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Chapter 11 Bankruptcy FAQs (Pt. 3)
September 26, 2014
Here is the conclusion to our blog series Chapter 11 Bankruptcy FAQs.
Q – Are bankruptcy trustees appointed in Chapter 11 bankruptcy cases?
A – Not typically, but they can be appointed by a bankruptcy court if or when the following circumstances may arise:
- Bankruptcy fraud is suspected by a court.
- Some type of incompetence with the filing or handling of a bankruptcy case is suspected by the court.
- A business’ (i.e., the debtor’s) funds are perceived as being grossly mismanaged.
In other words, a bankruptcy trustee will be appointed in Chapter 11 cases when a presiding court suspects that something may be wrong or off with the case.
Q – What does a court have control over when a business files for Chapter 11 bankruptcy?
A – Simply put, a lot. More specifically, when a business files for Chapter 11 bankruptcy, the following are the primary issues over which the court has authority:
- The sale of a business’ assets, including (but not limited to) a business’ inventory, real estate, buildings and other property that may need to be liquidated as the business reorganizes
- Any decisions regarding expanding certain business operations and/or shutting down other operations
- Any leases and/or loans a business may plan to take out or break
- Any contracts and/or agreements a business may enter into (or break) with vendors, contractors, unions, etc.
- Issues regarding attorneys’ fees or other the expenses for the services of other professional consultants.
Q – What about the reorganization plans for businesses going through Chapter 11 bankruptcy? What are the terms for the court approving these plans?
A – In general, a bankruptcy court will approve (or “confirm”) a business’ Chapter 11 plan as long as the plan meets the following requirements:
- The plan is feasible – In other words, the business can actually realize the plan, and when properly implemented, the plan will result in creditors being repaid.
- The plan has been made in good faith – While this means that the plan will have to be in full compliance with the applicable laws, it also means that it should be developed with a business’ full intent on following through with the plan.
- The plan is fair and equitable – There are specific legal standards a court will use to make this determination.
- The plan is in the “best interests” of creditors – In other words, the plan should provide creditors with at least the same amount of funds as they would receive if the business were to go through a Chapter 7 liquidation.
Because developing a Chapter 11 plan is a complicated and critical issue to a business bankruptcy, be sure to work with an experienced Denver bankruptcy lawyer like Jon B. Clarke to ensure your business is able to develop a viable plan that will position it for success both in the bankruptcy case – and in the future.
Contact the Law Office of Jon B. Clarke, P.C. Today
To learn more about your best options for debt relief, contact us at (866) 916-3950 or email us using the contact form on this page.