Page 7 - US Bankruptcy Code Overview

- Trustees and examiners are paid from the estate and may retain professionals to assist them. Such professionals are paid from the estate.
Automatic Stay
- Scope – acts as a stay against most actions and proceedings against the debtor, including judicial, administrative or other proceedings, any act to obtain possession of property of the estate, or to collect, assess or recover pre-petition debts, or to exercise most set-offs. See 11 U.S.C. § 362(a).
- Exceptions to the stay for the exercise of certain setoffs, including setoffs by commodity brokers and forward contract merchants in connection with commodity contracts and forward contracts. See 11 U.S.C. § 362(b)(6).
- Exceptions for repo participants, swap participants, and master netting agreement participants, to exercise the setoff of any mutual debts in connection with the relevant agreement with the debtor. See 11 U.S.C. § 362(b)(7), (b)(17), (b)(27).
- Exception for commencement or continuation of an investigation or action by a securities self-regulatory organization (i.e., FINRA), or delisting of securities. See 11 U.S.C. § 362(b)(25).
- Special rules and exceptions for secured parties, lessors or conditional vendors of financed or leased aircraft, aircraft parts and documented vessels from the automatic stay – 60 day rule. See 11 U.S.C. § 1110.
- Relief from automatic stay. See 11 U.S.C. § 362(d).
- Relief may be granted for “cause” including lack of “adequate protection” of an interest in property. See
11 U.S.C. § 362(d)(1).
- Debtor’s lack of equity in property and property not necessary to effective and realistic reorganization
within a reasonable time. See 11 U.S.C. § 362(d)(2).
- “Single asset real estate debtors” – plan filed within 90 days (unless extended) and interest payments to
maintain stay. See 11 U.S.C. § 362(d)(3)
- Automatic stay continues until subject property is no longer property of the estate, and until the earliest of the date when the case is closed, dismissed, or when discharge is granted/denied. See 11 U.S.C. § 362(c).
Key Employee Retention Programs (KERPs)
- New restrictions on debtor’s ability to provide inducements for management to remain in place during reorganization. See U.S.C. § 503(c).
- Debtors prohibited from compensating an “insider” of the debtor for the purpose of inducing such a person to remain with the debtor’s business, unless the court finds:
i. The person has a “bona fide job offer” from another business at a higher pay rate;
ii. The person’s services are essential to the survival of the debtor’s business; AND
iii. The compensation not greater than:
• 10 times the mean of similar transactions to non-management employees in the same calendar year; OR
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