatic stay,” freezing all actions against the company
• Company continues to operate normally

Phase 2- Reporting and Administration

• Office of the United States Trustee conducts a meeting of creditors
• Company files Schedules of Assets and Liabilities and Statement of Financial Affairs
• Deadline is established for creditors to file proofs of claim against the company

Phase 3- Negotiation and Formulation of Plan of Reorganization

• Company develops plan of reorganization
• Company files with the Court a “disclosure statement,” describing the company, the restructuring process, significant liabilities and terms of the plan of reorganization
• Court approves disclosure statement
• Creditors vote to accept or reject plan of reorganization
• Court “confirms” plan of reorganization
• Company emerges from chapter 11

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