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Financially Distressed Companies Answer Book (2013 Edition)
 by Shearman & Sterling LLP, Douglas P Bartner, Susan A. Fennessey
 
 Copyright: 2013

 Product Details >> 

Product Details

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  • ISBN Number: 9781402419676
  • Page Count: 536
  • Number of Volumes: 1
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In order to survive, a company in financial distress must approach its business and capital structure differently than a financially sound company. A company in financial distress may, for example, need to preserve cash by stretching accounts payable, to raise cash by selling assets, or to arrange for emergency liquidity from institutional lenders. The response of a company to its deteriorating financial condition will almost certainly affect, perhaps in material ways, a company’s key constituents.

Financially Distressed Companies Answer Book 2013 provides a broad overview of topics relating to financially distressed companies. It is intended to be an easy reference with respect to issues for the management of a company finding itself in financial distress, a vendor or other creditor trying to manage its exposure or understand a bankruptcy process, or a nonbankruptcy lawyer needing a description of the legal concepts relevant to distressed companies. The book provides answers detailed enough to provide a working understanding of concepts, and relevant statutory and case law cites to facilitate any necessary further reading. Examples and practice tips help illustrate concepts and provide practical guidance.

Topics discussed in Financially Distressed Companies Answer Book 2013 include:

  • The roles and fiduciary duties of directors and management in distress situations;
  • Rights and limitations of creditors in dealing with companies in distress and in bankruptcy;
  • Concepts and considerations relating to out-of-court restructurings;
  • Cross-border reorganizations and issues in international restructurings;
  • Key concepts in U.S. bankruptcy cases; and
  • Special rules in bankruptcy for small businesses and single asset real estate companies.

Financially Distressed Companies Answer Book 2013 also provides you with:

  • Illustrative timelines to help guide strategic planning;
  • References to sources of additional information, such as bankruptcy court websites; and
  • Practice and cautionary tips to provide guidance on issues such as how to recognize financial distress, when the securities laws might require disclosure and what actions a creditor may take to protect its rights or limit its exposure.
  Financially Distressed Companies Answer Book 2013 Table of Contents
Chapter 1: Introduction
  • Q 1.1 : When is a company in “financial distress”?2
    • Q 1.1.1 : What are some of the warning signs of impending financial distress?3
    • Q 1.1.2 : How is cash flow an important warning sign?4
    • Q 1.1.3 : How is financing activity another important warning sign?5
    • Q 1.1.4 : How can availability of a company’s revolving credit facility be affected by its financial distress?5
    • Q 1.1.5 : Who is in the best position to recognize signs of impending financial distress?6
    • Q 1.1.6 : What are some of the consequences of triggering a default under a loan agreement, bond indenture or material contract?7
    • Q 1.1.7 : What is a “cross-default”?7
    • Q 1.1.8 : What is a financial covenant?8
    • Q 1.1.9 : When is a financial covenant for a specific reporting period breached?8
    • Q 1.1.10 : Is it typical that lenders or bondholders are entitled to exercise remedies individually?9
  • Q 1.2 : Why is it critical for a company to acknowledge that it is in financial distress?10
  • Q 1.3 : Why is it important for vendors and other creditors to recognize financial distress?10
  • Q 1.4 : Why is a “going concern” qualification important?10
  • Q 1.5 : Can a solvent company be in financial distress?11
  • Q 1.6 : Do the fiduciary duties of directors and officers change when a company is in financial distress?12
    • Q 1.6.1 : What is the “zone of insolvency”?12
    • Q 1.6.2 : What should directors and officers do to protect themselves when the company begins to experience financial distress?13
  • Q 1.7 : Is a company required to disclose publicly that it is in financial distress?14
Chapter 2: Creditor Rights
  • Q 2.1 : Which laws affect a creditor’s rights when dealing with a distressed company?18
  • Q 2.2 : What rights does a supplier have to reclaim delivered goods from a financially distressed company?19
    • Q 2.2.1 : What is the process for reclamation?19
    • Q 2.2.2 : Are there limitations on a seller’s right to reclamation?20
    • Q 2.2.3 : Do a creditor’s reclamation rights change if its buyer files for bankruptcy protection?20
  • Q 2.3 : May a contract party terminate its contract with a distressed debtor?21
  • Q 2.4 : May a creditor change payment terms for a financially distressed company?21
  • Q 2.5 : What is a forbearance?21
  • Q 2.6 : What is a waiver?22
  • Q 2.7 : What is a creditor’s reservation of rights?22
  • Q 2.8 : What is “perfection” of a lien or security interest?22
  • Q 2.9 : May a creditor file an involuntary bankruptcy petition against a financially distressed company?23
    • Q 2.9.1 : What are the risks for a creditor that commences an involuntary bankruptcy case?23
  • Q 2.10 : What is foreclosure?24
    • Q 2.10.1 : What are the differences between a real estate foreclosure and a personal property (UCC) foreclosure?24
    • Q 2.10.2 : What is a “deed in lieu of foreclosure”?25
    • Q 2.10.3 : What is an assignment for the benefit of creditors?25
  • Q 2.11 : What is a receiver or a receivership?26
  • Q 2.12 : May a creditor exercise control over the business or financial affairs of a financially distressed company?26
    • Q 2.12.1 : What is “lender liability”?26
  • Q 2.13 : What is an intercreditor agreement?27
    • Q 2.13.1 : Why do creditors enter into intercreditor agreements?27
    • Q 2.13.2 : What are some common provisions in intercreditor agreements?28
    • Q 2.13.3 : What is a payment block?28
    • Q 2.13.4 : In what ways does an intercreditor agreement subordinate the claim of one creditor to another creditor?28
    • Q 2.13.5 : What are the differences between lien subordination and payment subordination?28
    • Q 2.13.6 : Are intercreditor agreements enforceable in bankruptcy?29
    • Q 2.13.7 : What provisions do senior creditors ordinarily seek to include in an intercreditor agreement?30
    • Q 2.13.8 : What provisions do junior creditors ordinarily seek to include in an intercreditor agreement?31
Chapter 3: Out-of-Court Restructurings
  • Q 3.1 : What alternatives does a financially distressed company have if it would like to avoid bankruptcy?34
  • Q 3.2 : What parties may be involved in negotiating an out-of-court restructuring?34
  • Q 3.3 : How can a loan be restructured out of court?35
  • Q 3.4 : How can public securities be restructured out of court?37
    • Q 3.4.1 : Are there disclosure requirements for a registered or an unregistered exchange offer?37
  • Q 3.5 : Are there disclosure requirements for a registered or an unregistWhat is the difference between an out-of-court loan restructuring or exchange offer and a “preplanned” bankruptcy?38
  • Q 3.6 : What are the advantages and disadvantages of anout-of-court restructuring as compared to a Chapter 11 restructuring?39
  • Q 3.7 : What documentation may be required in an out-of-court restructuring?40
  • Q 3.8 : What limitations might a “change-of-control” provision present in an out-of-court restructuring?41
  • Q 3.9 : Can a company effectuate a cross-border restructuring without a bankruptcy filing?42
    • Q 3.9.1 : What considerations may be important in a cross-border restructuring?42
  • Q 3.10 : Are there disclosure requirements in an out-of-court restructuring?43
Chapter 4: Introduction to Bankruptcy
  • Q 4.1 : What are the principal goals of U.S. bankruptcy law?46
  • Q 4.2 : How do U.S. bankruptcy laws differ from foreign bankruptcy or insolvency laws?46
  • Q 4.3 : What types of relief are available under the various chapters of the U.S. Bankruptcy Code?47
  • Q 4.4 : What are the primary concepts in U.S. bankruptcy law?47
    • Q 4.4.1 : What is the “automatic stay”?48
    • Q 4.4.2 : What is a “discharge” of claims in bankruptcy?48
  • Q 4.5 : Who are the principal parties in a Chapter 11 case?48
