Our bankruptcy attorneys have a well-earned reputation as turnaround strategists in Chapter 11 scenarios. This chapter of the bankruptcy code proposes a reorganization plan to shed debt based on current asset worth, keep businesses alive, and pay creditors over time. As skilled negotiators and litigators, our toolkit includes strong experience in franchise disputes, real estate restructurings and complex workouts for landlords, tenants, lenders, and property owners. We have handled complex domestic and cross-border Chapter 11 reorganizations. From out-of-court restructurings to formal reorganization proceedings, we help clients find options to work-out or eliminate debt, renegotiate finance, and lease terms, and restructure operations to turn their business around and emerge from bankruptcy able to avoid similar problems in the future. Bankruptcy does not necessarily mean the end of a business. A Chapter 11 bankruptcy is appropriate for businesses that intend to continue operations and for businesses for which the expense of the Chapter 11 proceeding is justified by the potential for a greater return to the creditors. Traditional Chapter 11 Typically, the management team remains in place in possession of the business assets, but with fiduciary obligations to the creditors of the business. These obligations include accounting for the assets of the business, filing monthly reports with the court, and developing a plan of reorganization. These activities are monitored by the United States Bankruptcy Trustee. The typical benchmark of a successful plan of reorganization is one that provides the creditors at least as much as they would receive in a liquidation. Many well-known businesses have emerged from Chapter 11 bankruptcy and operated successfully for many years, including General Motors, Chrysler, Six Flags, United Airlines, and Texaco. The Participation Process A Chapter 11 bankruptcy requires a great deal of involvement by the managers of the business. In addition to all of the tasks involved in a Chapter 7 bankruptcy, the managers’ duties may include:
- Preparing (or overseeing the preparation of) monthly financial reports for the court;
- Negotiating for financing of the business operations while the bankruptcy is pending;
- Assisting with early motions to obtain court permission to continue certain activities critical to the business;
- Assisting with the preparation of a plan of reorganization that is in the best interests of the creditors; and
- Assisting with the preparation of a disclosure statement explaining the operations of the business and explaining why the reorganization is better for creditors than liquidation.
- The debtor (whether an entity or an individual) must be engaged in business and have total debt, secured and unsecured, not exceeding $2,725,625 (subject to adjustment every three years). However, under the CARES Act this amount has been temporarily increased to $7,500,000.
- In calculating the debt amount, the SBRA does not include “contingent” or “unliquidated” debt.
- One-half or more of the debt must have arisen from business, as opposed to personal, activities.
- Under the CARES Act none of the Paycheck Protection Program Loan or Economic Impact Disaster Loans will be counted towards the maximum debt. Also, none of the proceeds from these loans will be counted towards the debtor’s assets.