INTRODUCTION

Critically determining whether it is just for a debtor to remain in ownership and control of the business in a reorganization requires a broad understanding of the topic of insolvency.Bankruptcy laws aids individuals or commercial institutions that are incapable of repaying their debts to get a second chance by either developing a payment plan or liquidating their assets. The debtor, who may be an individual, partners, spouses, or corporations, among others, files an appeal with the bankruptcy court to register a bankruptcy case. The U.S Bankruptcy Code provides a guideline for the Federal Courts that handle all the bankruptcy cases in the United States.[1] These cases include the ones filed by individuals, municipalities, and businesses, which may be under Chapter 7 or 13 bankruptcies, Chapter 9, and Chapter 7 or 11, respectively. In the later, Chapter 7 gets employed when the aim is liquidation, and Chapter 11 gets applied when the objective is to reorganize. Other Chapters like 12 and 15, offer relief of debt to agriculturalists and covers parties from two or more countries, respectively.[2]

In the event of liquidation within Chapter 7, the company seizes its operations and runs out of business entirely. The process gets managed by an appointed trustee whose function is to sell the assets and use the cash acquired to repay the debt to either creditors or investors.[3] This mode gets done in the order of priority as dictated by the bankruptcy laws (absolute priority rule).[4] Investors with the slightest risk, like secured creditors, get compensated first, while the owners of the company get paid last. The mentioned creditors are usually banks, and they normally secure their credit by collateral like mortgages or other organization assets, and hence, they are aware that they will be the primary receptors of payment.[5] Bondholders are unsecured creditors, along with suppliers, and some banks. They are likely to get paid before shareholders because of the difference in the roles of their contributions.[6] Bonds are debts that the company accepted to pay with interest, while shares represent a percentage of ownership one has at the company, and hence, attracts a higher risk. Stockholders may not get compensated if the creditors’ claims do not get settled fully. They also make or lose money based on the achievements of the firm whereby, the stable, and poor executions draw profits and losses, respectively.

Reorganizing the business under Chapter 11 can restore its profitability, and while the debtor continues to manage the company (debtor in possession), primal decisions regarding the business need to get approved by the bankruptcy court.[7] Compliance with the requirements set by the justice department is paramount at all times because of the repercussions of refusal.[8] For example, the U.S. Department of Justice of region 21 listed operating and reporting guidelines for both the debtor in possession (DIP) and trustee under Chapter 11, where failure to observe them has the consequences of dismissal or liquidation under Chapter 7, the appointment of a Chapter 11 trustee, or sanctions impositions.[9] The US Courts state that if the debtor fails to fulfill the reporting requirements of the U.S. Trustee, neglects significant steps to confirm the case, or refuses to follow court orders by the debtor, the Trustee may file a motion to have the case converted to other applicable chapters or to dismiss the case.[10] For this paper, the word Trustee that gets initiated with an uppercase letter will refer to the U.S. Trustee. This Trustee performs some managerial faculties like observing the contracting and payment of professionals that the debtor or committee hire, monitoring filings that the debtors make of needed reports and economic schedules, electing and monitoring the official committee members, elucidating on the practicability of the proposed plan and their disclosure statement, and moving for case dismissal when required.[11] The specifications by the U.S. Department of Justice of region 21 regarding requests to change or suspend any requirements demand written and formal submissions that would get tendered to the significant Trustee’s field office, who will either grant or deny the waiver based on the case.[12] These guidelines are according to the 28 U.S.C., s 586(3)(a) that requires the trustee to oversee the management of cases filed under Chapter 11.[13] Generally, all meaningful affairs concerning Chapter 11 cases should get presented to the U.S. Trustee.

Chapter 11 is the prevalent resolution among publicly-traded companies because it does not discontinue them from running their business and managing the bankruptcy process.[14] The chapter grants a restoration process for the floundering companies, which can either end favorably or result in liquidation. In this arrangement, the SEC reports that get filed contain essential advancements like usage of Form 8-K to report changes within fifteen days since stocks and bonds can still get traded.[15] This paper will cover Chapter 11, where the debtor (sole proprietorship, partnership, and corporation) continues to manage the business under the term DIP.[16] While filing for a bankruptcy case, a sole proprietorship owner is also the debtor, because they share the same identity with their business. In a partnership, the personal assets of the partners may sometimes get used in settling debts for the creditor, unless the partners also file for bankruptcy. In a corporation, it forms the independent debtor, and hence, apart from their investments, their assets are not at risk. The study will discuss why the outlined debtors can control the company during reorganization under Chapter 11 by highlighting certain factors like the legislation, and other pieces of evidence from Westlaw, HeinOnline, and Lexis databases, among other secondary sources. That approach aims at fulfilling the thesis of this study, which declares that justice ensues when a debtor remains in possession and management of the firm under reorganization in Chapter 11.

The subsequent segments of the dissertation are in VI parts. Sections I is the Purpose of the Study. It states the objective of this dissertation and explains its significance. This segment also serves the intent of describing the underlying gaps in this area of study. Part II discusses Chapter 11, and it is necessary because it illustrates the measures under which DIP is justified when proceeding with the reorganization. The segment discusses the principal parties of the reorganization process, like DIPs, trustees, committees, and United States Trustees, and significant segments under Chapter 11 like, the absolute priority rule, non-profits, stock, and bonds, and avoiding powers that fit in the development of the thesis statement. It also illustrates how the debtor proposes a plan to sustain its business. Segment III recounts the cases that highlight how court proceedings related to DIP reorganization transpire under various essential codes to culminate the purpose of the study. Section IV, V, and VI are the Findings, Analysis and Conclusion, and Recommendations, that review and interpret the outcomes and resolve the study and declare proposals for future research, respectively.

I. PURPOSE OF THE STUDY

The objective of this dissertation is to accomplish the thesis that there is justice when a debtor remains in possession and management of the business under reorganization in Chapter 11. This purpose is imperative because some characters may believe that DIP is unjust. Their perception arises from the history of the bankruptcy laws in the United States, which sometimes favored creditors or debtors.[17] The contemporary Bankruptcy Code promotes debtors by implementing a consolidated and extensive remedy of reorganization, principally in Chapter 11, for financially impoverished businesses.[18] This position of the laws begs the question of whether living a debtor in possession of the company post the bankruptcy petition is a just procedure. The creditors, in this case, aim at delivering timely rehabilitation under Chapter 11 and ordering or negotiating a commercial restructuring that opposes that of debtors and shareholders.[19] This fact actualizes inherent tensions between the creditors and the debtors, which makes the policies of the Bankruptcy Code that support restoration under Chapter 11, a vital tribunal for inscribing the majority of trends afflicting the economic fate and financial well-being of businesses in the United States.[20] Therefore, the goal of this research stems from the highlighted concern and the implied remedy that lies inside the Chapter 11 Bankruptcy Code. This study will fulfill the question regarding DIP by consolidating the codes with practical cases to verify that the contemporary Bankruptcy Code under Chapter 11 that confers an inclination towards the debtor is equitable.

II. CHAPTER 11

Chapter 11 of the Bankruptcy Code offers reorganization to businesses, mainly to those that are partnerships or corporations.[21] It is the most costly of all insolvency cases, and hence, a company should thoroughly examine all other bankruptcy options before settling on it.[22] Chapter 11 is a viable option when it is the last refuge, like when there are no quicker options apart from it or when the principal parties are not capable, available, or willing to agree without the intervention of the court.[23] Its fundamental vision is that corporate debtors get to conserve a failing company by promoting economic reorganization, which is binding to all entities. Chapter 11 gives businesses under financial distress a chance to maintain the company via the contemporary management, to reevaluate its business plan, and to arrange for capital redistribution.[24] It also allows the debtor to get a break from the creditor’s demands that is binding to all parties.[25] However, filing for relief under Chapter 11 is not limited to insolvent companies, and no specifications are dictating that a firm that files for bankruptcy must have its liabilities surpassing its assets or must fail to repay its outstanding debts.[26] Therefore, financially stable businesses can also file for voluntary liquidation or reorganization under Chapters 7 and 11, respectively. The exceptions are that commodity brokers and stockbrokers can only be debtors in liquidation under Securities Investors Protection Act and that banks, businesses without residence or property in the US, insurance companies, and non-municipal government entities cannot file for relief under Chapter 11.[27] According to 11 U.S.C., s 109(g), and 11 U.S.C., s 362(d)-(e), appealing under Chapter 11 is only suitable if the debtor has no history of a dismissed bankruptcy petition within the past one-hundred and eighty days due to failure to comply or creditor’s claims. Similarly, 11 U.S.C., s 109, and 11 U.S.C., s 111 states that one cannot be a debtor if they did not get credit counseling from an approved agency within one-hundred and eighty days before the petitioning. These rules have a few exceptions, like when the Trustee confirms that there are no recognized agencies of credit counseling.[28] Debtors usually recommend a system of reorganization to sustain the company and reimburse lenders after the opening of a bankruptcy case. This segment outlines the process that justifies DIP to satisfy the thesis statement that justice ensues when a debtor remains in possession and management of the company under reorganization in Chapter 11.