  • Q 4.6 : What is the role of a bankruptcy judge?48
  • Q 4.7 : What is the role of the Office of the U.S. Trustee?49
  • Q 4.8 : What is the role of the official committee of unsecured creditors?49
  • Q 4.9 : What other official committees may be involved?50
  • Q 4.10 : What are “ad hoc” committees, and what is their role?51
  • Q 4.11 : What information do the Bankruptcy Rules require members of a committee to disclose?51
  • Q 4.12 : What is the role of a debtor’s board of directors and management?52
  • Q 4.13 : What is the role of a debtor’s secured prepetition lenders?52
  • Q 4.14 : What is the role of a party providing debtor-in-possession financing?53
  • Q 4.15 : What is the role of a Chapter 11 trustee, if appointed?53
  • Q 4.16 : What is the role of an examiner, if appointed?53
  • Q 4.17 : What is the role of the Pension Benefit Guaranty Corporation?54
  • Q 4.18 : What is the role of a patient care ombudsman, if appointed?54
Chapter 5: Commencement of Chapter 11 Case
  • Q 5.1 : How is a Chapter 11 case commenced?58
    • Q 5.1.1 : How does a company voluntarily commence a Chapter 11 case?58
    • Q 5.1.2 : May a company’s creditors file an involuntary Chapter 11 case?60
    • Q 5.1.3 : How are affiliate bankruptcies treated?61
  • Q 5.2 : In what venue may a company file its Chapter 11 case?61
    • Q 5.2.1 : Once a Chapter 11 case has been filed in a particular proper venue, can it be moved to a bankruptcy court in a different state or district?62
    • Q 5.2.2 : What is the effect of transferring venue on orders entered in a case before the transfer occurs?63
    • Q 5.2.3 : What happens if a company commences a Chapter 11 case in an improper venue?64
    • Q 5.2.4 : What changes have been proposed to the venue rules under the Bankruptcy Code?64
  • Q 5.3 : Who may be a debtor in a Chapter 11 case?64
    • Q 5.3.1 : What types of entities are not permitted to file a case under Chapter 11?65
    • Q 5.3.2 : Under what regimes can an entity restructure or liquidate if it is not eligible to file a case under Chapter 11?65
    • Q 5.3.3 : Can a solvent company be a debtor under Chapter 11?65
  • Q 5.4 : May a non-U.S. company file for protection under the Bankruptcy Code?65
  • Q 5.5 : What is a “debtor in possession”?66
    • Q 5.5.1 : What are the differences between a debtor in possession and a “trustee”?66
  • Q 5.6 : What is a bankruptcy “estate”?67
    • Q 5.6.1 : Once a company files for Chapter 11 protection, which of its assets are considered “property of the estate”?67
    • Q 5.6.2 : What is the significance of assets being property of the estate?68
    • Q 5.6.3 : Which of a debtor’s assets are excluded from property of the estate?68
    • Q 5.6.4 : Are funds held in escrow by the debtor or held in a trust property of the estate?69
    • Q 5.6.5 : Is a debtor entitled to recover property of the estate that is being held by a third party?69
    • Q 5.6.6 : How does a debtor obtain property of the estate that is being held by a third party?70
    • Q 5.6.7 : May a debtor abandon property of the estate?70
  • Q 5.7 : What is the “automatic stay”?71
    • Q 5.7.1 : What actions are prohibited by the automatic stay?71
    • Q 5.7.2 : What actions are exempted from the protections of the automatic stay?72
    • Q 5.7.3 : How may a creditor obtain relief from the automatic stay?72
    • Q 5.7.4 : Is there an automatic stay in an involuntary Chapter 11 case?73
    • Q 5.7.5 : Does the notion of an automatic stay exist outside the U.S. bankruptcy regime?73
Chapter 6: Corporate Governance in Chapter 11
  • Q 6.1 : What are the primary differences between corporate governance before and during a Chapter 11 bankruptcy case?78
  • Q 6.2 : What are the directors’ and officers’ fiduciary duties in bankruptcy?78
    • Q 6.2.1 : What are the duties of directors and officers in a case with multiple debtors?79
  • Q 6.3 : Does the “business judgment rule” apply in bankruptcy?79
  • Q 6.4 : Does the board of directors meet during a bankruptcy case?80
    • Q 6.4.1 : Are there any restrictions on a board of directors’ ability to authorize corporate action?80
  • Q 6.5 : How does bankruptcy affect the rights of the company’s shareholders to control the company?81
  • Q 6.6 : What influence does a shareholder have over management of the debtor in bankruptcy?81
  • Q 6.7 : What restrictions exist for shareholders’ annual meetings during bankruptcy?82
  • Q 6.8 : Is a debtor required to comply with SEC reporting requirements?82
  • Q 6.9 : Is a debtor required to file tax returns?82
  • Q 6.10 : Is a debtor required to comply with the Sarbanes-Oxley disclosure requirements?82
  • Q 6.11 : Are there additional reporting requirements mandated by the Bankruptcy Code or Bankruptcy Rules?83
  • Q 6.12 : What oversight role does the court have over corporate governance in a bankruptcy case?83
    • Q 6.12.1 : What standard does a court use to review the decisions of a debtor?83
  • Q 6.13 : What other parties have an oversight role in a bankruptcy case?84
  • Q 6.14 : What are the procedures for hiring and terminating directors and officers?84
  • Q 6.15 : What is a “chief restructuring officer”?84
    • Q 6.15.1 : What are a chief restructuring officer’s duties?85
  • Q 6.16 : Are directors compensated in bankruptcy?85
  • Q 6.17 : How are director and officer insurance policies treated in bankruptcy?85
Chapter 7: First-Day Motions
  • Q 7.1 : What are “first-day motions”?88
  • Q 7.2 : Why are first-day motions important?88
  • Q 7.3 : When are first-day motions granted?89
  • Q 7.4 : What are “second-day motions”?90
  • Q 7.5 : What is the “necessity of payment” rule?90
  • Q 7.6 : What are the notice requirements for first-day motions?91
  • Q 7.7 : How do parties in interest obtain copies of first-day motions?92
  • Q 7.8 : What is a “first-day affidavit”?92
  • Q 7.9 : What are typical administrative first-day motions?93
    • Q 7.9.1 : What is a joint administration motion?93
    • Q 7.9.2 : What is an extension for schedules motion?94
    • Q 7.9.3 : What is a consolidated lists motion?94
    • Q 7.9.4 : What is a case management motion?94
    • Q 7.9.5 : What is a motion for an automatic stay “comfort order”?94
    • Q 7.9.6 : What is an interim compensation motion?95
  • Q 7.10 : What are typical first-day motions seeking to continue supplier relations?96
    • Q 7.10.1 : What is an essential suppliers or critical vendors motion?96
    • Q 7.10.2 : What is a foreign creditors motion?97
    • Q 7.10.3 : What is a reclamation procedures motion?97
    • Q 7.10.4 : What is a shipping, storage and customs motion?97
    • Q 7.10.5 : What is a lien claimants motion?98
  • Q 7.11 : What are typical first-day motions seeking to prevent disruption to the business operations of the debtor?98
    • Q 7.11.1 : What is a cash management motion?98
    • Q 7.11.2 : What is a customer programs motion?99
    • Q 7.11.3 : What is a prepetition sales, use and other taxes motion?99
    • Q 7.11.4 : What is a claims trading motion?100
    • Q 7.11.5 : What is a utilities motion?100
  • Q 7.12 : What are typical first-day motions seeking to preserve employee relations?101
  • Q 7.13 : What are typical first-day applications to retain professionals?101
  • Q 7.14 : What are typical first-day motions related to financing?102
    • Q 7.14.1 : What is a DIP financing motion?102
    • Q 7.14.2 : What is a cash collateral motion?103
Chapter 8: Financing in Chapter 11
  • Q 8.1 : What is meant by “DIP financing”?106
  • Q 8.2 : Why does a company in Chapter 11 need DIP financing?106
  • Q 8.3 : Why would a lender make a loan to a Chapter 11 debtor?106
  • Q 8.4 : When does the debtor ordinarily obtain a commitment for DIP financing?107
  • Q 8.5 : What is cash collateral?107
  • Q 8.6 : May a Chapter 11 debtor use cash collateral?108
  • Q 8.7 : What is “adequate protection”?108
    • Q 8.7.1 : What if adequate protection turns out to be deficient?109
  • Q 8.8 : What is a “roll up” DIP?109
  • Q 8.9 : What does “cross-collateralization” mean?109
  • Q 8.10 : What is a “priming” DIP?110
  • Q 8.11 : Does DIP financing need to be approved by the bankruptcy court?110
  • Q 8.12 : What is an interim order for DIP financing?110
  • Q 8.13 : When does the bankruptcy court consider final approval of DIP financing?111
  • Q 8.14 : What is a typical timeline for obtaining DIP financing?111
  • Q 8.15 : What standard will a bankruptcy court apply in approving DIP financing?113
  • Q 8.16 : What are the key documents in a DIP financing?113
