Chapter 11-Part 5

Written by jessica Alba

As you delve further into chapter 11 bankruptcy and the law, you will need to understand how it affects others who have a vested interest in your business, when chapter 11 is not the answer for you and your business, the purpose of a disclosure statement, reorganization, and more. In the next section, you will read only the basics of these concepts, so you can have an informed discussion with your bankruptcy lawyer.

A Vested Interest

Do you have anyone that has a share in your business, is a limited partner, or has some sort of equity in your enterprise? Then, these people are considered equity security holders. They also will be adversely affected in the filing of chapter 11 bankruptcy.

The holders will lose money, if you file bankruptcy. Thus, they can file papers to seek some sort of return on their investment, basically to soften the blow of their losses: “An equity security holder whose interest is not scheduled or scheduled as disputed, contingent, or unliquidated must file a proof of interest in order to be treated as a creditor for purposes of voting on the plan and distribution under it”. Then, it basically works the same as it does for a creditor that has filed a claim.

Making a Change

Sometimes, chapter 11 bankruptcy does not truly answer the problems of a business. Nothing will solve the problems that the business is suffering, and it will only delay the inevitable. Any interested party can file a cause for conversion to chapter 7 or dismissal of the case entirely, if there is not sufficient reason for filing bankruptcy in the first place. According to the government website www.uscourts.gov:

Section 1112(b) (4) of the Bankruptcy Code sets forth numerous examples of cause that would support dismissal or conversion. For example, the moving party may establish cause by showing that there is substantial or continuing loss to the estate and the absence of a reasonable likelihood of rehabilitation; gross mismanagement of the estate; failure to maintain insurance that poses a risk to the estate or the public; or unauthorized use of cash collateral that is substantially harmful to a creditor.

Many reasons also exist for dismissal. But, one of the most egregious causes is simply not doing what the federal bankruptcy court requires in a timely manner. If you want this case to go through, in order to restructure your debt and save your business, do not mess around. Do not try to withhold or embellish any information for the court. You will be investigated, found out, and in a lot more legal trouble than trying to save your business through bankruptcy.

Your Statement

As part of chapter 11 bankruptcy proceedings, larger business will need to file a disclosure statement. It basically states why you feel your business qualifies for bankruptcy. Anyone who has an interesting in your bankruptcy will receive all of the necessary paperwork. The court trustee, your creditors, and the equity security holders all have the right to know that your business is going bankrupt and why.

Among the paperwork all of the interested parties should receive, according to www.uscourt.gov, you will have to provide:

(1) the plan, or a court approved summary of the plan; (2) the disclosure statement approved by the court; (3) notice of the time within which acceptances and rejections of the plan may be filed; and (4) such other information as the court may direct, including any opinion of the court approving the disclosure statement or a court-approved summary of the opinion.

Once all of the interested parties have received all of the necessary information, there are several reasons why they can choose to reject or accept your payment restructuring plan. Of course, there will be a hearing to give the interested parties a chance to contest the plan and speak their piece. It is definitely not all cut and dried, simply because you went through the process of filing and send out the paperwork. It is simply one step in the process.

Are you Done Yet?

Once the plan has been accepted by the court, it is confirmed. Yeah! You have finally reached the point where your debts are discharged, you can begin repayment, and you can concentrate on trying to get your business back in the black. Right?

Unfortunately, confirmation of your plan does not necessarily mean the end of your case. In fact, for just cause your plan can be modified after confirmation and then go through the confirmation process all over again. Again, the debtor in possession or a trustee will have to also show that the plan is being successfully implemented.

In addition the order for confirmation can also be revoked in the next six months. If an interested party files a petition, based on suspicion of fraud, the court may deny confirmation, if they find the request is justified. Once again, it is so important to do everything by the book, be honest and forthcoming with all pertinent information, and consider all of the people and businesses that will be affected by your decision to file bankruptcy. A chapter 11 action can drag on forever and keep you from getting that fresh start for your business, so you can hopefully turn the tide and ultimately see success replace economic frustration. The ultimate goal is to see the estate fully administered, so the court can issue the final decree and the case is closed.

Finally, you have come to the end of a brief overview of chapter 11 bankruptcy. Although it has been lengthy reading, it is but a drop in the bucket compared to all that bankruptcy lawyers have to learn, in order to represent you in a federal bankruptcy court. But, hopefully you have learned enough to know whether you want to file, or at least what you lawyer is talking about as he/she prepares you for filing of chapter 11 bankruptcy.