A. PART ONE: BACKGROUND

1. Operation of Chapter 11

The first step of Chapter 11 is the filing of a petition by a debtor or a qualified creditor.[29] This petition gets done at the bankruptcy court in the debtor’s area of residence. If the case gets filed by the debtor, it is voluntary, but when it gets filed by the creditor, it is involuntary.[30] 11 U.S.C., s 303 states that in the majority of companies, three unsecured creditors of a gross at least $14,4253 can file an involuntary petition. The move of an involuntary case must get filed by creditors with at least a total of $10,000 claims that are not uncertain or a liability in a bona fide case.[31] A debtor can dispute the petition, and the creditor should then prove that the debtor is not repaying outstanding debts unless when they are a bona fide dispute, or that a receiver or non-bankruptcy trustee got elected for foreclosure of claims on debtor’s assets in the past one-hundred and twenty days.[32] The court may affirm the involuntary petition and order its implementation, which commences an order for relief that conducts the case like a voluntary one under Chapter 11.[33] This can also be the court’s decision when the debtor has not opposed the petition timely or when the lawful conditions get accomplished.

11 U.S.C., s 1101 cites that a voluntary petition or the listing of an application for relief in an involuntary case under chapter 11 automatically makes the debtor a DIP.[34] Code 11 U.S.C., s 301 and 11 U.S.C., s 303 dictates that a voluntary petition should use the Form 1 format directed by the Judicial Conference. Unless in different circumstances, the debtor must file inventories of assets and liabilities, prevailing revenue and expenses, and unexpired contracts and executory leases, and a declaration of financial matters. 11 U.S.C., s 521 directs that a person or spouses must also file a debt compensation plan from credit counseling or certification of credit counseling, a report of monthly net income and expected increments or expenses post-filing, proof of employee payment in the past sixty days pre-petition, and a report of interest of the debtor in government-approved tuition or education accounts, alongside these files. 11 U.S.C., s 302(a) declares that spouses may file either individual or joint petitions. During the outlined procedures, court fees are applicable under 28 U.S.C., s 1930(a), and 11 U.S.C., s 1112(b). 11 U.S.C., s 1121, and 11 U.S.C., s 1125, asserts that both a statement of disclosure and a reorganization plan must get recorded with the court in written form. A disclosure statement must include information regarding the assets, and liabilities, and operations of the debtor that is satisfactory enough to facilitate a creditor towards making an informed decision about the reorganization plan.[35] However, small organizations can exclude the disclosure statement if the court affirms that their reorganization plan is comprehensive.

11 U.S.C., s 1123 dictates that a reorganization plan must hold an order of claims and specifications of how each case will get handled by the plan. After the plan has satisfied the above code, the application of 11 U.S.C., s 1126 asserts that creditors who require adjustments of their contractual rights or who will get less than the total value they claim will then hold a ballot vote on the plan. This code ushers into 11 U.S.C., s 1128, which indicates that after the court approves of the disclosure statement, and tallying of the ballots, it administers a confirmation hearing to make a ruling on the plan. The directives of 11 U.S.C., s 1115, 11 U.S.C., s 1123(a), and 11 U.S.C., s 1129(a) on individuals filing for bankruptcy under Chapter 11 are similar to those in Chapter 13. These codes list that the property of an estate for the individual includes incomes and property acquired after filing a petition until its closure, dismissal, or conversion. The plan can get funded by the debtor’s income in the future, and it cannot get confirmed when a creditor objects except when it satisfies their claims in completion with interest within a limited time. The ultimate intent of Chapter 11 is the reorganization of a business, but other issues may occur, and the DIP must handle them. 11 U.S.C., s 363(c) lists that this approach may involve selling, leasing, or using estate properties during normal business operations without court approval. However, approval from the court is a must if the intentions are not within the common circumstances of the business.

Claims are also elements within of the Bankruptcy Code. 11 U.S.C., s 101(5) defines them as a right to reimbursement, and fair remedy for a performance mishap if the negligence leads to a right to indemnification. Under this caption, the debtor must file schedules recording all the creditors and shareholders.[36] They must also notify the creditors who get admitted to the schedule after any corrections.[37] In these notifications, the creditors must receive guidance regarding their rights to present proofs of claim, and they should be made aware that they will not vote or contribute to the plan of reorganization if they neglect to do that. The creditor should then confirm if the schedule accurately represents their claims.[38] Creditors with unscheduled claims in the debtor’s agenda must file documentation of claim (proof of claim) with attached evidence to get recognized as creditors who can vote and contribute to the plan within the bar date from the court.[39] All the significant parties must get notified with the bar date in advance.[40] This date is the last one where proofs of claims containing the type and measure of the claims will get accepted, and it gets placed for at least six months post-petition in large cases, often being the day of the principal hearings of the confirmation proceedings.[41] 11 U.S.C., s 1111 asserts that when the creditor is not listed but they are in the schedule of the debtor, then this filing is not mandatory since the debtor already has them under their documentation, but they may still file if they will issue evidence that outmodes that of the already scheduled claim. 11 U.S.C., s 510 states that some claims are equitably subordinated to others when the owner of the opposed claim participated in inappropriate and unfair conduct. However, it only rearranges the priorities of the claims, and it does not cause complete disallowance, unless on some special cases.

2. The Plan

A reorganization plan can present various reforms in interest rates, adjustment or compensation of claims, rejection of leases, debts maturity, reinstatement of favorable existing contracts notwithstanding defaults, providing new debt, and drawing novel credit with senior claims, among others.[42] In these ameliorations, creditors can get their claims decreased or adjusted, and frequently they make the firm’s shareholders after reorganization.[43] Businesses seek insolvency for diverse purposes. These reasons include competition, environmental cases, flawed trading tactics, lawsuits, financial instability, operational difficulties, regulatory reforms, and fraud.[44] Normally, after filing of business under Chapter 11 bankruptcy, the Trustee from the Justice Department bankruptcy arm delegates at least one committee to express the concerns of the creditors and stockholders while developing a plan of reorganization. At times, a business can develop a reorganization plan that creditors and stockholders negotiate and vote on before filing for bankruptcy. This approach is the prepackaged bankruptcy plan, which saves the business money, and simplifies and shortens the process.[45] When this method includes the selling of the company’s security, registration has to occur at the Security & Exchange Commission (SEC). The Bankruptcy Code dictates that at least two-thirds of voting stockholders must accept the plan before its implementation, and the protestors settle for the majority vote.[46] Under 11 U.S.C.,s 1121(b), conventional debtors have one-hundred and twenty days of sole rights to file a plan, and the court can reduce or extend it to no longer than eighteen months. 11 U.S.C., s 307 directs that a creditor or trustee can file a plan after this period expires, however, a U.S. Trustee may not. The fact that a creditor can register a plan following the expiration of the exclusive period drives the debtor towards filing it before the period lapses to prevent unnecessary delays.[47] A case under Chapter 11 can be years long if the court, committee, Trustee, or other relevant parties, do not resolve it in a timely fashion.

a) Development Steps

Generally, the reorganization plan gets developed in six steps.[48] The first step is the development of the plan by the debtor and the committees. The second measure is the preparation of a statement of disclosure and reorganization plan. The company lists these two documents at the court. 11 U.S.C., s 1125 cites that, this statement needs to get approved by the court as one bearing adequate information about both the plan and the debtor. The third level is the reviewing of that statement by SEC to confirm that it is intact. The fourth action is voting on the reorganization plan by the creditors or stockholders. Voting is solely for creditors or shareholders whose equity interests or claims get modified or do not get settled in their full amount (impaired). The fifth step is the confirmation of the plan by the court. The final level is the implementation of the plan by the company by issuing the securities or payments listed in the plan.

b) The Committees

The appointed committees of stockholders and creditors by the Trustee discuss over a plan with the business to relieve it from compensating part of the debt to make its recovery successful. A compulsory committee is that of unsecured creditors (official committee), which represents all unsecured creditors (bondholders, and suppliers, among others).[49] 11 U.S.C., s 1102 states that the unsecured creditors are those that possess the seven highest unsecured claims and their committee gets appointed by the Trustee, and 11 U.S.C., s 1103 indicates additional responsibilities of this committee, like negotiating with the DIP on the management of the case and examining the demeanor of the debtor in their company operations. They may also seek the court’s consent to seek the services of an attorney, among other necessary professionals to aid in their duties.[50] This committee is paramount in safeguarding the adequate administration of the firm by the DIP. A bank contracted by the company during the initial issuance of a bond (indenture trustee) may become part of this committee.[51] Additional committees appointed by the trustees include stockholders committee and distinct creditors committee. These creditors include secured creditors, and subordinate bondholders, or employees. Creditors, bondholders, and stockholders must accept the plan, and the court should confirm it.[52] This occurs in a few months, and the court only affirms the plan after it rules that it aligns with the Bankruptcy Code legally. If the votes of these parties reject the plan, the court has the authority to dismiss their verdict and confirm the plan if it resolves that it is fair to the creditors and stockholders. Form 8-K, that is a comprehensive report, gets filed with SEC, once the plan confirmation occurs.[53] It must summarize the plan, and sometimes, it holds an attached copy of the plan.

c) Adjustments to the Plan: Small Businesses

The outlined plan faces applicable adjustments when dealing with small businesses.[54] Code 11 U.S.C., s 101(51C), cites small businesses as those that have small debtors.[55] A two-part test gets utilized to resolve if a debtor of the business is small. The first part outlines that the debtor must participate in commercial ventures that have a total of $2,566,050, at most, liquidated non-contingent debts, besides principally operating or owning tangible property.[56] 11 U.S.C., s 101(51D) drafts the second section, which highlights that the debtor’s case can operate minus a creditor’s committee appointed by the U.S. Trustee or have the court resolve that the committee is not sufficiently active and not a satisfactory delegate of the debtor. The appointment of a committee by a Trustee is more challenging in small businesses than in conventional companies. [57]This hurdle occurs because the Trustee may not find creditors who are prepared to work in the committee, and when a committee gets formed, they may fail to be as engaged in the case as they should be. Therefore, to address these difficulties, the business gets an approach that is unique from conventional bankruptcy cases.