    • Q 8.16.1 : What documentation is filed with the bankruptcy court and becomes public?115
    • Q 8.16.2 : When does a DIP loan terminate or mature?115
    • Q 8.16.3 : Who pays the fees and expenses of the DIP lenders’ professional advisors?116
    • Q 8.16.4 : Who negotiates DIP financing?116
  • Q 8.17 : What is a “carveout”?116
  • Q 8.18 : Are DIP lenders able to obtain a lien over avoidance actions?116
Chapter 9: Contracts and Leases
  • Q 9.1 : What is an executory contract?120
    • Q 9.1.1 : Does the Bankruptcy Code define “executory contract”?120
    • Q 9.1.2 : What definition of executory contract do bankruptcy courts usually use?120
    • Q 9.1.3 : Are there other factors that courts consider in determining whether a contract is executory?120
    • Q 9.1.4 : Can a contract entered into post-petition be considered an executory contract?121
    • Q 9.1.5 : What types of contracts are not considered executory contracts?121
  • Q 9.2 : What is an “unexpired lease”?121
  • Q 9.3 : What happens to contracts and leases in bankruptcy?122
  • Q 9.4 : Are the parties to a contract or lease required to perform their obligations in bankruptcy?122
  • Q 9.5 : May a non-debtor counterparty terminate or modify a prepetition contract or lease after the petition date?122
    • Q 9.5.1 : What is an “ipso facto” provision in a contract or lease?122
    • Q 9.5.2 : What steps may a contract or lease counterparty take if the debtor does not perform its obligations under a contract or lease that has not been rejected?123
  • Q 9.6 : What is the procedure by which a debtor may assume, assume and assign, or reject an executory contract or unexpired lease?123
  • Q 9.7 : What does it mean to “assume” a contract or unexpired lease?123
  • Q 9.8 : What rights does a counterparty have as a condition to the debtor’s assumption of a contract or lease?123
    • Q 9.8.1 : What exceptions exist to the debtor’s cure requirement?124
    • Q 9.8.2 : How does a debtor satisfy the adequate assurance standards required to assume a contract or lease?125
    • Q 9.8.3 : What types of contracts or leases may not be assumed?125
    • Q 9.8.4 : Is there a deadline by which a debtor must assume a contract or lease?126
    • Q 9.8.5 : May a debtor assume part of a contract or lease?126
  • Q 9.9 : What does it mean to “assume and assign” a contract or lease?127
    • Q 9.9.1 : Why would a debtor seek to assume and assign a contract or lease?127
    • Q 9.9.2 : What requirements must a debtor meet to assume and assign a contract or lease?127
    • Q 9.9.3 : Is a provision in a contract or lease that states that it may not be assigned enforceable in bankruptcy?127
    • Q 9.9.4 : What types of contracts and leases may not be assumed and assigned?128
  • Q 9.10 : What does it mean to “reject” a contract or lease?128
    • Q 9.10.1 : How does a debtor reject a contract or lease?128
    • Q 9.10.2 : What rights does a counterparty have when a debtor rejects a contract or lease?128
    • Q 9.10.3 : Is a contract or lease rejection the same as a termination of the contract or lease?129
    • Q 9.10.4 : May a debtor reject a contract or lease after it has assumed the contract or lease?129
  • Q 9.11 : What are the rules for real property leases?129
    • Q 9.11.1 : What rights does a landlord have when a debtor tenant rejects a real property lease?129
    • Q 9.11.2 : What is the cap on damages that the landlord may recover if a debtor rejects a real property lease?129
    • Q 9.11.3 : Does the damages cap apply to a guarantee claim?130
    • Q 9.11.4 : Does a landlord have a duty to mitigate its damages when its lease is rejected?130
    • Q 9.11.5 : Are a landlord’s claims different if the debtor rejects the lease after having assumed it?131
    • Q 9.11.6 : What rights does a tenant have if a debtor rejects a real property lease?131
    • Q 9.11.7 : Is there a deadline by which a debtor must assume or reject a nonresidential real property lease?132
    • Q 9.11.8 : Is a debtor required to perform under a real property lease post-petition?132
  • Q 9.12 : Is a debtor required to perform under a personal property lease post-petition?132
  • Q 9.13 : What are the special rules for shopping center leases?132
  • Q 9.14 : What are the special rules for intellectual property licenses?133
  • Q 9.15 : What are the special rules for franchise contracts?133
  • Q 9.16 : What are the special rules for labor contracts?133
  • Q 9.17 : What are the special rules for retiree benefits?134
  • Q 9.18 : What are the special rules for certain financial contracts?134
  • Q 9.19 : What are the special rules for aircraft equipment and vessel leases?134
Chapter 10: Safe Harbor Provisions for Certain Financial Contracts
  • Q 10.1 : What are the benefits of safe harbor provisions?138
    • Q 10.1.1 : What is the meaning of “termination”?138
    • Q 10.1.2 : What is the meaning of “liquidation”?139
    • Q 10.1.3 : What is the meaning of “acceleration”?139
    • Q 10.1.4 : What are the requirements for setoff?139
    • Q 10.1.5 : Is cross-affiliate—or “triangular”—setoff permitted?139
  • Q 10.2 : What types of insolvency regimes contain safe harbor provisions?140
    • Q 10.2.1 : What type of insolvency does the FDIA cover?141
    • Q 10.2.2 : What type of insolvency does the SIPA cover?141
    • Q 10.2.3 : What is the OLA?141
    • Q 10.2.4 : What is the IRMA?142
  • Q 10.3 : What kinds of contracts are subject to safe harbors?142
    • Q 10.3.1 : What is a “swap agreement”?142
    • Q 10.3.2 : What is a “securities contract”?143
    • Q 10.3.3 : What is a “repurchase agreement”?143
    • Q 10.3.4 : What is a “forward contract”?144
    • Q 10.3.5 : What is a “commodity contract”?144
    • Q 10.3.6 : What is a “master netting agreement”?145
  • Q 10.4 : Who may exercise safe harbors under the Bankruptcy Code?145
    • Q 10.4.1 : What is a “swap participant”?146
    • Q 10.4.2 : What is a “repo participant”?146
    • Q 10.4.3 : What is a “forward contract merchant”?146
    • Q 10.4.4 : What is a “stockbroker”?146
    • Q 10.4.5 : Who is a “financial participant”?146
    • Q 10.4.6 : Who is a “financial institution”?147
    • Q 10.4.7 : Who is a “commodity broker”?147
    • Q 10.4.8 : Are there any restrictions against who may benefit from safe harbors under other insolvency regimes?147
Chapter 11: Executive and Employee Issues
  • Q 11.1 : Are employees entitled to receive wages and benefits for services performed post-petition?150
  • Q 11.2 : May a debtor pay employees’ wages and benefits post-petition for services performed prepetition?151
    • Q 11.2.1 : How are wages and benefits in excess of the caps treated?152
  • Q 11.3 : Is an employee permitted to take vacation time post-petition that accrued but was not taken prepetition?152
  • Q 11.4 : Is a debtor permitted to reimburse an employee post-petition for business expenses incurred prepetition?153
  • Q 11.5 : Is a debtor able to claw back prepetition payments made to an employee-insider?153
    • Q 11.5.1 : Who is an insider?154
  • Q 11.6 : Is the debtor permitted to pay directors’ fees and expenses for post-petition services?155
  • Q 11.7 : Is the debtor permitted to pay directors’ fees and expenses for prepetition services?155
  • Q 11.8 : What is a “KERP”?155
    • Q 11.8.1 : Is a debtor authorized to maintain a KERP that was established prepetition or to create a new KERP post-petition?156
    • Q 11.8.2 : What limitations does the Bankruptcy Code place on KERPs?156
    • Q 11.8.3 : How have debtors responded to the limitations on KERPs that were introduced by the 2005 amendments?157
  • Q 11.9 : What is a “KEIP”?157
    • Q 11.9.1 : Are the Bankruptcy Code limitations applicable to KERPs also applicable to KEIPs?157
  • Q 11.10 : May a debtor pay severance payments to an insider?158
  • Q 11.11 : May a debtor reject an employment contract?159
    • Q 11.11.1 : What claim does an employee have for rejecting an employment contract?159
  • Q 11.12 : May a debtor assume an employment contract and assign it to a third-party purchaser?160
  • Q 11.13 : Is a debtor liable for claims for damages resulting from noncompliance with the Worker Adjustment and Retraining Notification (WARN) Act?160
  • Q 11.14 : Do collective bargaining agreements continue in effect post-petition?160
  • Q 11.15 : Do prepetition claims under a collective bargaining agreement have a special priority over other general unsecured claims?160
  • Q 11.16 : May a debtor reject a collective bargaining agreement?161
