What is Chapter 11 of the US Bankruptcy Code?

the Chapter 11 From Bankruptcy Law in the United States It is one of the most common divisions that companies or individuals adhere to when they are not in a position to pay their creditors but are seeking to reorganize and continue their operations.

It essentially allows companies to continue operating under a debt standstill during restructuring; At the end of this process the creditors are paid according to the agreed guidelines. Unlike other resources that seek the partial or total end of the company’s activities; Chapter 11 is a possibility that is used primarily as a precaution and does not mean that people who embark on this process are completely bankrupt.

In this chapter 11, the debtor uses the time elapsed from the moment the application papers are submitted until the moment the plan is confirmed to pay the debt and reorganize its finances. In the event that a company, partnership, or individual is unable to reorganize its debts, and obtain approval of a plan to settle its debts, Chapter 11 status may be transferred to comply with the liquidation rules, from Chapter 7.

Who can be protected under Chapter 11?

This protection targets large, medium and small companies, sole proprietorships and associations.

US law provides that any company or individual who has a domicile or place of business or who has assets in the United States can request court oversight to restructure its financial resources and operations under Chapter 11 rules.

In fact, no matter how much assets a foreign company has in the United States, there is no minimum or maximum requirement to qualify for Chapter 11 bankruptcy protection.

In some cases, deposits held in the law firm chartered for the proceeding in the United States can qualify as assets to be a debtor eligible to file for Chapter 11.

What benefits does Chapter 11 offer?

This section is a kind of relief of penalties; Causing the dissolution of the company or the individuals who take advantage of it; Instant liquidation and start making cuts. During this period, the law gives scope for the subject to continue their operations and restructuring without pressure on the part of creditors. At the same time, it gives you the opportunity to negotiate and plan your debt repayment plan.

In addition, Chapter 11 reorganization proceedings have the advantage that company management retains control of the company (unless a judge decides on exceptional terms to appoint an auditor or trustee), this rare requirement in global legislation allows plans for reorganization to be generally more effective than By retaining decision makers who have a deep understanding of the situation of the company, association or individual concerned.

Topics that benefit from this section also have access to “DIP . Financing“(debtor-possession financing), which is one of the easiest and cheapest methods available.

What is the procedure?

The application may be submitted voluntarily by companies or individuals seeking Chapter 11 protection or by a creditor.

When the petition is actually filed, the applicant becomes a “debtor in possession,” which means that they keep the property and continue operations.

For the petition to proceed, the creditors must also agree to the debt restructuring and reorganization plan; In addition, the designating judge must also agree that the project is in conditions of validity, justice, good faith, feasibility and fairness in the interests of the creditors.

After the creditor’s persuasion, voting and counting process, the court holds a hearing to determine whether or not the plan has been approved.

If this happens, the existing debt is discharged and the setter will be responsible for paying the creditors as detailed in the reorganization plan.

Chapter 11 can take anywhere from a few months to a few years to complete, depending on the circumstances.

Some data:

Reports and studies in the United States indicate that only 10-15% of cases accepted under Chapter 11 end in successful reorganization, and this is indicated by the total number of cases admitted to court, and the lack of a particular statistic about a successful reorganization statistic in Foreign companies.

Much of the proceedings that begin under Chapter 11 protection for purposes of reorganization end up in the section of Chapter 7 of the United States Bankruptcy Code, which includes the eventual discontinuation of operations.

during the covid-19 pandemic Most airlines Latin america which have origins in the United States, such as LATAM AirlinesAnd Air Mexico NS Avianca, commenced their restructuring under Chapter 11.