The DIP, in a small business case, must attach the most current cash flow, statement of operation, balance sheet, and filed tax return, among other relevant documents to the petition.[58] When that cannot get done, the DIP should state under oath why they are missing, and they must also report to the court. 11 U.S.C., s 308 and 11 U.S.C., s 1116 dictates that the DIP must continuously file their profits and expected cash expenditures and acquisitions with the court, and they must proclaim their status concerning the Bankruptcy Code, declared procedures, and tax payment and filing of tax returns. 28 U.S.C., s 586(a)(7) acquaints that the small business debtor faces extra management from the Trustee whereby they must attend an opening interview with the Trustee to get their viability assessed. During the same meeting, the Trustee also analyzes their business plan and details their obligations, like their duty to file some reports. Additionally, the Trustee also observes the operations of the small business debtor throughout the case to distinguish soon enough if the debtor will fail to reinforce the plan. The small business case proceedings are faster than the other cases under Chapter 11 since gaining time extensions is more restricted, and some filing deadlines vary in these cases. 11 U.S.C., s 1121(e) asserts that the debtor must register a plan in the initial one-hundred and eighty days of the case. The court can only extend this period of exclusivity by three-hundred days if the debtor shows excellent proof that the court will affirm their plan in the required time. Other ordinary cases can receive up to eighteen months of extension for a cause.

Generally, the Small Business Reorganization Act (SBRA) passed by Congress amends Chapters 7 and 11 Bankruptcy Codes for small business debtors by reducing costs and smoothening confirmation to facilitate bankruptcy survival and restoration of operation in small businesses.[59] This measure comes as an improvement of Chapter 11 that soars complexities and expense that hinder small businesses from prosperous reorganization. For example, the elimination of the committee of creditors decreases the cost of Chapter 11 because there are no added fees from the professionals hired by the committee.[60] A trustee gets designated for each debtor in small businesses, and they perform the roles of trustees listed in Chapter 13 to warrant that reorganization is on the right course. SBRA also smoothens Chapter 11 reorganization by removing the need for a disclosure statement whose presence can increase the cost or prolong the process of reorganization.[61] This Act extends the exclusivity period of small businesses by sixty days. The longer the period, the lower the risks of contesting competing plans and losing the company.[62]

d) Adjustments to the Plan: Single Asset Real Estate Debtor

The plan also gets adjusted in the case of a single asset real estate debtor who receives exclusive stipulations of the code. 11 U.S.C., s 101(51B) defines a single asset real estate as an individual residential concrete property with more than four residential units, which produces considerably all of the total revenue of a debtor who lacks other principal businesses and is not a family agriculturalist. 11 U.S.C., s 362(d) states that, unlike conventional creditors, the creditors, in this case, get relief from the automatic stay. The automatic stay grants a period where all pre-petition decisions, foreclosures, acquisition activities, and property repossessions get discontinued and do not get sought by the creditors.[63] It is a breathing time for the debtor, while negotiations occur in an attempt to resolve their financial problems.[64] 11 U.S.C., s 362(a) decrees that this stay gets automated when the Bankruptcy Code petition gets files under Chapter 11 unless in some actions under 11 U.S.C., s 362(b).[65]

However, if the debtor does not appeal with a reasonable plan of reorganization or fails to issue interest installments to the creditor, the court, after notice and a proceeding, will grant the creditor automatic stay relief when the lender makes that request to the court. This motion of the plan should transpire within ninety or thirty days from the day of filing the case or when the court concludes that the matter is a single asset real estate, respectively. 11 U.S.C., s 362(d) declares that this relief can apply when the property in the estate of the debtor are not necessary for an efficient reorganization, and the debtor lacks equity in the property. When that happens, the creditor can sell, or foreclose the property, to repay their debt. 11 U.S.C., s 362(d)(3) asserts that the interest installments from a debtor, in this case, must be equivalent to the non-default percentage of interest on the contract in the worth of the interest of the lenders in the real estate. Post-petition obligations by the debtor in single asset real estate to some professionals also have applicable fees.[66] These professionals include the trustee, among other court-appointed professionals. They appeal to the court at interludes of one-hundred and twenty days for interim reimbursement. More frequency gets allowed in big cases with broad legal work.

e) Adequate Protection

The debtor needs to warrant that the secured creditor will get complete compensation when the reorganization plan gets affirmed. 11 U.S.C., s 361 represents specific nonexclusive ways of providing adequate protection, but it does not hold a lawful definition of the term. The principal method of issuing adequate protection to the creditor is compensating for their collateral via dispensing periodic reimbursement to the creditor in cash, granting the creditor with an alternative or supplementary claim from other assets of the estate, and provide the secured creditor with reliefs for indubitable equivalent.[67] All of the three listed means of assigning adequate protection have the objective of reducing the measure of the interest in the collateral during the stay. Adequate protection provides the debtor the responsibility of demonstrating that the collateral surpasses the claim of the secured creditor in a cost termed ‘equity cushion’.[68] However, 11 U.S.C., s 507(b) states that when adequate protection is incompetent, eventually, these creditors’ claims for the missed benefit in collateral get managed as the responsibility of the case and a super-priority.

f) Confirmation of the Plan

The reorganization plan gets approved via a confirmation process that occurs at the bankruptcy court. The court checks if the plan is feasible, in good faith, represent creditors adequately, and is fair and equitable.[69] Feasibility means that the debtor has demonstrated to the court that the plan has the potential of working by proving that it will establish adequate returns to meet its expenses and debts.[70] Good faith signifies that the reorganization plan complies with the law and representation of creditors implies that it gives the creditors as much as or more than it would if Chapter 7 liquidation got chosen.[71] Sometimes the later signifies that they get their full repayment, but most times, it represents partial payments due to the financial constraints. Fair and equitable applies when creditors vote against the plan.[72] It indicates that the secured ones get reimbursed with time or get the amount covered by their collateral. It also signifies that the owners follow the absolute priority rule.

3. Fate of Stock and Bonds

No federal laws forbid the trading of securities of businesses that have registered under Chapter 11 bankruptcy. Therefore, in some cases, the securities of a company continue to get traded post-petition under Chapter 11 Bankruptcy Code.[73] However, most of the time, the companies under this Chapter are not able to fulfill the standards of trading continuance under the New York Stock Exchange or Nasdaq, and hence, their shares may continue trading under Pink Sheets or OTCBB.[74] Buying such stock of these companies needs extreme caution because of the extensive risk involved that will likely cause financial loss. In the event of the company’s recuperation from bankruptcy, the creditors and bondholders become the new shareholders. Usually, reorganization annuls extant equity shares when creditors get paid, and the shares get dissolved.

If the company recovers from bankruptcy, it may have two varieties of common stock, the old and the new, differentiated by ticker symbols, where the old one has a ticker symbol of five letters terminated by a Q when it gets traded on Pink Sheets or OTCBB.[75] Old common stock was what existed when it went bankrupt, and hence, the symbol signifies that it got involved in bankruptcy circumstances, while the new common stock was what the company issues in their reorganization. A ticker symbol that terminates with V symbolizes that the new common stock is authorized, but not released by the business, and hence, it is trading “when issued.” Once the authorized stock gets issued by the company, the V gets eliminated.[76] Old shares that existed post-petition of bankruptcy by the company can be worthless when it resumes from bankruptcy and issues new common stock.

When the company has filed for bankruptcy, the bondholders and stockholders do not get interests and principal payments, and dividends, respectively.[77] Therefore, bondholders may receive new stock, bonds, or both, and stockholders may get requested by the trustee to give back their stock to get new shares during the reorganization. These shares may have less value than the old shares. In the case of investors, a reorganization plan lists their rights and their expected returns, if any. The debtors’ insolvencies affect the stockholders’ likelihood of compensation.[78] An insolvent debtor has higher liabilities than the value of its tangible property, and hence, the bankruptcy court may rule that stockholders do not get compensated, rendering their stock worthless. When this happens, one needs to report ineffective securities as losses on their income task returns with the Internal Revenue Service (IRS), after confirming their stock value from the newspaper, broker, or company.