    • Q 11.16.1 : What standard will a court apply in determining whether a debtor may reject a collective bargaining agreement?162
    • Q 11.16.2 : Does a union have the right to strike if a collective bargaining agreement is rejected?163
    • Q 11.16.3 : Does a bankruptcy court have jurisdiction to adjudicate allegations of unfair labor practices?163
  • Q 11.17 : May a bankruptcy court authorize interim modifications to a collective bargaining agreement?163
  • Q 11.18 : How are retiree benefits treated in Chapter 11?164
    • Q 11.18.1 : May a debtor seek authority to modify or not pay retiree benefits?164
    • Q 11.18.2 : May a debtor modify or terminate retiree benefits without following the procedures under the Bankruptcy Code if the benefit plan is terminable by its terms?165
    • Q 11.18.3 : What standard will a court apply in determining whether a debtor may modify its obligation to pay retiree benefits?165
    • Q 11.18.4 : Is a bankruptcy court able to reinstate retiree benefits that were modified prepetition?165
    • Q 11.18.5 : Who is an “authorized representative”?166
  • Q 11.19 : What is a single-employer defined benefit pension plan?166
  • Q 11.20 : May a debtor reject a single-employer defined benefit pension plan in bankruptcy?166
  • Q 11.21 : What role does the PBGC play in bankruptcy proceedings?167
  • Q 11.22 : What is a “controlled group”?167
    • Q 11.22.1 : What liability do non-debtor controlled group members have in bankruptcy?167
  • Q 11.23 : How would a debtor terminate a single-employer pension plan through a distress termination?168
    • Q 11.23.1 : What are the requirements for the reorganization test?169
  • Q 11.24 : May a company terminate a single-employer pension plan if the plan is maintained pursuant to a collective bargaining agreement?169
  • Q 11.25 : What are termination premiums?169
  • Q 11.26 : Can the buyer in a section 363 asset sale decline to assume an underfunded single-employer pension plan?170
  • Q 11.27 : What is a multiemployer pension plan?170
  • Q 11.28 : How are multiemployer pension plans treated when the debtor is a contributing employer?170
Chapter 12: Treatment of Claims
  • Q 12.1 : What is a “claim” in bankruptcy?176
    • Q 12.1.1 : When is a claim deemed to arise for bankruptcy purposes?176
    • Q 12.1.2 : Is an equity interest a claim?177
  • Q 12.2 : What types of claims can be asserted in a bankruptcy?177
    • Q 12.2.1 : What is a secured claim?177
    • Q 12.2.2 : What is an administrative claim?178
    • Q 12.2.3 : What is a priority unsecured claim?178
    • Q 12.2.4 : What is a general unsecured claim?179
    • Q 12.2.5 : What is an unliquidated claim?179
    • Q 12.2.6 : What is a contingent claim?180
    • Q 12.2.7 : What is an unmatured claim?180
    • Q 12.2.8 : What is a disputed claim?180
  • Q 12.3 : How does a court determine whether a claim is secured?181
    • Q 12.3.1 : What are an oversecured claim and an undersecured claim?181
    • Q 12.3.2 : How is a secured claim treated if the value of the collateral is less than the amount of the claim?181
    • Q 12.3.3 : Is the holder of a secured claim entitled to receive interest payments during bankruptcy?181
    • Q 12.3.4 : Will the holder of a secured claim be responsible for the costs of maintaining or disposing of its collateral in bankruptcy?182
  • Q 12.4 : What is the priority for payment of claims and interests in bankruptcy?182
    • Q 12.4.1 : What is the “absolute priority rule”?183
    • Q 12.4.2 : What is the purpose of the absolute priority rule?183
  • Q 12.5 : What is claim “allowance”?184
    • Q 12.5.1 : Does a claim need to be allowed in order to qualify for a distribution?184
    • Q 12.5.2 : What are a debtor’s schedules?184
    • Q 12.5.3 : What is a proof of claim?185
    • Q 12.5.4 : How is a proof of claim filed?185
    • Q 12.5.5 : What is a bar date?186
    • Q 12.5.6 : What is a bar date order?186
    • Q 12.5.7 : What is the effect of failing to file a claim by the bar date?186
    • Q 12.5.8 : What is the penalty for knowingly filing a false claim?187
    • Q 12.5.9 : What is the effect of a claim being listed in the debtor’s schedules as undisputed, liquidated and noncontingent?187
    • Q 12.5.10 : May a claimant freely amend or withdraw a filed proof of claim?187
    • Q 12.5.11 : Is a properly filed claim presumed to be valid?188
    • Q 12.5.12 : Who may object to a claim?188
    • Q 12.5.13 : What is the process for objecting to a claim?188
    • Q 12.5.14 : If no objection is made to a claim, is the claim automatically allowed?188
    • Q 12.5.15 : Can claims be allowed in Chapter 11 for purposes other than distribution under a Chapter 11 plan?188
    • Q 12.5.16 : Are there claims that must be allowed by a district court rather than a bankruptcy court?189
    • Q 12.5.17 : Can a claim that has been disallowed ever be reconsidered?189
  • Q 12.6 : What is claim “estimation”?189
    • Q 12.6.1 : When is claim estimation ordinarily used?189
    • Q 12.6.2 : Can a claim be estimated for purposes other than receiving plan distributions?190
    • Q 12.6.3 : How does claim estimation work?190
    • Q 12.6.4 : Does claim estimation have res judicata effect?190
  • Q 12.7 : What is claim “recharacterization”?190
    • Q 12.7.1 : Is recharacterization provided for in the Bankruptcy Code?190
    • Q 12.7.2 : Under what circumstances might a claim be subject to recharacterization?191
  • Q 12.8 : What is claim subordination?192
    • Q 12.8.1 : Is subordination provided for under the Bankruptcy Code?192
    • Q 12.8.2 : What is contractual subordination?192
    • Q 12.8.3 : Are contractual subordination agreements honored in bankruptcy?192
    • Q 12.8.4 : Are breach claims relating to rescission of an equity security sale or purchase agreement subject to subordination?192
    • Q 12.8.5 : What is “equitable subordination”?193
    • Q 12.8.6 : Are claims of insiders subject to a different standard with regard to equitable subordination?193
    • Q 12.8.7 : What is equitable disallowance?194
  • Q 12.9 : What is “substantive consolidation”?194
    • Q 12.9.1 : Is substantive consolidation provided for under the Bankruptcy Code?194
    • Q 12.9.2 : What is the procedure for seeking substantive consolidation?194
    • Q 12.9.3 : What factors does a court ordinarily consider in determining whether to grant substantive consolidation?194
    • Q 12.9.4 : What are the effects of substantive consolidation?196
  • Q 12.10 : What is setoff?196
    • Q 12.10.1 : Is setoff provided for in the Bankruptcy Code?196
    • Q 12.10.2 : When is a setoff generally permissible?196
    • Q 12.10.3 : What is a “mutual” claim?197
    • Q 12.10.4 : Is the right of setoff subject to the automatic stay?197
    • Q 12.10.5 : What is the process for effectuating a setoff?197
  • Q 12.11 : What is recoupment?197
    • Q 12.11.1 : Is recoupment provided for in the Bankruptcy Code?198
    • Q 12.11.2 : When is a recoupment generally permissible?198
    • Q 12.11.3 : Is recoupment subject to the automatic stay?198
    • Q 12.11.4 : What is the process for effectuating a recoupment?198
    • Q 12.11.5 : What is the difference between recoupment and setoff?199
Chapter 13: Distressed Debt and Claims Trading
  • Q 13.1 : What is distressed debt?204
    • Q 13.1.1 : Why would someone buy distressed debt?204
  • Q 13.2 : May a creditor transfer or assign its bankruptcy claim?205
    • Q 13.2.1 : Can a claimholder sell participations in its claim?205
  • Q 13.3 : What types of restrictions on claims trading are there in bankruptcy?206
    • Q 13.3.1 : What are some of the primary considerations in purchasing distressed debt?207
    • Q 13.3.2 : Does a seller or buyer need to give notice of the trade to anyone?207
    • Q 13.3.3 : Can a claim be traded at any time during a bankruptcy case?208
    • Q 13.3.4 : Must the terms of a claim trade be disclosed in the bankruptcy case?208
  • Q 13.4 : What is the process for trading or assigning claims?208
  • Q 13.5 : How is a trade of a claim typically documented?209
    • Q 13.5.1 : What are some common provisions in trade documentation?209
    • Q 13.5.2 : What provisions does a seller of a claim typically seek to include in trade documentation?210
    • Q 13.5.3 : What provisions does a buyer of a claim typically seek to include in trade documentation?210
  • Q 13.6 : What rights does a purchaser of a claim acquire?211
  • Q 13.7 : Do securities laws govern the trading of claims?211
