The Background to Chapter 11 Debtor Reorganizations

At The Butler Firm, a wind energy law firm, our bankruptcy team has the knowledge and skill sets to effectively represent medium and larger size clean energy/clean technolgy companies throughout the Chapter 11 reorganization process.

Normally bankruptcy arises where the business enterprises or individuals are not able to meet their debt obligations. When we talk about chapter 11 we will be referring to the specific case of a business that has gone under but desires to continue to operate after it comes out of bankruptcy.

The normal procedure is that the indebted organization will file for bankruptcy on a voluntary basis. On the other hand the creditors themselves might instigate the procedure by filing their own involuntary bankruptcy proceedings. The chapter 11 proceedings will be looking to ascertain the assets or liabilities of the party concerned and ensure that they can reorganize the debt in such a way as to limit the losses that the creditors will inevitably have to face.

For those people who are familiar with the workings of the legal profession, they will realize what I am talking about when I refer to Code-entitled Reorganization. This essentially refers to the unique situation whereby an organization that is the subject of a bankruptcy proceeding will be allowed to continue operations as long as it makes a commitment to pay back its creditors by some specified point in the future. It is not in the interests of the court to ignore the debt that has arisen but at the same time they do not want to destroy a legitimate business and reduce the likelihood of ever recovering the money in full.

Reorganizing to Meet Debt Obligations

The Code-entitled reorganization is operated under very strict deadlines and procedures. Failure to comply with any subsequent notifications or schedules will almost certainly mean that the full bankruptcy process resumes in earnest and the case being re-classified as a Chapter 7. The business in question will have to submit to the court and the creditors, a workable plan that is designed to eventually pay off the debt. The court is then at liberty to accept or reject the proposal.

The business plan for the debtor reorganization has to be filed within one hundred and twenty days of the initial filing for bankruptcy. The plan will include a written disclosure statement that refers to the liabilities and assets of the company. The plan has to be tested for feasibility and therefore the court might have certain queries relating to certain assertions that the debtor is making about the case.

Under this procedure the court will have the discretion to amend the final draft of the disclosure document in such a way as to reduce the amount that is owed. In some exceptional cases the whole amount has to be written off by the creditors. Obviously this is not in the interest of the creditors and they will make some very heated submissions to counter any suggestions to reduce the amount of money that is owed. They will also be concerned that the amount of money is kept separate from the bankruptcy proceedings as designated personal property.