4. Non-Profit

Before 2008, a limited number of non-profits filed a bankruptcy petition, and most of them opted to dissolve the organization instead when they fell into extreme monetary difficulties. [79] These entities include churches, hospitals, charities, and museums, among others. However, after the occurrence of a financial crisis, they transformed towards some for-profit business operations, and hence, filed petitions under Chapter 11 for reorganization. This decree has realized challenges to courts that handle the petitions since the form of Chapter 11 for reorganization got actualized for for-profit businesses.[80] Despite these difficulties, courts should employ comparable precision to non-profit’s reorganization proposals as they do with for-profit entities by analyzing the 11 S.C.D., s 1129 that demands fair and equitable reorganization plan. It applies to creditors and interest holders and issues a vertical limit in nonconsensual agreements, and it gets referenced when debtor needs to cramdown a reorganization plan due to diminished class. The plan needs to satisfy absolute priority rule, which dictates that debtors must pay creditors in full before receiving the full ownership of the reorganized company.[81] It defends creditors by warranting that the court will not approve a plan that benefits the equity holders of the debtors at the expense of the creditor’s interests.[82] This rule is a guarantee that the creditors will collect the total value of their claims unless the agreement states otherwise. Thanks to the absolute priority rule, other allocations transpire after all creditors get paid in completion, and hence, equity holders cannot disregard their claims. Two perceptions get associated with this rule, that is, it is the foundation of reorganization, and it is equal to the fair and equitable standard. It raises more issues in courts that have to handle non-profit bankruptcies because they have not grasped its application on pre-petition interest holders of non-profits regarding the proposal to hold control of the organization, without paying the creditors to completion.

Some courts that have determined the absolute priority in non-profits decided that it does not fit in non-profits since the majority of them lack owners with equity interest like for-profit organizations.[83] The synonymity between the fair and equitable standard and absolute priority only got reevaluated by one court, which examined if the non-profit debtor had illustrated the satisfaction of the criterion before including the claimed plan fair and equitable.[84] Therefore, courts that direct with absolute priority rule believe that the stimulated plan is fair and equitable. They lack in detailing a frame of laws that describes the definition of fair and equitable. When the non-profit debtor proposes a plan that does not satisfy the absolute priority rule of for-profit equity holders, its interest does not match that of a for-profit entity, but that in itself does not automatically render the plan fair and equitable.[85] Courts need to review the similarities between for-profit and non-profit entities and the links between the fair and equitable standard and absolute priority rule to eliminate the dismissal of the rule in non-profits.

B. PART TWO: Debtors in Possession (DIP) Justification

A DIP is a debtor that retains the possession and administrative duties of the firm’s assets during Chapter 11 reorganization, without the election of a trustee.[86] Code 11 U.S.C., s 1107(a) asserts that a DIP runs the business and carries out functions that a trustee is listed to perform in other Chapters. The following segment discusses this aspect in detail.[87] The term DIP applies up to the moment when the debtor’s plan of reorganization gets approved, transferred to Chapter 7, dismissed, or in a rare occurrence, a trustee gets appointed under Chapter 11. According to 11 U.S.C., s 1104(e), the U.S. Trustee must move for the placement of a trustee if logical information is ascertaining that any parties managing the debtor engages in deception, or unlawful behavior in financial reporting or directing of the debtor. During this process, the Trustee consults with relevant parties upon the approval by the court.[88] 11 U.S.C., s 1104(b) dictates that a trustee can get elected if the relevant parties present that request within thirty days following court orders regarding the placement of a trustee. The voting occurs when a Trustee assembles creditors, and then the elected trustee becomes responsible for the functionality of the debtor’s business, filing a reorganization plan when needed, and management of resources. 11 U.S.C., s 1106(a)(5) declares that a reorganization plan must get filed by the elected trustee as soon as possible otherwise they need to file a report with information that describes why they will not file the plan, or recommend a case dismissal, or further conversions to other applicable chapters. 11 U.S.C., s 1105 states that the termination of the trustee occurs on request of the Trustee or other parties, where the DIP gets restored before the plea gets confirmed. The debtor has the power over preferential transfer that refers to the transfer of their property to or for the good of a creditor ninety days or one-year post-petition for an outsider or insider creditor to benefit them above the other creditors.[89] 11 U.S.C., s 547 states that the debtor, under some circumstances, can avoid this transfer and retain the transferred assets for the advantage of the estate. Some studies found that DIP funded businesses have a higher potential of surfacing from bankruptcy than non-DIP financed companies.[90] They also have a more precise reorganization period, especially with prior creditors and realize faster recovery or liquidation.

1. Guidelines[91]

The U.S. Department of Justice provided twelve guidelines for DIP, and the Trustee can modify them when needed. Compliance is the first directive, and it steers that the DIP should comply with Title 11 of the U.S.C., Bankruptcy Rules, and the domestic laws of practice by the Bankruptcy Court. The second regulation is that of appearance, which declares that the debtor needs to arrive at the first debtor interview affirmed at 11 U.S.C., s 341(a), before the creditors meeting. The third rule states that the debtor must reimburse all post-petition responsibilities in full when needed. The reimbursements include the regular business expenditures, wages, quarterly fees made out to the Trustee, and any other taxes, among others. The fourth sequence is the pre-petition commitments, where the debtor is not required to fulfill the obligations except when stated in the Bankruptcy Code or Court Order. The fifth guide is that of credits, where the debtor can get approval from the court to acquire secured or unsecured credit beyond the scope of the business. The sixth, seventh, and eighth directives are that the debtor should get the approval of the court to consume cash collateral, sell, utilize, or lease the property that exceeds what court considers as a regular business, and employ or reimburse professionals, respectively. The ninth guideline states that the debtor should sustain sufficient insurance on assets of the estate. The tenth course directs the debtor to settle pre-petition banking accounts and DIP accounts. The eleventh guide requires the debtor to file tax returns timely or get an extension from the relevant government unless the law or Court Order states otherwise and if an individual, tax EIN for bankruptcy estate is a requirement. The final directive is made for individual debtors and states that they need to issue relevant notices linked to domestic assistance responsibilities to claims or agencies.

2. The Functions of a DIP

The codes 11 U.S.C., s 1106, and 11 U.S.C., s 1107 pronounces that the DIP has the power of a trustee, and they perform all the duties listed for a trustee except for investigative responsibilities. Here, the overseeing functions get done by the U.S. Trustee, where the compliance practices of the DIP on reporting specifications get monitored. The duties of a DIP include monitoring and disputing claims, accounting for property, and filing informational reports like monthly conduction records.[92] Other obligations of a DIP involve the contracting of professionals who would aid them during the case like accountants, attorneys, and auctioneers, with the court’s consent. The DIP should also file tax returns and records that are significant or demanded by the court like financial accounting. More obligations of the DIP get discussed in finer details in the subsequent sections. Although the listed functions do not necessitate the need for the court’s approval, some of the principal duties need the consent of the court.[93] For example, closing or expanding business operations, opening or breaking a lease of property, sales of assets, financial plans that support borrowing of funds by the debtor post-petition, and the retention of professionals or fees payment.

3. Management of the Estate

11 U.S.C., s 363(c)(1) declares that the DIP can sell, utilize, or lease the property listed as part of the estate if it is within the business sequence without the court’s approval. However, employing cash collateral or any use of resources beyond the ordinary scope of the business requires approval or review. 11 U.S.C., s 363(a)(c) defines cash collateral as negotiable elements, cash, account deposits, securities, and documents of title, among other monetary equivalents that are the security of claims. Cash collateral can only get utilized when the secured creditor gives consent because they are under the insurance of adequate protection. Sales outside the extent of the conventional business are those that are not recorded in the inventory but are significant because they aid in earning cash from trivial assets. The court would approve of these sales when the targeted property is not vital to the business or when the terms of the sale are equitable. The asset on sale gets traded free from subjections that it has to interests owed to creditors at the creditors’ approval or when the legal standards get fulfilled. 11 U.S.C, s 363(f) rules that the profits made from such a sale can cater to the earlier abscond security interests. Any abundance of properties that the debtor seeks to sell outside the plan needs them to justify why that transaction should get approved as an urgency.

4. New Credit

Chapter 11 has no restrictions on unsecured debt or credit acquisition after filing unless otherwise stated by the court. However, such credit gets highly prioritized than all unsecured claims before the petition. 11 U.S.C., s 364(a) listed that, when the debtor fails to secure satisfactory unsecured credit, they can obtain a super-super priority debt or credit that is superior to all administrative expenditures. 11 U.S.C., s 364(c) states that these new creditor claims unencumbered assets of the estate or becomes the subordinate lien on an already claimed property. 11 U.S.C., s 364(d) asserts that the court can award the new creditor claims with superior or equal priority to existing claims if the estate cannot gain adequate credit and when the interests of the current owner of the insurance are adequately protected.