    • Q 13.7.1 : What are the consequences of trading claims based on material non-public information?212
  • Q 13.8 : May a claim be split among multiple buyers?213
  • Q 13.9 : In what respects do trading of trade debt and bank debt differ?213
  • Q 13.10 : Can a claim be treated differently in the hands of a buyer than it would have been in the hands of the original claimant?214
    • Q 13.10.1 : What is a record date?215
    • Q 13.10.2 : Are there any reasons a claim may not be enforceable by a purchaser?215
    • Q 13.10.3 : May a party trade claims for the purpose of obtaining leverage in a bankruptcy case?216
    • Q 13.10.4 : What does it mean to “designate” a claim?216
    • Q 13.10.5 : What is “equitable subordination”?216
  • Q 13.11 : How is a trade impacted if the claim is disputed?217
  • Q 13.12 : What is the impact of a lock-up agreement on claims trading?217
  • Q 13.13 : Is a restriction on trading claims in a pre-bankruptcy credit agreement enforceable in bankruptcy?218
Chapter 14: Asset Sales
  • Q 14.1 : Is a debtor in bankruptcy permitted to sell or use its assets outside the ordinary course of business?222
  • Q 14.2 : What must a debtor show in order to obtain court authorization to sell assets?222
  • Q 14.3 : What are the key distinctions between selling assets pursuant to section 363 and pursuant to a Chapter 11 plan?223
  • Q 14.4 : May a debtor sell all or substantially all of its assets in a bankruptcy sale?224
    • Q 14.4.1 : What is a “sub rosa” plan?224
  • Q 14.5 : Why would a debtor seek to sell substantially all of its assets?224
  • Q 14.6 : Is an auction required for the sale of a debtor’s assets?225
    • Q 14.6.1 : What is the typical process for an auction in Chapter 11?225
  • Q 14.7 : What do typical bidding procedures provide?225
    • Q 14.7.1 : What is a “stalking horse”?226
    • Q 14.7.2 : What bid protections might a stalking horse obtain?226
    • Q 14.7.3 : What is a break-up fee?227
    • Q 14.7.4 : Are “no shop” restrictions on the debtor permissible?227
  • Q 14.8 : May a debtor sell its assets free and clear of liens, claims and encumbrances?228
  • Q 14.9 : Will a purchaser of a debtor’s assets in bankruptcy be subject to claims for successor liability?228
  • Q 14.10 : What is credit bidding?229
    • Q 14.10.1 : Can the debtor prohibit a secured creditor from credit bidding?229
    • Q 14.10.2 : If a secured lender’s collateral is valued at less than the secured lender’s debt, is the secured lender limited to the value of the collateral in its credit bid?230
    • Q 14.10.3 : How does credit bidding work in a syndicated bank loan facility where some lenders do not wish to participate in a credit bid?230
  • Q 14.11 : What are the key documents in an asset sale in Chapter 11?230
  • Q 14.12 : When is an “ombudsman” required in a Chapter 11 asset sale?231
Chapter 15: Avoidance Actions
  • Q 15.1 : What is an avoidance action?234
  • Q 15.2 : Is “transfer” defined under the Bankruptcy Code?234
  • Q 15.3 : What is the “strong-arm clause”?234
  • Q 15.4 : May a debtor avoid a statutory lien?235
  • Q 15.5 : May a debtor avoid a post-petition transfer?235
  • Q 15.6 : Who may seek to avoid a transfer?235
    • Q 15.6.1 : May an individual creditor or a creditors’ committee seek to avoid a transfer?235
  • Q 15.7 : Are the avoidance powers different in Chapter 7 and Chapter 11 cases?236
  • Q 15.8 : Are there limitations on a debtor’s powers to avoid transfers?236
    • Q 15.8.1 : Is there a deadline by which a debtor may commence an action to avoid a transfer?236
    • Q 15.8.2 : May a debtor avoid a creditor’s security interest if the creditor takes steps post-petition to perfect or continue a security interest against the debtor?237
    • Q 15.8.3 : How do a creditor’s reclamation rights affect the debtor’s avoidance powers?237
    • Q 15.8.4 : Are there limitations on the avoidability of transfers in connection with financial contracts?237
  • Q 15.9 : What action must a debtor take to avoid a transfer?237
  • Q 15.10 : What is a “preferential transfer” or “preference”?238
    • Q 15.10.1 : What is an “interest of the debtor in property”?238
    • Q 15.10.2 : How does a court determine whether a transfer was “for the benefit of a creditor”?238
    • Q 15.10.3 : What is an “antecedent debt”?239
    • Q 15.10.4 : Is “insolvent” defined in the Bankruptcy Code?239
    • Q 15.10.5 : Who are “insiders” for purposes of preferential transfers?239
    • Q 15.10.6 : Can a payment to a secured creditor be avoided as preferential?240
    • Q 15.10.7 : Who has the burden of proving that a transfer was preferential?240
  • Q 15.11 : Why does the Bankruptcy Code permit a debtor to recover transfers as preferential?241
  • Q 15.12 : Are there exceptions or defenses to preference actions?241
    • Q 15.12.1 : What constitutes substantially contemporaneous exchange for new value?241
    • Q 15.12.2 : How do courts determine whether a transfer was in the ordinary course of business?242
    • Q 15.12.3 : What is a purchase money security interest?242
    • Q 15.12.4 : What is the subsequent new value defense?243
    • Q 15.12.5 : When is a “floating lien” an exception to a preferential transfer?243
    • Q 15.12.6 : Is the fixing of a statutory lien an exception to a preferential transfer?244
    • Q 15.12.7 : Who has the burden of proving an exception or defense in a preference action?244
  • Q 15.13 : What is a fraudulent transfer or fraudulent conveyance?244
  • Q 15.14 : What is “actual fraud”?245
  • Q 15.15 : What is “constructive fraud”?245
  • Q 15.16 : What are the elements of a fraudulent transfer under the Bankruptcy Code?245
  • Q 15.17 : May a debtor in bankruptcy avoid a transfer under state fraudulent conveyance laws?245
    • Q 15.17.1 : What state fraudulent laws are available to the debtor?246
    • Q 15.17.2 : What is the Uniform Fraudulent Conveyance Act?246
    • Q 15.17.3 : What is the Uniform Fraudulent Transfers Act?246
    • Q 15.17.4 : How do courts determine which state’s fraudulent conveyance law should apply?246
    • Q 15.17.5 : Will the governing law provision in a contract control which state’s law applies in a fraudulent conveyance lawsuit?246
  • Q 15.18 : How long will a party be at risk after a transaction for potential avoidance of a transfer as a fraudulent conveyance?247
  • Q 15.19 : How does a court determine whether a debtor received “reasonably equivalent value” or “fair consideration”?248
    • Q 15.19.1 : Does the good faith of the parties matter in determining the equivalence or fairness of the value exchanged?248
    • Q 15.19.2 : Which party has the burden of proving reasonably equivalent value or fair consideration?249
    • Q 15.19.3 : Will a fairness opinion obtained in connection with a transaction provide a defense in case of a future fraudulent conveyance action?249
  • Q 15.20 : What are the financial tests that a court will apply to determine whether a transfer was constructively fraudulent?249
    • Q 15.20.1 : Is the test for “insolvency” different for fraudulent conveyances than for preferential transfers?249
    • Q 15.20.2 : How would a court determine whether transferor was left with “unreasonably small capital” as the result of a transfer?250
    • Q 15.20.3 : What is “equitable insolvency”?250
    • Q 15.20.4 : Will a court consider contingent liabilities in determining insolvency?250
    • Q 15.20.5 : Which party has the burden of proving the financial condition of the transferor?251
    • Q 15.20.6 : Does the court consider whether the transferor’s future financial demise was unforeseeable at the time of the transfer?251
    • Q 15.20.7 : Will a solvency opinion obtained in connection with a transaction provide a defense in case of a future fraudulent conveyance action?251
  • Q 15.21 : Do courts consider the circumstances surrounding a transfer in determining whether it was constructively fraudulent?252
  • Q 15.22 : What is the remedy if a debtor is successful in avoiding a transfer?252
    • Q 15.22.1 : From whom may the debtor recover?252
    • Q 15.22.2 : Is there strict liability for an avoided transfer?252
    • Q 15.22.3 : What types of parties to a transaction would not be liable for an avoided transfer?252
    • Q 15.22.4 : Can a debtor recover from a foreign party?253
  • Q 15.23 : What will a debtor do with any assets recovered in an avoidance action?253
  • Q 15.24 : Will a claim against a creditor for an avoided transfer affect any claim that the creditor may have against the debtor?253
