Page 8 - US Bankruptcy Code Overview

• if no such transfers were made, 25 percent of similar transactions to the person during the previous calendar year.
Debtor in Possession Financing
- Unsecured Credit:
• Ordinary course – no court approval needed. • Non-ordinary course – court approval needed.
- Secured Debt. See 11 U.S.C. §§ 364(c), (d); Bankruptcy Rule 4001(c).
• Court approval needed.
• Superpriority – secured by un-encumbered assets or secured by subordinate lien.
• Senior secured claim if – unable to otherwise obtain credit, and consent given by creditors, or “adequate protection” provided to prior secured creditors.
• “Good faith” finding provides protection to debtor-in-possession lender for monies loaned under loan facilities overturned on appeal. See 11 U.S.C. § 364(e).
• Approval – final approval must be at least 14 days after service of motion; interim hearing/approval permitted. See Bankruptcy Rule 4001(c)(2). It is common for debtors to obtain approval of an initial tranch of a DIP facility from one of the “first day orders.”
• “Strategic” move vs. “Lender” approach. Such facilities may be given by traditional financial institutions, syndicates of banks, or opportunistic strategic investors as well as other willing lenders.
Conversion or Dismissal
- A chapter 11 case may be converted to a chapter 7 case or dismissed for “cause.” See 11 U.S.C. § 1112. - “Cause” includes:
i. continuing losses;
ii. inability to effectuate plan;
iii. unreasonable delay by debtor that is prejudicial to creditors; or
iv. inability to effectuate substantial consummation of a confirmed plan, or material default therein.
> WHAT TO EXPECT Relationship Between Debtor and Creditors
- Creditors owed money or assets by the debtor for pre-petition services, goods or other obligations are generally prohibited from collecting or making demand by the application of automatic stay – must file proof of claim for payment unless scheduled as undisputed, liquidated and non-contingent creditor.
• A deadline or “bar date” is usually established by court order for the filing of any claims. Such deadline is usually broadly circulated and is often published in a newspaper. See Bankruptcy Rule 3001.
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