5. Executory Leases

The Bankruptcy Code holds specific stipulations that handle particular varieties of executory contracts like leases of aircraft, shopping centers, and commercial real estate, among others.[94] It gives the debtor immense adaptability concerning specific open-ended negotiations.[95] It does not define the term executory contract, but the phrase is a commitment referring to the element that is due like supply agreements, and ongoing contracts.[96] 11 U.S.C., s 365 states that such deals can get delegated to a third party, assumed and executed by a debtor, or rejected. 11 U.S.C., s 365(a) outlines that the duties granted to the debtor regarding such a contract in most circumstances need the consent of the court. The decisions making of the debtor is unrestricted, and that ensures their preferences consider available alternatives that are most useful to the business financially.[97] However, the court does not grant the debtor any decision when the reorganization probabilities are inadequate. 11 U.S.C., s 365(d)(3) asserts that a debtor cannot make these judgments before the plan’s confirmation.

Before deciding on the contract, the debtor can enforce it on all parties.[98] In assigning or executing it, the debtor obliges to the assignee or gets all the parties involved to fulfill the contract according to its fundamental stipulations, or releases themselves from more responsibilities to complete contractual obligations, respectively.[99] Any rejections made by the debtor are effective immediately as contract breaches before the case starts.[100] 11 U.S.C., s 365(g) states that after these rejections, the other parties then employ their contractual rights to damages as their unsecured claims. Code 11 U.S.C., s 503(b) asserts that the value of the estate in the contract before the petition becomes the administrative claim. However, exceptional precepts apply to lease rejection on account of non-residential real estate. When there are underlying defaults, the debtor cannot decide on the contract until they remedy them and reimburse monetary losses to affected parties and warrant sufficient confidence in future achievement by the lease.[101] Any of the parties bounded by a lease with the debtor can move to place a due date where the debtor must decide on the contract, and the court can either grant or deny the motion.[102] These Bankruptcy Codes with specific stipulations on types of executory contracts vary, but the collective impact is to adjust the powers of the debtor and enhance the assurance to other parties of the lease.

6. Special Duties

Chapter 11 strives to handle creditors under the same circumstances evenly and eliminate any advantage one creditor can have over others in an insolvent company.[103] Therefore, it examines various pre-petition and post-petition money or property transactions and debts or bonds. Sometimes, these activities get nullified or placed as junior claims over others because of some factual terms. Generally, the debtor receives legal jurisdiction to evade junior claims against hypothetical lien creditors, responsibilities, and transfers.[104] These events lead to debtors’ strong-arm powers that they conventionally utilize when the secured creditor misses the adequate steps under the legislation to fulfill their claims or the time for the completed claims lapsed because they did not give a continuation statement.[105] The debtor employs their powers to keep secured creditors with unperfected interests from accessing their assets. 11 U.S.C., s 549 pronounces that, the debtor can avoid post-petition transfers of property that are not within the normal business proceedings to ensure the assets for reimbursement of creditors do not get spent. Such a move needs to start two years after their existence or before the case gets dismissed or consummated.

7. Maintenance and Proof of Insurance[106]

The maintenance and proof of the insurance segment in the U.S. Department of Justice commence by stating that all debtors should sustain their insurance, and submit all outstanding payments, and proof to the Trustee. The second declaration lists the insurance coverage that requires maintenance by the debtor like employee’s fidelity bonds, and compensations, the liability of vehicles and property, property loss from theft, water, and fire, among others. The third listed order steers the debtor to issue proof of insurance like certifications or other documents containing title, variety, and size of coverage, active dates, name of the carrier, and details of the agent to the Trustee within fourteen days post-petition, failure to which assumes no insurance got fulfilled. The fourth maintenance and proof of insurance categorize that the debtor is responsible for the arrangements with insurers, notifying the Trustee of payments, abandonment, errors, or adjustments of its insurance policies by naming the Trustee as the holder of the certificate in all policies.

8. Avoiding Powers

Sometimes the DIP or the trustee has avoiding powers that grant them the right to invalidate a transfer of cash or assests that occurred within the last ninety-days of pre-petition.[107] These codes are under the 11 U.S.C., s 101(31), 11 U.S.C., s 101(54), 11 U.S.C., s 547, and 11 U.S.C., s 548. When the transfer is to insiders like directors, relatives, and partners, the avoidance can occur for transactions that transpired for the last one year before filing the petition. These returns free up money or property that the business may use to repay the creditors. 11 U.S.C., s 544 has avoidance laws that authorize the trustee to circumvent transfers under relevant state law, which usually covers more extended periods.[108] These avoiding powers limit improper prepetition compensations to a lender at the expense of others.

III. CASES

This segment reviews cases that are relevant to the DIP under Chapter 11 reorganization to develop the purpose of the study. It will highlight both cases beneath their respective Bankruptcy Code to attest that the court cases under Chapter 11 are fair. This chosen outline also presents a classification that shows the application of Bankruptcy Codes in practical reorganization cases. Generally, the segment makes it evident that when the court rules to let the debtor remain in control and possession, it serves justice under the law.

A. 11 U.S.C., s 363 Management of the estate

Subheading ‘Management of the Estate’ describes that the DIP can handle other duties that transpire post-petition like sales. Code 11 U.S.C., s 363(c) lists that selling, leasing, or using estate properties during normal business operations without court approval falls under DIP duties, unless when the intentions are not within the common circumstances of the business. This code declares that the DIP can sell, employ, or hire the property listed within the estate, and the court would allow of these sales when the property is not essential to the business or when the terms of the sale are fair. In Stanford v. ServisFirst Bank,[109]the DIP (Stanford) sought to sell their Industrial Lane Property, with the approval of the bankruptcy court, to one of its creditors (ServisFirst) a few weeks within the bankruptcy case. Employing 11 U.S.C., s 363, the court found that ServisFirst purchase was in good faith, and approved the case. However, the Stanfords proposed a sale amendment since they were the guarantors of APC, a business that was also under insolvency and a debtor to ServisFirst. The court dismissed their motion since APC joined its responsibilities as a debtor and guarantor, without uncovering the Stanfords commitments to ServisFirst. It also denied the plea because of the judicial and equitable estoppel law of the case.

In Ace Motor Acceptance Corp. v. Flash Autos,[110]Ace (debtor) registered a complaint against the defendants alleging that they had blocked their efforts to retrieve their assets and collateral, and it applied for emergency injunctive relief to ensure the collateral. The defendants filed a motion requiring modifications to the injunction such that the intended sale of a Vehicle Buyer Account calls for notification of all parties and the court’s approval. However, the court did not rule to alter the injunction because of Ace’s argument that it defies the Bankruptcy Code 11 U.S.C., s 363, which authorizes a DIP to rent or sell the property of the estate in the regular progression of the firm without court approval. This injunction classified Ace as a DIP business of trading comparable Vehicle Buyer Accounts, and hence, it is allowed to sell the accounts without the court’s approval. The defendant’s motion that needed Ace to present the documentation and data of any such completed sales to them and to immediately comply with the requirements of the Interim Order or defend any failure comply, got denied.

B. 11 U.S.C., s 363 Seeking Court’s Approval

Subheading ‘Management of the Estate’ asserts that a DIP should seek the approval of the court for any use of cash collateral or property that is outside the ordinary scope of the business. In Woodlawn Cmty. Dev. Corp. v. Official Comm. of Unsecured Creditors of Woodlawn Cmty. Dev. Corp.,[111]the DIP (Woodlawn), wanted to compensate Nixon, a board member that stood in for their CEO after he took a leave of absence. The court approved the motion at first, but the Trustee and principal committee disputed the decision. Woodlawn’s defense that Nixon is a professional under s 327 also got denied because they did not seek the court’s approval of the same claims. Similarly, the court ruled that Nixon was an employee whose contract of employment needed the court’s approval under 11 U.S.C., s 363 since it was beyond the ordinary company operations, which Woodlawn did not seek either. Woodlawn’s defense under 11 U.S.C., s 503 administrative claims also got denied since 11 U.S.C., s 363, has a higher priority.

C. 11 U.S.C., s 330 Compensation and Reimbursement

In In re Calvary Cmty. Assembly of God, Inc.,[112] Calvary Community Assembly of God, Inc. was the debtor, and Barnes & Thornburg (B & T) LLP needed reimbursement as attorney fees for the duties that they provided to the debtor. The trustee disputed some of the listed and detailed charges by B & T, like the overall amount of the cost. In response to these rejections, B & T opposed the motion by stating that its services were reasonable according to 11 U.S.C., s 330and that they made their request correctly. 11 U.S.C., s 330,asserts that the court can affirm the compensation of a professional under s 327 for their concrete, essential service rendered. Specifically, 11 U.S.C., s 330(a)(2) states that the payment can be less than the requested amount. Therefore, the court has the right to reduce the value of the requested fees after it considers certain factors dictated by 11 U.S.C., s 330(a)(3).

