What Does It Mean When a Business Files for Chapter 11 Bankruptcy?

Filing for Chapter 11 bankruptcy protection offers an enterprise the opportunity to restructure its debts and business operations, with a plan to repay claims or any outstanding accrued interest. The goal of filing for Chapter 11 is to get a business back on track with a feasible plan and a capital structure that is sustainable, while also accounting for prior claims and shareholder interests.

The Process

Chapter 11 can begin in one of two ways: either with a petition filed voluntarily by the debtor, or a petition filed involuntarily by a group of three or more creditors. A voluntary petition typically requires, unless the court orders otherwise, that the debtor file a plan of reorganization within a 120-day period. If an involuntary petition is filed, even if contested by the debtor, the petition materially restricts a company’s ability to conduct business.

The most important aspect of Chapter 11 cases is the preparation, proposal, and confirmation of the reorganization plan. The plan is devised by the debtor’s owners and management, financial consultants, and the attorney of the debtor, as well as any creditors, to ensure the cooperation of all parties during the case. The provisions of the plan include specifying all claims and interest holders involved and providing adequate means of implementing and executing the plan.

The debtor must adequately inform creditors and interest holders of the financial position and of the reorganization plan in a disclosure statement. After the disclosure statement is approved by the court, the creditors and interest holders can approve or reject the plan. If the plan is accepted by at least one class of creditors, the plan may be confirmed by the court. If the court confirms the plan, then it becomes effective and must be carried out and consummated by the debtor.  After the plan in consummated by the debtor, a final report is filed and the case is then closed.

Learn More

Chapter 11 bankruptcy is a complex subject and the above is only a brief over. For an in-depth understanding please contact a Tiveron Law attorney at 716-636-7600 or via email at info@tiveronlaw.com.