  • Q 15.25 : May a foreign representative in a Chapter 15 case utilize the debtor’s avoidance powers under the Bankruptcy Code?253
Chapter 16: Plan Process
  • Q 16.1 : What is a Chapter 11 plan?258
  • Q 16.2 : Does a plan require bankruptcy court approval?258
    • Q 16.2.1 : What is the process for bankruptcy court confirmation?258
    • Q 16.2.2 : Can a Chapter 11 plan provide for liquidation rather than reorganization?259
  • Q 16.3 : What is an “exclusivity” period?259
    • Q 16.3.1 : How long is the debtor’s exclusivity period?259
    • Q 16.3.2 : Why is the exclusivity period important to a debtor?259
    • Q 16.3.3 : How long is the exclusivity period for a small business debtor?260
    • Q 16.3.4 : Can a party in interest seek to terminate or shorten the exclusivity period?260
    • Q 16.3.5 : What rights do other parties in interest have after the expiration of the exclusivity period?260
  • Q 16.4 : What is a disclosure statement?261
    • Q 16.4.1 : What is required for a disclosure statement to be approved by the court?261
    • Q 16.4.2 : What is adequate information?261
    • Q 16.4.3 : How much notice must be provided prior to a hearing to approve a disclosure statement?262
    • Q 16.4.4 : May a debtor solicit votes for its plan prior to filing its bankruptcy petition?262
    • Q 16.4.5 : Are the disclosure statement requirements different if a debtor solicits votes for its plan prior to filing its bankruptcy petition?262
    • Q 16.4.6 : Are the requirements for approval of the disclosure statement of small business debtors different?262
  • Q 16.5 : What are typical disclosure statement contents?263
    • Q 16.5.1 : What type of financial information is provided in a disclosure statement?263
    • Q 16.5.2 : What is a liquidation analysis?264
    • Q 16.5.3 : What risk factors are commonly included in a disclosure statement?264
    • Q 16.5.4 : Must a disclosure statement comply with securities registration requirements if the plan proposes the issuance of securities?264
    • Q 16.5.5 : Is there an obligation to update the information included in a disclosure statement?265
  • Q 16.6 : What must a Chapter 11 plan include?266
  • Q 16.7 : What is a class of claims or interests?266
    • Q 16.7.1 : Must all classes of similarly situated claims be treated the same?267
    • Q 16.7.2 : What is a convenience class?267
    • Q 16.7.3 : Is there a priority under the Bankruptcy Code for the treatment of different types of claims under a plan?267
    • Q 16.7.4 : What treatment is required for “priority” claims?267
    • Q 16.7.5 : What treatment is required for “administrative” claims?268
    • Q 16.7.6 : What is a “section 1111(b) election”?268
  • Q 16.8 : What other types of provisions may a plan include?269
  • Q 16.9 : What is a plan supplement?269
  • Q 16.10 : What are the procedures for voting to accept or reject a Chapter 11 plan?270
    • Q 16.10.1 : Who is entitled to vote to accept or reject a plan?270
    • Q 16.10.2 : How long do creditors and equity holders typically have to submit their ballots?270
    • Q 16.10.3 : What is a voting record date?270
    • Q 16.10.4 : If a claim or equity interest is traded, who is entitled to submit the ballot for that claim or equity interest?271
  • Q 16.11 : What is a “plan support agreement” or “lock-up agreement”?271
  • Q 16.12 : Can a plan be modified after votes have been solicited?272
  • Q 16.13 : How does the court treat competing plans of reorganization?272
  • Q 16.14 : How long does the plan approval process take in a typical Chapter 11 bankruptcy case?273
    • Q 16.14.1 : What is a typical timeline for the plan approval process?273
  • Q 16.15 : What are the confirmation requirements for a plan?275
    • Q 16.15.1 : Is there a good faith requirement for plans?275
    • Q 16.15.2 : What is “feasibility”?275
  • Q 16.16 : What are the voting requirements for a plan to be approved?276
    • Q 16.16.1 : Who selects the classification of creditors?276
    • Q 16.16.2 : What is an impaired class?276
    • Q 16.16.3 : What does it mean to “designate” a claim?277
  • Q 16.17 : Can a plan be approved if a class of claims or interests votes to reject the plan?278
    • Q 16.17.1 : What is “cram down”?278
    • Q 16.17.2 : How does a plan “unfairly discriminate”?279
    • Q 16.17.3 : What is “fair and equitable” treatment?279
    • Q 16.17.4 : What is the “absolute priority rule”?279
    • Q 16.17.5 : May creditors agree to treatment that does not comply with the absolute priority rule?280
    • Q 16.17.6 : What is “gifting”?280
    • Q 16.17.7 : What is the effect of the plan on creditors’ claims and equity holders’ interests?280
  • Q 16.18 : How does a debtor emerge from bankruptcy after a plan is confirmed?281
  • Q 16.19 : What is the effect of plan confirmation and plan consummation?281
    • Q 16.19.1 : What is a “discharge” of claims in bankruptcy?281
    • Q 16.19.2 : Can a debtor receive a discharge under a plan of liquidation?281
    • Q 16.19.3 : What releases and injunctions are commonly included in a plan?282
    • Q 16.19.4 : What are “exculpations” in a plan?282
    • Q 16.19.5 : What is a “channeling injunction”?282
    • Q 16.19.6 : Does the automatic stay remain in place once a Chapter 11 plan becomes effective?283
    • Q 16.19.7 : Can a plan be modified after it is confirmed?283
    • Q 16.19.8 : What is the effect of the failure of a confirmed plan to be consummated?283
  • Q 16.20 : What is a litigation trust or a liquidation trust?284
    • Q 16.20.1 : How is a litigation trust or a liquidation trust funded?284
    • Q 16.20.2 : What rights and duties does a litigation trustee or a liquidation trustee have?284
  • Q 16.21 : What is “exit financing”?285
    • Q 16.21.1 : Are there any specific requirements for exit financing under the Bankruptcy Code?285
    • Q 16.21.2 : Who can provide exit financing?285
    • Q 16.21.3 : What types of financing are acceptable forms of exit financing?285
    • Q 16.21.4 : When does exit financing become effective?285
    • Q 16.21.5 : What special provisions are typically included in exit-financing agreements?285
    • Q 16.21.6 : Does the bankruptcy court have jurisdiction over disputes with respect to exit financing?286
    • Q 16.21.7 : Are there special protections under the Bankruptcy Code for an exit lender?286
    • Q 16.21.8 : What happens if a company defaults on its exit financing?286
  • Q 16.22 : May a party in interest appeal the court’s confirmation of a Chapter 11 plan?287
    • Q 16.22.1 : What risks must a party consider in determining whether to appeal a confirmation order?287
    • Q 16.22.2 : What is “equitable mootness”?287
  • Q 16.23 : How and when is a Chapter 11 case closed?288
  • Q 16.24 : What is a “prepackaged” plan of reorganization?288
    • Q 16.24.1 : How long does the plan approval process take in a prepackaged Chapter 11 bankruptcy case?288
    • Q 16.24.2 : What would a typical timeline be for a prepackaged Chapter 11 case?288
    • Q 16.24.3 : Must a debtor comply with applicable securities registration requirements in a prepackaged bankruptcy case?290
    • Q 16.24.4 : Why would a debtor want to pursue a prepackaged plan?290
  • Q 16.25 : What is a “prenegotiated” Chapter 11 case?290
    • Q 16.25.1 : How long does the plan approval process take in a prenegotiated Chapter 11 bankruptcy case?290
    • Q 16.25.2 : How might a lock-up or plan support agreement be used in a prenegotiated Chapter 11 case?291
    • Q 16.25.3 : What would a typical timeline be for a prenegotiated Chapter 11 case?291
    • Q 16.25.4 : Why would a debtor want to pursue a prenegotiated plan?293
Chapter 17: Tax Issue
  • Q 17.1 : What is “cancellation of indebtedness income”?298
  • Q 17.2 : How is cancellation of indebtedness income taxed?298
  • Q 17.3 : What is the insolvency exception to taxation of cancellation of indebtedness income?299
  • Q 17.4 : What is the bankruptcy exception to taxation of cancellation of indebtedness income?299
  • Q 17.5 : How are the debtor’s tax attributes reduced as a consequence of using the insolvency or bankruptcy exceptions?300
  • Q 17.6 : What are net operating losses?301
  • Q 17.7 : How is a taxpayer’s use of net operating losses limited outside of bankruptcy?302
  • Q 17.8 : Why is the use of net operating losses limited?303
  • Q 17.9 : What rules apply to the use of net operating losses when a debtor emerges from bankruptcy?304
  • Q 17.10 : What is the special valuation rule that may apply when a debtor emerges from bankruptcy?304