The compensation request would only be reasonable after the court weighs the type, scope, and value of a service in terms of the time resource, rates of charges, and necessity of the service. All these aspects are in code 11 U.S.C., s 330. Other factors of the service that get checked by the court during the verification of the fees are whether the time allocated was reasonable, whether the professional is certified or has any other proof od expertise, and whether the compensation aligns with the conventional charges of similar skills. These factors, in total, will warrant that the decision by the court in approving requested reimbursement is justified. 11 U.S.C., s 330(a)(4) states that the court can reject payment for unnecessary services like replicated services or those that do not benefit the property of the estate. From the guidance of the above codes, the court allowed the payment of the attorney fees to B & T. This was the first and final application by B & T for compensation of their attorney services. The court further ordered that the fees were to get fulfilled by the trustee when the funds from the estate become sufficient to reimburse administrative charges.

D. 11 U.S.C., s 1104 Trustee “For Cause”

In In re V. Savino Oil & Heating Co., Inc.,[113] the debtor was a corporation, and the creditors filed for an appointment of a trustee under Chapter 11. The appointment of a Trustee or examiner is a rare occurrence, but a significant party or the Trustee can make this request anytime before the case under Chapter 11 gets confirmed.[114] The purpose of an examiner has more restrictions than that of a trustee.[115] They are entitled to complete the investigatory duties of the trustee and to file a report of any conducted investigation. 11 U.S.C., s 1106, declares that they may conduct other applicable functions of a trustee that the court restricts the DIP to perform. Therefore, the court has to decide the obligations of the examiner in each case. Sometimes, the examiner can file a reorganization plan, aid in negotiations, and evaluate the debtor’s schedule to note if some claims are not classified suitably.[116] The examiner may also get ordered to ascertain if rejections to any evidence of claim should get registered or whether a plan of action is adequate to merit additional legal action. 11 U.S.C., s 1104(a) rules that the court, after notice and hearing, can designate the placement of a Trustee for cause like dishonesty, fraud, incompetence, and entire mismanagement, or for the good of equity holders, and creditors, among others. This Bankruptcy Code got adhered to by the court in the identified proceedings because it granted the motion based on the evidence that the debtor’s pre-petition conduct, post-petition non-compliance with legal requirements, and nondisclosures warranted the placement of a trustee.

E. 11 U.S.C., s 544 and 11 U.S.C., s 548 Avoidance Claims

As listed in the subheading of ‘Avoiding Powers’ above, 11 U.S.C., s 544 and 11 U.S.C., s 548 cites avoiding powers that commission the trustee or debtor to evade transfers and grant them the right to nullify a financial or property transfers, respectively. Therefore, in O’Neil v. New England Road, Inc.,[117]the defendants were answerable for losses from effective and deliberate fraudulent transfers made while the debtor (O’Neil) was bankrupt. The court ruled against them since they did not qualify for ‘in good faith’ defense and they lacked proper documentation, among other evidence of fraud regarding the leases of building equipment.

In the case of Mullaney v. Bank of Am., Nat’l Ass’n,[118] David and Elise, the debtors, sought for avoidance on the deed of trust of their residential mortgage. The appellees declare that the deed is invalid because it lacked the signed acknowledgment of Elise. The appellants employed 11 U.S.C., s 1107(a) that a debtor becomes a DIP after listing a Chapter 11 bankruptcy case, and hence, they attain all the powers and rights of a trustee serving such a case.[119] These debtors may avoid any transference of their property or voidable obligations by a creditor under code 11 U.S.C., s 544. However, the court after lacking a genuine impression of tangible evidence that the deed is valid, and not avoidable from the professed error in the notarial certification, it judged in favor of appellees and denied the appellants’ claims for avoidance under 11 U.S.C., s 544, in its summary judgment.

F. 11 U.S.C., s 362 Automatic Stay

As listed under subheading ‘Adjustments to the Plan’ above, 11 U.S.C., s 362(a) declares that the automatic stay gets effected when the Bankruptcy Code petition gets files under Chapter 11 unless in some actions under 11 U.S.C., s 362(b). This code allows a period where all pre-petition decisions, foreclosures, acquisition activities, and property repossessions get discontinued and do not get sought by the creditors. Therefore, the debtor can recuperate, while negotiations occur in an attempt to resolve their insolvency. In Deutsche Bank Trust Co. Ams. v. Large Private Beneficial Owners[120] the above code did not block the appellants because they got cleared from its stipulations by orders of the bankruptcy court. The debtors had also confirmed that via their reorganization plan. The claims of the appellants got acquired from 11 U.S.C., s 546(e) that protects from avoidance laws.

G. 11 U.S.C., s 1125 Disclosure Statement, and Voting on the Plan

In In re Intermet Corp.,[121] the DIP of Intermet Corp. presented a disclosure statement to the court to seek its approval. The corporation also gave an appeal that sought to determine a date of electing creditors who are viable to vote, and a date for the hearing that would confirm or dismiss the plan. As stated earlier in this paper, a disclosure statement must include some information about the debtor to satisfy its feasibility specifications. This data includes the assets and liabilities, and the activities of the debtor. The court declared that the disclosure statement had adequate information as dictated by 11 U.S.C., s 1125 and that it aligns with the relevant Bankruptcy Rule. Therefore, that statement got approved, while the presented objections about it got overruled. This verdict signified that Intermet secured authorization to make practical adjustments to the disclosure statement and the Plan without an additional court order. The main purpose of this statement is to provide information that is adequate to aid a lender towards making an informed decision about the reorganization plan.

In the same case, the creditors qualified to vote on the plan got elected on a predetermined date. The key significance of In re Intermet Corp.[122] is that it accurately outlines the proceedings of the development of a reorganization plan. This aids in identifying the practical application of the identified legislation. Another importance of this case is that it is a vivid and relevant one such that issues like withdrawal of casted votes regarding the plan get elaborated. After the liable voters submit their written ballots on the plan, it is acceptable to reverse a vote as long as they are within the deadline of the voting. Such a process is the rejection procedure, and it transpires via written declarations. The notice must contain the report for the related claim, and signatures of the party. These signatures should be similar to those that got presented in the ballot. The party must also attach certificates that prove the ownership of the claim, and the declaration needs to get accepted by the Notice and Balloting Agent within the deadline of voting. The final enlightening theme from In re Intermet Corp.[123] about the application of the legislation in a bankruptcy case is from the confirmation of the plan. For example, it affirms that disapprovals of the plan need to get timely presented since all late objections get overruled. The disapproval should be in writing inclusive of the name and location of the opposers, type of claim, and kind of objection. This statement should also be in the company of proof of service.

IV. FINDINGS

A. The DIP Operates Under Necessary Restrictions

The outcomes from the research indicate that in DIP, the debtor is still restricted by the law from defrauding other parties. For instance, the bankruptcy court cannot confirm a reorganization plan when a creditor objects, unless when the plan pays their claims in completion with interest within a limited time. Another citation of the limitations of a DIP is that, although a DIP must manage other concerns that come with the administrative duties of the company post-petition, code 11 U.S.C., s 363(c) dictates that they must obtain the court’s approval if the purpose of the actions is not within the regular operations of the business. Further stipulations are in cash collaterals that only get used with the consent of a secured creditor since it is within the adequate protection. Another limitation is in sales where all sales outside the extent of the conventional business like those unrecorded in the inventory but significant in earning money from trivial assets requires the court’s approval to ensure that the property is not vital to the business or that the selling terms are equitable. The final restriction to the debtor’s activities is in claims. They must file schedules recording all the creditors and shareholders, and they must also notify the creditors who get admitted to the schedule after any corrections. The notifications should include guidance regarding their rights to present proofs of claim, and they should inform the creditor that they will not vote or contribute to the plan of reorganization if they neglect to do that.

B. The Reorganization Plan Reflects the Interests of the Majority Stockholders

‘The Plan’ subheading states that at least two-thirds of voting stockholders must accept the plan before its implementation, and the protestors settle for the majority vote. In re Intermet Corp.[124]affirms that the voters, in this case, must get verified by the court and that the procedure of confirming the plan is a steady and secure one. It includes the casting of verified ballots from the qualified lenders, and they have the time within a planned deadline to reconsider their ballots through a concrete and timely process via the Notice and Balloting Agent. The method of balloting or reversing votes requires written documentation that verifies the qualifications of the parties in engaging in both procedures. The signatures of the notice to reverse a vote get counterchecked with those at the ballot to affirm similarities. Additional appendages like certifications of possession of claims by the voter also confirm their eligibility. These specifications are in the Bankruptcy Code, which means that a plan that passes the voting section serves the interest of the majority of parties.

C. Bankruptcy Cases in DIP Employ the Bankruptcy Codes as Guidelines

The findings assert that Bankruptcy Courts employ the guide of the Bankruptcy Code when ruling on the cases of insolvencies, to ensure that the decision is proper. For example, Stanford v. ServisFirst Bank [2020] No. 2:19-CV-01901-ACA, 2020 WL 1508492 (N.D. Ala.)employed 11 U.S.C., s 363, which indicated that ServisFirst Bank made the purchase of the property in good faith, and hence, ruled in their favor.

