What is Chapter 11 Bankruptcy Debtor-in-Possession?
A Chapter 11 bankruptcy debtor-in-possession refers to the person appointed to carry on the daily operations of business that has filed for a Chapter 11 bankruptcy. If the Court finds sufficient cause, a bankruptcy Trustee may take over. If there is any indication of fraud, dishonesty, incompetence and gross mismanagement, the Trustee will step in. Although the Chapter 11 bankruptcy debtor-in-possession may handle day-to-day activities of the business, the Court still have final say on large financial decisions:
- any sale of assets including property or real property (except for items such as inventory sold by a retail debtor in the ordinary course of business)
- signing a new lease or terminating a lease of real or personal property
- mortgage financing arrangements that allow the debtor to borrow money after the case is filed such a secured mortgage.
- closing down or expansion of the business operations
- modification or initiation of union, vendor, licensing, and other agreements and contracts, and
- retaining and paying of fees and expenses to attorneys and other professionals.
Role of Creditors
Creditors, shareholders, and other parties that are affected by the bankruptcy may support or oppose actions that require bankruptcy court approval. In put from creditors and other parties will be considered by the Court before deciding how to proceed. Formal votes by creditors and other parties involved are taken only in connection with proposed Chapter 11 plans.
Unsecured creditors may also participate in the Chapter 11 case, however this is only made possible through a committee represents their interest.
Does Chapter 11 Really Work?
Statistics indicate that about 10 to 15% of Chapter 11 cases are successful. Majority of cases are dismissed or result in conversion to Chapter 7 liquidations. The Court has to approve a dismissal or conversion of a Chapter 11 case. If the debtor is unable to indicate the ability to regain profitability, the Court may dismiss or covert the case.
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