  • Q 17.11 : Is there any other rule that may permit a debtor emerging from bankruptcy to use its net operating losses without the usual limitations?305
  • Q 17.12 : What tax attributes besides net operating losses are subject to similar limitations?307
  • Q 17.13 : What provisions are often found in trading orders in order to preserve the debtor’s ability to use its net operating losses?307
  • Q 17.14 : What are the tax consequences to the debtor corporation when it makes a cash payment to settle its debt?308
  • Q 17.15 : What are the tax consequences to the debtor corporation when it issues new debt to a creditor in settlement of existing debt?308
  • Q 17.16 : What are the tax consequences to the debtor corporation when it issues stock to a creditor in settlement of existing debt?309
  • Q 17.17 : What forms of tax-free reorganization are available to a debtor corporation that reorganizes in the form of a different entity?309
  • Q 17.18 : Is it possible to reorganize a debtor corporation in a taxable transaction, and why might this be advantageous?311
  • Q 17.19 : What are the tax consequences to the debtor corporation if the debtor corporation transfers its assets to a liquidating trust?311
  • Q 17.20 : When may a creditor stop accruing interest on its debt?312
  • Q 17.21 : When may a creditor claim a bad debt deduction?313
  • Q 17.22 : When may a shareholder claim a worthless stock deduction?313
  • Q 17.23 : When is tax-free treatment beneficial to a creditor, and when is taxable treatment beneficial to a creditor?315
  • Q 17.24 : What are the tax consequences to a creditor that settles its debt in exchange for a cash payment?315
  • Q 17.25 : What are the tax consequences to a creditor that exchanges its existing debt for new debt?315
  • Q 17.26 : What are the tax consequences to a creditor that exchanges its existing debt for stock?316
  • Q 17.27 : What are the tax consequences to a creditor that participates in a tax-free reorganization of the debtor corporation into a new entity?316
  • Q 17.28 : What are the tax consequences to a creditor when the debtor corporation transfers its assets to a liquidating trust?317
  • Q 17.29 : When is a loan modification treated for tax purposes as the exchange of the existing debt instrument for a new debt instrument?317
  • Q 17.30 : What are the tax consequences of a deemed exchange to the debtor corporation?318
  • Q 17.31 : What are the tax consequences of a deemed exchange to the creditor?319
Chapter 18: Bankruptcy Trustees and Examiners
  • Q 18.1 : What is a Chapter 11 trustee?326
  • Q 18.2 : How is a Chapter 11 trustee appointed?326
    • Q 18.2.1 : Under what circumstances will a bankruptcy court grant a motion seeking the appointment of a Chapter 11 trustee?327
    • Q 18.2.2 : Who appoints the Chapter 11 trustee?327
  • Q 18.3 : What happens to a debtor’s management team if a Chapter 11 trustee is appointed?327
  • Q 18.4 : What are the duties of a Chapter 11 trustee upon his or her appointment?328
    • Q 18.4.1 : What professionals does a Chapter 11 trustee generally retain to assist in the performance of his or her duties?328
    • Q 18.4.2 : How is a Chapter 11 trustee compensated for his or her duties?329
    • Q 18.4.3 : How are the Chapter 11 trustee’s retained professionals compensated?329
  • Q 18.5 : What are the essential differences between a Chapter 7 trustee and a Chapter 11 trustee?329
  • Q 18.6 : What is a bankruptcy examiner?330
  • Q 18.7 : How is the examiner appointed?330
  • Q 18.8 : Under what circumstances will a bankruptcy court grant a motion seeking the appointment of an examiner?330
  • Q 18.9 : Does the appointment of an examiner displace a debtor’s management team?330
  • Q 18.10 : What are the duties of an examiner upon his or her appointment?331
    • Q 18.10.1 : What professionals does an examiner generally retain to assist in the performance of his or her duties?331
    • Q 18.10.2 : How is an examiner compensated for his or her duties?331
    • Q 18.10.3 : How are the examiner’s retained professionals compensated?332
  • Q 18.11 : What are the differences between a Chapter 11 trustee and an examiner?332
    • Q 18.11.1 : Under what circumstance would a party seek the appointment of an examiner but not of a Chapter 11 trustee?332
    • Q 18.11.2 : Can both an examiner and a Chapter 11 trustee be appointed?333
  • Q 18.12 : What is a receiver?333
    • Q 18.12.1 : Can a receiver be appointed in a Chapter 11 case?333
Chapter 19: Conversion or Dismissal
  • Q 19.1 : What does it mean to “convert” a bankruptcy case?338
  • Q 19.2 : What does it mean to dismiss a bankruptcy case?338
  • Q 19.3 : Does a debtor have the right to convert a case from Chapter 11 to Chapter 7?338
  • Q 19.4 : May a party other than the debtor seek to convert or dismiss a Chapter 11 bankruptcy case?339
  • Q 19.5 : Is a court required to convert or dismiss a Chapter 11 bankruptcy case on the request of a party in interest?339
  • Q 19.6 : What constitutes “cause” for purposes of dismissing or converting a Chapter 11 case?340
  • Q 19.7 : Does “bad faith” constitute “cause” for conversion or dismissal of a Chapter 11 case?340
  • Q 19.8 : May a court dismiss or convert a Chapter 11 bankruptcy case sua sponte (that is, of its own accord)?341
  • Q 19.9 : How quickly must a court hear the motion of a non-debt or party in interest to convert or dismiss a Chapter 11 debtor’s case?341
  • Q 19.10 : Can a Chapter 11 case be converted to Chapter 7 without the debtor’s consent?341
  • Q 19.11 : When may a Chapter 7 case be converted to a Chapter 11 case?342
  • Q 19.12 : When may a Chapter 7 case be dismissed?
    • Q 19.12. 1 : What constitutes “cause” for purposes of dismissing a Chapter 7 case?342
Chapter 20: Professionals
  • Q 20.1 : What are professionals under the Bankruptcy Code?346
    • Q 20.1.1 : How does a bankruptcy court determine if a professional has a central role in a bankruptcy case and thus must be retained?346
    • Q 20.1.2 : What requirements must be met for the debtor to retain a professional that has a central role in the case?347
    • Q 20.1.3 : What requirements must be met for the debtor to retain special counsel that does not play a central role in the bankruptcy case?347
    • Q 20.1.4 : What is an ordinary course professional?347
    • Q 20.1.5 : How does a debtor retain a professional as an officer of the company?348
    • Q 20.1.6 : What requirements must be met for an official committee to retain a professional?349
  • Q 20.2 : What is an “adverse interest”?349
  • Q 20.3 : What is a “disinterested person”?349
  • Q 20.4 : What is a conflict of interest?350
    • Q 20.4.1 : Must conflicts of interest be disclosed by a professional?350
    • Q 20.4.2 : May conflicts of interest be waived?350
    • Q 20.4.3 : What is an “ethical wall”?351
    • Q 20.4.4 : What is the “Jay Alix Protocol”?351
  • Q 20.5 : What is a retention application?352
    • Q 20.5.1 : Who may object to a retention application?352
  • Q 20.6 : What is a nunc pro tunc retention?353
  • Q 20.7 : What are typical methods of compensating professionals?353
  • Q 20.8 : What is the general standard for compensation of professionals?353
    • Q 20.8.1 : Do professionals typically obtain retainers in advance of a bankruptcy filing?354
  • Q 20.9 : What is a fee application?355
    • Q 20.9.1 : Who may object to a fee application?356
  • Q 20.10 : When may professional fees be paid?356
  • Q 20.11 : May professional fees be paid out of a creditor’s collateral?356
  • Q 20.12 : What is a fee examiner?357
Chapter 21: Small Business Chapter 11 Cases
  • Q 21.1 : What is a “small business case”?360
  • Q 21.2 : What is a “small business debtor”?360
  • Q 21.3 : What special reporting requirements are applicable to small business debtors?361
  • Q 21.4 : What additional duties does a small business debtor have?362
  • Q 21.5 : What additional duties does the U.S. Trustee have with respect to a small business debtor?363
  • Q 21.6 : Is a small business debtor required to file a disclosure statement and have it approved by the bankruptcy court prior to the confirmation hearing?363
  • Q 21.7 : When must a small business debtor file its plan and disclosure statement?363
  • Q 21.8 : When must a small business debtor’s plan be confirmed?364
  • Q 21.9 : When may a small business debtor obtain an extension of its plan and disclosure statement filing deadlines?364
Chapter 22: Single Asset Real Estate Chapter 11 Cases