V. ANALYSIS AND CONCLUSION

This paper satisfies the principal argument of this dissertation that justice ensues when a debtor remains in possession and authority of the business in a reorganization under Chapter 11. Both the general affairs of insolvency and the specific elements of Chapter 11 in regards to reorganization in DIP serve the objective of the research, as discussed in the findings section. Chapter 11 aids debtors by administering a consolidated and extensive solution of reorganization for financially insolvent companies, but it still considers other parties. This aspect forms the genesis of the key argument of the study, and hence, it gets broadly addressed to uncover all the necessary focused segments that meet the intent of the dissertation. The discussed legislation and cases consolidate to form concepts that affirm the key argument of the dissertation.

From the findings, it is fair to conclude that equity succeeds when a debtor remains in possession and administration of the firm under reorganization in Chapter 11. They outline how the Bankruptcy Code still gets employed to ensure that other parties like the U.S. Trustee, creditors, appointed committees, and the bankruptcy court oversee the process of the DIP from the start, receive the desired outcome from a confirmed reorganization plan and that the debtor’s actions get monitored adequately to ensure they remain within the required form of duties. The findings also show that a confirmed plan by the bankruptcy court gets checked for feasibility, good faith, adequate creditors’ representation, fairness and equitability, and in the court cases, the Bankruptcy Code gets employed to affirm or dismiss cases after evaluation of the presented arguments or factual data. Small businesses prove that the proceedings of Chapter 11 reorganization law do not just get copy-pasted across cases of different capacities, but they get customized to suit each case based on the stipulations, and hence, they are keen on being fair and justified. The definition of small businesses designates them with a position that is different from the other cases, and hence, it gets treated as such under the Bankruptcy Code. Generally, reorganization under a DIP is a reliable approach, among the other options under chapter 11. This finding supports that of other studies cited in this paper that showed DIP funded businesses have a higher potential of retrieving themselves from bankruptcy than non-DIP financed companies. It also upholds the findings that such organizations are faster in resolving to recovery or liquidation and that they have a more precise reorganization period, especially in the use of prior creditors.

VI. RECOMMENDATIONS

Chapter 11 has made an effort to readjust its specifications to fit various scenarios like those in small businesses. However, these adjustments are tied to for-profit businesses because Chapter 11 got created for such companies. Therefore, when non-profit organizations file for insolvency under it, it challenges the courts. It is the courts’ duties to ensure that they employ precision to non-profit’s reorganization proposals as they do with for-profit entities, and a proposed guide is to analyze 11 S.C.D., s 1129 code of the fair and equitable reorganization plan. It is recommended that further studies should investigate the topic of a DIP through the lenses of non-profits by detailing how they can get the same regards that for-profit organizations get from the Bankruptcy Courts in their interpretation of the Bankruptcy Codes. Such research studies will contribute to the thesis of this paper that justice ensues when a debtor remains in possession and management of the company under reorganization in Chapter 11.

Table of Authorities

Cases

Ace Motor Acceptance Corp. v. Flash Autos……………………………………………………… 29

Deutsche Bank Trust Co. Ams. v. Large Private Beneficial Owners…………………….. 33

In re Calvary Cmty. Assembly of God, Inc.……………………………………………………….. 30

In re Intermet Corp.…………………………………………………………………………………… 33, 34

In re V. Savino Oil & Heating Co., Inc.……………………………………………………………… 31

Mullaney v. Bank of Am., Nat’l Ass’n………………………………………………………………… 32

O’Neil v. New England Road, Inc…………………………………………………………………….. 32

Stanford v. ServisFirst…………………………………………………………………………………….. 28

Woodlawn Cmty. Dev. Corp. v. Official Comm. of Unsecured Creditors

of Woodlawn Cmty. Dev. Corp………………………………………………………………………….. 29

Rules

11 S.C.D., s 1129…………………………………………………………………………………….. 20, 36

11 U.S.C, s 363(f)………………………………………………………………………………………….. 24

11 U.S.C., s 101(31)………………………………………………………………………………………. 27

11 U.S.C., s 101(5)………………………………………………………………………………………….. 9

11 U.S.C., s 101(51B)…………………………………………………………………………………….. 15

11 U.S.C., s 101(51C)…………………………………………………………………………………….. 13

11 U.S.C., s 101(51D)…………………………………………………………………………………….. 13

11 U.S.C., s 101(54)………………………………………………………………………………………. 27

11 U.S.C., s 109………………………………………………………………………………………………. 6

11 U.S.C., s 109(g)………………………………………………………………………………………….. 6

11 U.S.C., s 1101…………………………………………………………………………………………….. 8

11 U.S.C., s 1102…………………………………………………………………………………………… 12

11 U.S.C., s 1103…………………………………………………………………………………………… 12

11 U.S.C., s 1104(a)………………………………………………………………………………………. 31

11 U.S.C., s 1104(b)………………………………………………………………………………………. 21

11 U.S.C., s 1104(e)………………………………………………………………………………………. 21

11 U.S.C., s 1105…………………………………………………………………………………………… 22

11 U.S.C., s 1106…………………………………………………………………………………….. 23, 31

11 U.S.C., s 1106(a)(5)…………………………………………………………………………………… 22

11 U.S.C., s 1107…………………………………………………………………………………………… 23

11 U.S.C., s 1107(a)…………………………………………………………………………………. 21, 32

11 U.S.C., s 111………………………………………………………………………………………………. 6

11 U.S.C., s 1111…………………………………………………………………………………………… 10

11 U.S.C., s 1112(b)………………………………………………………………………………………… 8

11 U.S.C., s 1116…………………………………………………………………………………………… 14

11 U.S.C., s 1121…………………………………………………………………………………………….. 8

11 U.S.C., s 1121 (e)……………………………………………………………………………………… 14

11 U.S.C., s 1123…………………………………………………………………………………………….. 8

11 U.S.C., s 1125…………………………………………………………………………………. 8, 11, 33

11 U.S.C., s 1126…………………………………………………………………………………………….. 8

11 U.S.C., s 1128…………………………………………………………………………………………….. 8

11 U.S.C., s 301………………………………………………………………………………………………. 8

11 U.S.C., s 302(a)………………………………………………………………………………………….. 8

11 U.S.C., s 303…………………………………………………………………………………………… 7, 8

11 U.S.C., s 308…………………………………………………………………………………………….. 14

11 U.S.C., s 330…………………………………………………………………………………………….. 30

11 U.S.C., s 330(a)(2)…………………………………………………………………………………….. 30

11 U.S.C., s 330(a)(3)…………………………………………………………………………………….. 30

11 U.S.C., s 330(a)(4)…………………………………………………………………………………….. 30

11 U.S.C., s 341(a)………………………………………………………………………………………… 22

11 U.S.C., s 361…………………………………………………………………………………………….. 17

11 U.S.C., s 362(a)…………………………………………………………………………………… 16, 32

11 U.S.C., s 362(b)…………………………………………………………………………………… 16, 32

11 U.S.C., s 362(d)…………………………………………………………………………………… 15, 16

11 U.S.C., s 362(d)(3)…………………………………………………………………………………….. 16

11 U.S.C., s 362(d)-(e)……………………………………………………………………………………… 6

11 U.S.C., s 363(a)(c)…………………………………………………………………………………….. 24

11 U.S.C., s 363(c)……………………………………………………………………………….. 9, 28, 34

11 U.S.C., s 363(c)(1)…………………………………………………………………………………….. 24

11 U.S.C., s 364(a)………………………………………………………………………………………… 24

11 U.S.C., s 364(c)………………………………………………………………………………………… 25

11 U.S.C., s 364(d)………………………………………………………………………………………… 25

11 U.S.C., s 365…………………………………………………………………………………………….. 25

11 U.S.C., s 365(a)………………………………………………………………………………………… 25

11 U.S.C., s 365(d)(3)…………………………………………………………………………………….. 25

11 U.S.C., s 365(g)………………………………………………………………………………………… 26

11 U.S.C., s 503…………………………………………………………………………………………….. 30

11 U.S.C., s 503(b)………………………………………………………………………………………… 26

11 U.S.C., s 507 (b)……………………………………………………………………………………….. 17

11 U.S.C., s 507(b)………………………………………………………………………………………… 17

11 U.S.C., s 510…………………………………………………………………………………………….. 10

11 U.S.C., s 521………………………………………………………………………………………………. 8

11 U.S.C., s 544……………………………………………………………………………………….. 28, 32

11 U.S.C., s 546(e)………………………………………………………………………………………… 33

11 U.S.C., s 547……………………………………………………………………………………….. 22, 27

11 U.S.C., s 548……………………………………………………………………………………….. 28, 32

11 U.S.C., s 549…………………………………………………………………………………………….. 27

11 U.S.C.,s 1121(b)……………………………………………………………………………………….. 11

28 U.S.C., s 1930(a)………………………………………………………………………………………… 8

28 U.S.C., s 586(3)(a)………………………………………………………………………………………. 3

28 U.S.C., s 586(a)(7)…………………………………………………………………………………….. 14

Bibliography

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Sandeep Dahiya, John Kose, Puri Manju, and Ramirez Gabriel, ‘Debtor-in-possession financing and bankruptcy resolution: Empirical evidence’ (Journal of Financial Economics, 2003) < https://www.sciencedirect.com/science/article/abs/pii/S0304405X03001132 > accessed 14 June 2020

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U.S. Department of Justice, ‘Chapter 11 Guidelines for Debtors-In-Possession’ (U.S. Department of Justice December 2019) < https://www.justice.gov/ust-regions-r13/file/r13_lr_debtor_guidelines.pdf/download > accessed 3 June 2020

U.S. Department of Justice, ‘Operating Guidelines and Reporting Requirements for Debtors in Possession and Chapter 11 Trustees’ (U.S. Department of Justice 1 January 2020) < https://www.justice.gov/ust-regions-r21/file/ch11_guidelines_reporting_req.pdf/download> accessed 3 June 2020

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[1] Administrative Office of the U.S. Courts, ‘Bankruptcy’ (United States Courts, n.d.)

