Business Reorganization - Chapter 11 Flashcards
Who is eligible for Chapter 11
Individuals, partnerships, corporations
Who is not eligible under chapter 11
Savings and Loans, Banks, Insurance Companies
The goal of chapter 11
is to keep financially troubled business alive
Chapter 11 bankruptcy can be initiated
voluntarily or involuntary
After the order of relief is entered
A creditor committee is appointed (similar to a trustee)
A reorganization plan
1) allows for continued operation
2) provides for payment over extended periods
3) divides claims into similar classes
4) provides for some creditors to receive stock
5) requires priority general creditors to be paid in full
Approval of reorganization plan needs
1) over 1/2 of the creditors in each committee that is owed at least 2/3rds of the debt.
2) Acceptance of stockholders holding 2/3rds of the stock
3) courts can “cram down” power if above doesn’t work as long as it is fair
How can creditors receive stock instead of debt
1) Preferred shares converted to common
2) common shareholders may forfeit stock shares
3) claims receive reduced amounts
Courts may
convert chapter 11 into a chapter 7 if it is fairer
