The US chapter 11 process
Produced in partnership with Julie Lanz of Skadden Arps Slate Meagher & Flom LLP
The US chapter 11 process

The following Restructuring & Insolvency guidance note Produced in partnership with Julie Lanz of Skadden Arps Slate Meagher & Flom LLP provides comprehensive and up to date legal information covering:

  • The US chapter 11 process
  • Coronavirus (COVID-19)
  • Why chapter 11?
  • Types of chapter 11
  • Choosing the venue for a chapter 11 filing
  • The filing of the case
  • Who may be a chapter 11 debtor
  • Protection of automatic stay
  • DIP financing
  • Assumption and rejection of executory contracts and unexpired leases
  • more

Why chapter 11?

Chapter 11 provides a debtor with an opportunity to reorganise a business or capital structure while continuing normal business operations under the control of the debtor’s management and board of directors. See: 11 U.S.C.§§ 1102, 1107 (not reported by LexisNexis®).

Although the debtor usually continues to run the business operations (ie the debtor remains in possession), the US Trustee monitors the bankruptcy case and typically appoints an official committee of unsecured creditors to represent the interests of unsecured creditors.

Types of chapter 11

A pre-packaged bankruptcy occurs when the debtor negotiates a plan of reorganisation with its creditors and other stakeholders and solicits votes on its plan of reorganisation before filing for bankruptcy. See: 11 U.S.C.§§ 1125 (not reported by LexisNexis®).

A pre-negotiated or pre-arranged bankruptcy occurs where a debtor reaches a consensus with key stakeholders regarding the terms of a reorganisation before filing of bankruptcy, though votes on a plan are not solicited prior to filing for chapter 11 (although in some cases lock-up agreements may be obtained).

A conventional or traditional chapter 11 is where a debtor files for chapter 11 protection without any prior agreement with key creditors or stakeholders for a plan of reorganisation.

As of February 2020, special rules will apply to small business chapter 11 bankruptcy cases, pursuant to the new Small Business Reorganization Act