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Restructuring > CIRA > Flashcards

CIRA Flashcards

1
Q

structured dismissal

A

a form of chapter 11 liquidation plan in which money runs out to pay admin fees

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2
Q

chapter 9 bankruptcy

A

for a municipality filing for bankruptcy (Detroit)

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3
Q

An ABC

A
  • Assignment for Benefit of Creditors
  • a liquidation under state law in which assets are transferred to a trustee who distributes to the creditors based on their claims
  • less expensive than bankruptcy and creditors bear their own costs
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4
Q

term of a bankruptcy court judge

A

14 years

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5
Q

automatic stay

A

stops all legal actions against a creditor once a bankruptcy petition is filed

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6
Q

Examiner

A 
An officer (or a financial advisor) appointed by the bankruptcy court to oversee certain aspects of the operations of a Chapter 11 debtor or the proceedings. Their primary role is to investigate and report to the court
-not appointed in out-of-court settlements
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7
Q

Trustee

A

An agent, appointed by the court, who manages the property of a debtor (can be a financial advisor)
A trustee is appointed in most Chapter 7 cases and in Chapter 11 cases when it determines that the debtor’s management should not remain in control. The trustee may be elected by the creditors. Their primary role is to operate the business of the debtor

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8
Q

U.S. Trustee

A

An agent of the court who manages the property of the debtor for the benefit of the creditors. Their primary role is to administer the many duties of the court including appointing trustees and examiners, scrutinizing bankruptcy docs, etc.

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9
Q

What does “bankruptcy law” refer to?

A

federal law, title 11 of US Code, commonly referred to as Bankruptcy Reform Act of 1978
-has been amended four times, most recently in 2005 with Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA)

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10
Q

Goods shipped within ___ days of bankruptcy filing are considered administrative expenses

A

20 days

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11
Q

Use of the term “insolvency law” refers to ___

A

laws enacted by individual states

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12
Q

Chapter 12 bankruptcy

A

Applies to farmers so long as total debt does not exceed ~$4k

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13
Q

Path of appeals of a bankruptcy court decision

A

1) district court OR Bankruptcy Appeals Panel (if a 3 judge panel exists in the circuit and all interested parties consent)
2) federal circuit court of appeals
3) US Supreme Court

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14
Q

What are “core proceedings”?

A

Items that a bankruptcy judge determines are issues that need to be resolved, thereby allowing the court to exercise jurisdiction and issue a decision

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15
Q

What is included in “core proceedings”?

A

O- Orders to obtain credit and turn over property
D- Dischargability of debt
D- Discharge objections

C- cash collateral
R- recover preferences
A- allowance or disallowance of claims and counterclaims of the estate
P- priority of liens

F- fraudulent conveyances
A- automatic stay
L- lien priority
L- liquidation of the assets or adjustment of debtor/creditor equity security holder relationship
S- sale of property
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16
Q

What 2 items are specifically excluded from core proceedings?

A

personal injury

wrongful death

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17
Q

How many regions are there in the US Trustee structure? What’s excluded?

A

21 regions

Alabama and North Carolina are excluded

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18
Q

3 major causes of business failure+ descriptions

A

1 - External (economic change / competitive change / government constraints/ social change / technological change)
2- Management and internal causes (poor management / unbalanced top management team / nonparticipating board of directors)
3- fraud

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19
Q

5 Primary means of funding short term losses

A

1- accelerate AR collections
2- sell obsolete inventory or improve turns
3- further stretch AP
4- fully draw line of credit
5- negotiate forbearance on debt payments

20
Q

7 primary means of funding losses in the longer term

A 
1- increase sales
2- reduce SG&A
3- four wall analysis
4- cut staff (severance issues, warn issues)
5- change operating processes
6- revamp distribution centers
7-  sell buildings or assets
21
Q

Four Wall Analysis - Purpose and Steps

A

purpose - identify poorly performing retail stores for corrective action or closure
1- evaluate store sales and direct expenses, assignable expenses, and allocable expenses to find a CASH contribution margin per store (EXCLUDING CORP ALLOCATION)
2-rank stores by lowest to highest contribution
3- set two thresholds - (A) model store that have cash flow sufficient to achieve long term objections and (B) break even stores
4- identify markets to exit
5- compute store ROIs

22
Q

Viability Analysis - Purpose

A

Determining whether “bleeding” can be stopped and the business can be viable, which is used to identify the most appropriate turnaround strategy and develop a preliminary action plan that can be achieved in conjunction with management changes

23
Q

Preliminary Viability Analysis - Steps

A

1- identify viable business units
2- determine availability of interim financing
3- determine adequacy of organizational resources

24
Q

Detailed Viability Analysis - Content

A

1- Strengths and Weaknesses (org structure / market position / production and R&D capabilities / adequacy of company admin systems / peer group analysis)
2- Environment and Competitive Ability (market demand / customers/ suppliers / competition (Porter) / industry capacity / regulatory environment / access to capital)
3- overall viability (industry / company position / company management / company cost structure / company capital structure)