  • Q 22.1 : What is a SARE case?368
  • Q 22.2 : When does a debtor qualify as a SARE debtor?368
  • Q 22.3 : What special relief is afforded in SARE cases?369
  • Q 22.4 : May a SARE debtor use post-petition rents from the property to fund its operations?370
  • Q 22.5 : Are SARE cases subject to dismissal as bad-faith filings?370
Chapter 23: Chapter 7 Cases
  • Q 23.1 : How is a Chapter 7 case commenced?374
    • Q 23.1.1 : May a company’s creditors file an involuntary Chapter 7 case?374
  • Q 23.2 : Who may be a Chapter 7 debtor?374
  • Q 23.3 : What is the immediate effect of the commencement of a Chapter 7 case under the Bankruptcy Code?375
    • Q 23.3.1 : What is the Chapter 7 estate?375
    • Q 23.3.2 : What is the automatic stay?375
  • Q 23.4 : Who are the principal constituents in a Chapter 7 case?375
    • Q 23.4.1 : What is the role of the Chapter 7 trustee?375
    • Q 23.4.2 : What is the role of the debtor?376
    • Q 23.4.3 : What is the role of the bankruptcy court?376
    • Q 23.4.4 : Is there an official creditors’ committee in a Chapter 7 case?376
    • Q 23.4.5 : What is the role of a Chapter 7 creditors’ committee?377
  • Q 23.5 : Who administers the Chapter 7 estate?377
    • Q 23.5.1 : How is an interim Chapter 7 trustee appointed?377
    • Q 23.5.2 : How is a permanent Chapter 7 trustee appointed?378
  • Q 23.6 : What are the Chapter 7 trustee’s primary obligations?378
    • Q 23.6.1 : Does a company continue to operate in Chapter 7?379
  • Q 23.7 : How is financing obtained in a Chapter 7 case?379
  • Q 23.8 : How are asset sales conducted in Chapter 7?379
  • Q 23.9 : How does a Chapter 7 trustee address prepetition executory contracts and unexpired leases?380
  • Q 23.10 : Does the Chapter 7 trustee have any special lien avoidance powers under Chapter 7?381
  • Q 23.11 : How are claims filed?381
  • Q 23.12 : What is the deadline by which claims must be filed?381
  • Q 23.13 : What is the effect of failing to file a proof of claim by the deadline?382
  • Q 23.14 : Who may object to a claim?382
  • Q 23.15 : What is the process for objecting to a claim?382
  • Q 23.16 : How are claims allowed for distribution purposes?382
  • Q 23.17 : What is the process for distribution of property of the Chapter 7 estate?383
    • Q 23.17.1 : What is the priority order of distributions?384
    • Q 23.17.2 : When are distributions made?384
  • Q 23.18 : Are companies entitled to a discharge of indebtedness under Chapter 7?384
  • Q 23.19 : When may a Chapter 7 case be converted to a case under Chapter 11?385
  • Q 23.20 : When may a Chapter 7 case of a company be dismissed?385
Chapter 24: Cross-Border Reorganizations
  • Q 24.1 : Is a non-U.S. company eligible to file for bankruptcy protection in the United States?390
    • Q 24.1.1 : What is required for a foreign company to file for bankruptcy relief in the United States?390
  • Q 24.2 : Where could a company with assets in more than one country file for bankruptcy protection?391
    • Q 24.2.1 : Why might a foreign company choose to seek bankruptcy protection in the United States?391
  • Q 24.3 : Are bankruptcy laws in other countries similar to the U.S. Bankruptcy Code?391
  • Q 24.4 : Can a company have bankruptcy cases pending in both the United States and another country at the same time?392
    • Q 24.4.1 : What is a “dual proceeding”?392
    • Q 24.4.2 : What is an “ancillary proceeding”?393
  • Q 24.5 : Is there an international law for cross-border reorganizations?393
    • Q 24.5.1 : What is “comity”?394
  • Q 24.6 : What is a “protocol” in a cross-border case or dual proceeding?394
    • Q 24.6.1 : Is a protocol mandatory in a dual proceeding?394
    • Q 24.6.2 : Must each country’s bankruptcy court approve a proposed protocol?395
  • Q 24.7 : Do other countries’ bankruptcy courts have jurisdiction over U.S. creditors?395
  • Q 24.8 : Do U.S. bankruptcy courts have jurisdiction over foreign creditors?395
  • Q 24.9 : What is Chapter 15?396
    • Q 24.9.1 : What is a “foreign proceeding”?396
    • Q 24.9.2 : What is a “foreign representative”?396
    • Q 24.9.3 : What is a “center of main interests”397
    • Q 24.9.4 : What is a “foreign main proceeding”?397
    • Q 24.9.5 : What is a “foreign nonmain proceeding”?397
    • Q 24.9.6 : What is “recognition” of a foreign proceeding?397
  • Q 24.10 : How does a foreign representative commence a Chapter 15 case?398
    • Q 24.10.1 : In what district must a foreign representative commence a Chapter 15 case?398
    • Q 24.10.2 : When can a Chapter 15 case be dismissed?399
  • Q 24.11 : What relief is available to a foreign representative upon the filing of a Chapter 15 petition?399
    • Q 24.11.1 : Is there an “automatic stay” in Chapter 15?399
  • Q 24.12 : What relief is granted upon recognition of a “foreign main proceeding”?400
  • Q 24.13 : What relief is granted upon recognition of a “foreign nonmain proceeding”?400
  • Q 24.14 : How do creditors file claims in a Chapter 15 case?401
  • Q 24.15 : What are the primary differences between Chapter 11 and Chapter 15?401
    • Q 24.15.1 : Why would a distressed company choose to either file Chapter 11 or Chapter 15 over the other?402
Chapter 25: Bankruptcy’s Statutory Regime
  • Q 25.1 : What is the Bankruptcy Code?406
  • Q 25.2 : What are the different chapters of the Bankruptcy Code?406
  • Q 25.3 : What chapters of the Bankruptcy Code are relevant to a debtor that has filed for Chapter 7 protection?407
  • Q 25.4 : What chapters of the Bankruptcy Code are relevant to a debtor that has filed for Chapter 11 protection?408
  • Q 25.5 : What chapters of the Bankruptcy Code are relevant to a foreign debtor who also has a foreign insolvency proceeding pending?408
  • Q 25.6 : Are all of the powers granted to the bankruptcy court enumerated in the Bankruptcy Code?408
  • Q 25.7 : What are the Federal Rules of Bankruptcy Procedure?409
    • Q 25.7.1 : What portion of the Federal Rules of Bankruptcy Procedure governs an adversary proceeding within a Chapter 11 case?410
  • Q 25.8 : What are the Federal Rules of Civil Procedure?410
    • Q 25.8.1 : How do the Federal Rules of Civil Procedure interact with the Federal Rules of Bankruptcy Procedure?410
    • Q 25.8.2 : Which of the Federal Rules of Civil Procedure are relevant to a bankruptcy case?411
  • Q 25.9 : What are “local rules”?411
    • Q 25.9.1 : If there is a conflict between the Federal Rules of Bankruptcy Procedure and the local rules, which rules govern?412
  • Q 25.10 : What are “chamber’s rules”?412
    • Q 25.10.1 : If there is a conflict between chamber’s rules and the Federal Rules of Bankruptcy Procedure or local rules, which rules govern?412
  • Q 25.11 : What are the Federal Rules of Evidence?413
    • Q 25.11.1 : Which of the Federal Rules of Evidence are relevant to a bankruptcy case?413
  • Q 25.12 : What are Official Forms?413
  • Q 25.13 : What are the U.S. Trustee guidelines?414
Chapter 26: Judicial Platform for Bankruptcy Cases
  • Q 26.1 : How does the U.S. Code provide for the establishment of bankruptcy courts?418
    • Q 26.1.1 : How are bankruptcy courts divided among different regions?418
  • Q 26.2 : Which court has jurisdiction to hear the issues raised by the filing of a bankruptcy petition?419
    • Q 26.2.1 : What is the scope of a bankruptcy court’s jurisdiction?420
    • Q 26.2.2 : What is a “core” proceeding?421
    • Q 26.2.3 : What court will adjudicate “non-core” proceedings?421
    • Q 26.2.4 : May a district court abstain from hearing a particular bankruptcy proceeding?422
    • Q 26.2.5 : What is a “reference order”?422
    • Q 26.2.6 : What is a withdrawal of the reference?423
    • Q 26.2.7 : How can a bankruptcy court bind a foreign defendant to an obligation or adjudicate rights over the foreign defendant’s property?423
    • Q 26.2.8 : Is a bankruptcy court precluded from adjudicating any claims?424
  • Q 26.3 : What general powers does a bankruptcy court possess?424
    • Q 26.3.1 : Does a bankruptcy court have authority to issue contempt orders or impose sanctions?425
  • Q 26.4 : What court will hear appeals of a bankruptcy court’s orders?425
    • Q 26.4.1 : What is a stay pending appeal?426
    • Q 26.4.2 : What happens when an appellant fails to obtain a stay pending appeal?426
    • Q 26.4.3 : What is a supersedeas bond?427
    • Q 26.4.4 : Is the posting of a bond required to pursue an appeal?427
  Index to Financially Distressed Companies Answer Book 2013

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