[2] Ibid; United States Courts, ‘Bankruptcy’ (United States Courts, n.d.)

[3] SEC, ‘Bankruptcy: What Happens When Public Companies Go Bankrupt’ (U.S. Security and Exchange Commission, 19 January 2016)

[4] Ibid; Pamela Foohey, ‘Chapter 11 Reorganization and The Fair and Equitable Standard: How the Absolute Priority Rule Applies to All Nonprofit Entities’ (2012) 86(1) St. John’s Law Review

[5] SEC (n 3)

[6] ibid

[7] Ibid; Kathleen P. March, Alan M. Ahart and Janet A. Shapiro, ‘A. Overview of Chapter 11, Cal. Prac. Guide Bankruptcy Ch. 11-A’ (The Rutter Group, 2019)

[8] United States Courts, ‘Chapter 11 – Bankruptcy Basics’ (United States Courts, n.d.)

[9] U.S. Department of Justice, ‘Operating Guidelines and Reporting Requirements for Debtors in Possession and Chapter 11 Trustees’ (U.S. Department of Justice 1 January 2020)

[10] United States Courts (n 2)

[11] Bracewell&Giuliani, ‘CHAPTER 11 OF THE UNITED STATES BANKRUPTCY CODE: BACKGROUND AND SUMMARY 2012’ (Bracewell&Guiliani, 2012)

[12] . U.S. Department of Justice (n 9)

[13] ibid

[14] SEC (n 3)

[15] ibid

[16] United States Courts (n 2); Justia, ‘The Chapter 11 Debtor in Possession’ (Justia, April 2018)

[17] Bracewell&Giuliani (n 11)

[18] ibid

[19] ibid

[20] ibid

[21] IRS, ‘Chapter 11’ (IRS, 16 April 2020); CFI, ‘Chapter 11’ (CFI, 2020); Kathleen P. March, Alan M. Ahart and Janet A. Shapiro (n 7)

[22] CFI, ‘Chapter 11’ (CFI, 2020)

[23] Bracewell&Giuliani (n 11)

[24] ibid

[25] ibid

[26] ibid

[27] ibid

[28] United States Courts (n 2)

[29] ibid

[30] CRG, ‘Bankruptcy Process’ (CRG | Financial, 2020); Bret Maidman, ‘Chapter 11 Bankruptcy: An Overview’ (NOLO, 2020)

[31] Jonah Wacholda and Daniel Lowenthal, ‘Federal Appeals Court Rules on Requirements for Involuntary Bankruptcy’ (Patterson Belknap, 26 December 2019)

[32] Bracewell&Giuliani (n 11)

[33] Ibid

[34] ABA, ‘Chapter 11 Bankruptcy: A Primer’ (ABA, 31 July 2011)

[35] United States Courts (n 2); ABA (n 34)

[36] Bracewell&Giuliani (n 11)

[37] ibid

[38] United States Courts (n 2)

[39] Ibid; Bracewell&Giuliani (n 11)

[40] Bracewell&Giuliani (n 11)

[41] ibid

[42] ibid

[43] ibid

[44] CRG (n 30)

[45] SEC (n 3); John Ayer, Michael Bernstein, and Jonathan Friedland, ‘Chapter 11 – “101”’ (American Bankruptcy Institute Journal, 2005)

[46] SEC (n 3)

[47] United States Courts (n 2)

[48] SEC (n 3)

[49] CRG (n 30)

[50] United States Courts (n 2)

[51] ibid

[52] ibid

[53] ibid

[54] Michael J. Holleran, Donna Larsen Holleran, and John B. Corr, ‘§ 1181.Inapplicability of other sections, Bankruptcy Code Manual § 1181’ (Bankruptcy Code Manual, 2020)

[55] Paul W. Bonapfel, ‘ARTICLE: A Guide to the Small Business Reorganization Act of 2019, 93 Am. Bankr. L.J. 571’ (Lexis, 2019)

[56] United States Courts (n 2); Cara O’Neill, ‘Chapter 11 Bankruptcy for Small Business Owners’ (NOLO, 2020)

[57] United States Courts (n 2)

[58] ibid

[59] Lei Lei Wang Ekvall, and Timothy Evanston, ‘The Small Business Reorganization Act: Big Changes for Small Businesses’ (ABA, 14 February 2020); Kathleen P. March, Alan M. Ahart and Janet A. Shapiro (n 7)

[60] ABA (n 34) ; Cara O’Neill (n 56)

[61] ibid

[62] Cara O’Neill (n 56)

[63] CRG (n 30); Jonah Wacholda and Daniel Lowenthal, ‘Supreme Court Resolves the Appealability of Orders Denying Relief from the Automatic Stay’ (Patterson Belknap, 24 June 2020); ABA (n 34); Sandeep Dahiya and Korok Ray, ‘ARTICLE: A THEORETICAL FRAMEWORK FOR EVALUATING DEBTOR-IN-POSSESSION FINANCING, 34 Emory Bankr. Dev. J. 57’ (Lexis, 2017); Jonah Wacholder and Daniel Lowenthal, ‘Bankruptcy Court Applies Automatic Stay to Continuation of Removed State-Court Action Against Debtor’ (Patterson Belknap, 29 March 2019); George Klidonas, ‘Automatic stay in chapter 15: Global stay applicable only in chapter 11 cases’ (American Bankruptcy Institute Journal, 2010)

[64] United States Courts (n 2); Jonah Wacholda and Daniel Lowenthal, ‘Supreme Court Resolves the Appealability of Orders Denying Relief from the Automatic Stay’ (Patterson Belknap, 24 June 2020)

[65] Daniel Lowenthal and Jonah Wacholder, ‘Bankruptcy Court Holds Automatic Stay Inapplicable to Removal of State Court Action Against Debtor’ (Patterson Belknap, 28 February 2019)

[66] United States Courts (n 2)

[67] Bracewell&Giuliani (n 11)

[68] ibid

[69] Bret Maidman (n 30)

[70] ibid

[71] ibid

[72] ibid

[73] SEC (n 3)

[74] ibid

[75] ibid

[76] ibid

[77] ibid

[78] ibid

[79] Pamela Foohey (n 4)

[80] ibid

[81] ibid

[82] United States Courts (n 2)

[83] ibid

[84] ibid

[85] ibid

[86] ibid

[87] ibid

[88] ibid

[89] ibid

[90] Sandeep Dahiya, John Kose, Puri Manju, and Ramirez Gabriel, ‘Debtor-in-possession financing and bankruptcy resolution: Empirical evidence’ (Journal of Financial Economics, 2003)

[91] U.S. Department of Justice, ‘Chapter 11 Guidelines for Debtors-In-Possession’ (U.S. Department of Justice December 2019)

[92] Bret Maidman (n 30)

[93] ibid

[94] Bracewell&Giuliani (n 11)

[95] ibid

[96] ibid

[97] ibid

[98] ibid

[99] ibid

[100] ibid

[101] ibid

[102] ibid

[103] ibid

[104] ibid

[105] ibid

[106] ibid

[107] CRG (n 30)

[108] Jonah Wacholda and Daniel Lowenthal, ‘District Court Rules on Property of the Debtor Requirement for Fraudulent Transfer Claims’ (Patterson Belknap, 20 September 2019)

[109][2020]No. 2:19-CV-01901-ACA, 2020 WL 1508492 (N.D. Ala.)

[110] [2019] No. 3:18-CV-00630-KDB, 2019 WL 5849900 (W.D.N.C.)

[111] [2020] No. 19 C 7789, 2020 WL 1491184 (N.D. Ill. Mar. 27, 2020)

[112] [2018] No. 17-13475-MKN, 2018 WL 9988771 (Bankr. D. Nev.)

[113] [1989] 99 B.R. 518 (Bankr. E.D.N.Y.)

[114] United States Courts (n 2)

[115] ibid

[116] ibid

[117] [2018] 593 B.R. 100 (In re Neri Bros. Constr. Corp.)

[118] [2019] 611 B.R. 770 (E.D.N.C. 2019)

[119] Ibid; Kathleen P. March, Alan M. Ahart and Janet A. Shapiro (n 7)

[120] [2016] 818 F.3d 98 (In re Tribune Co. Fraudulent Conveyance Litig.)

[121] [2009] No. 08-11859 KG, 2009 WL 7146281 (Bankr. D. Del.)

[122] ibid

[123] ibid

[124] ibid