25
Q

4 advantages to a Ch 11 liquidation

A

1- more flexibility through liquidation plan
2- professionals continue (trustee will be appointed in Ch 7, with new professionals and learning curve)
3- avoid having all creditors file proof of claims
4- costs less

26
Q

5 advantages of out of court settlement

A 
1- less disruptive
2- more business-like solutions
3- frustrations and delays minimized
4- agreement reached much faster
5- costs less
27
Q

6 disadvantages to out of court settlement

A

1- requires almost 100% creditor approval
2- assets of debtor subject to attack while settlement pending
3- no method to resolve individual disputes between debtor and creditor
4- excecutory contracts may be difficult to avoid
5- no formal way to recover preferences or fraudulent transfers
6- lose tax advantages of bankruptyc

28
Q

the four ways that tax provisions make it more advantageous to file Ch 11

A

1- court has right to determine taxes
2- prepetition taxes can be allocated over 5 years
3- preserve larger amount of NOL
4- debtor not taxed on income from cancellation of debt

29
Q

The 3 elements of 2005 BAPCPA that increased the need for debtor cash

A

1- Utilities - to avoid discontinuance of service, a utility can require a cash deposit / LOC/ or prepayment for several months of estimated costs
2- lengthened the time that goods could qualify for reclamation from 10 days to 45 days
3- created administrative claims for goods received within 20 days of the petition under 503(B)9

30
Q

Timing of lease rejection in Ch 7 and Ch 11

A

ch 7 - 60 days from order of relief, unless court extends time period
Ch 11 - 120 days with one 90 day extention

31
Q

Reclamation

A

the seller’s right to require an insolvent buyer to return goods purchased on credit

32
Q

when will a court appoint an examiner?

A

when the court determines its in the best interest of the estate
OR
with motion for appointment and unsecured claims in excess of $5 million (in this case, it must be approved)

33
Q

timing of filing recovery actions for unperfected security interests, preferences, and fraudulent conveyances

A

action must be taken within 2 years after order for relief (or petition)
OR
if a trustee is appointed, one year from the date of the appointment

34
Q

when do reclamation claims need to be filed?

A

within 20 days after the case commences

35
Q

what are “preferences” and what determines if they’re classification?

A

Preferences are payments for exchanges made for the unfair benefit of a creditor or insider prior to a bankruptcy filing
- occur within 90 days (creditor) or one year (insider) of filing and occur outside of ordinary business terms, where consideration received is more than what would have been received in a chapter 7 liquidation

36
Q

what are the two types of fraudulent transfers?

A

1- fraud (intent to hinder, delay, or defraud)
2- constructive fraud (payment for less than equivalent value provided that one of the following exists:
-became insolvent as result of transfer
-Debtor was engaged in business with unreasonably small capital
-believed debtor would incur debt beyond ability to repay

37
Q

Two means by which to recover fraudulent transfers (+ timetables

A

1- bankruptcy code - transfer made within 2 years prior to filing
2- state law - look back period of 4-6 years from discovery of fraudulent transfer

38
Q

If a creditor qualifies for reclamation, the debtor may keep the goods and grant the creditor ___ or ___.

A

administrative expense

lien in other goods or assets

39
Q

steps to calculate allowable damages for a lease rejection

A

step 1 - calculate total damages (NPV of lost rent)
step 2 - compare to cap for allowable damages (greater of one year’s rent OR 15% of remaining term of lease BUT NOT GREATER THAN 3 years of rent)
step 3 - add prepetition claims for unpaid renta

40
Q

Order for Relief

A
  • A court order determining that a debtor is subject to the control of the bankruptcy court (The Bankruptcy Code enables a debtor to obtain a discharge from all debts that arose before the date of the order for relief)
  • A voluntary petition constitutes an order for relief.
41
Q

In a Ch 11 case, an unsecured creditors committee is generally ____ by the ___.

A

appointed by the US trustee

42
Q

In a Ch 11 case, an unsecured creditors committee may consist of……

A

the unsecured creditors appointed to the committee organized before the petition was filed (so long as the creditors are representative of the group)

OR

the 7 largest creditors that are willing to serve

43
Q

In a Ch 7, when is a unsecured creditors committee appointed?

A

In rare cases and only when the unsecured creditors elect to appoint one

44
Q

What is the criteria for unsecured creditors to file a ch 7 or ch 11 involuntary petition?

A

3 or more creditors with unsecured claims of at least $15,325

45
Q

What comprises cash collateral?

A

proceeds or profits from property and cash and cash equivalents subject to a security interest

46
Q

How can a trustee or debtor in possession incur debt to cover the costs of operating the business in Ch 11?

A

without court approval provided the debt is incurred in the ordinary course of business

Restructuring (4 decks)

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