Definition of Chapter 11

Chapter 11 of the US Bankruptcy Reform Act allows a voluntary reorganisation under existing management who negotiate with creditors. [1]

When a business finds itself no longer able to service its debt or pay creditors, it has the option to file for protection under Chapter 11. Unlike Chapter 7, which requires a debtor to sell all non-exempt property, and then distribute the proceeds to creditors, Chapter 11, allows the debtor to remain in control of the business, subject to jurisdiction of the Bankruptcy Court.

A bankruptcy plan is instituted by the Court.  To achieve a satisfactory resolution between both debtors and creditors - the details of which can be proposed by any interested party. Upon its confirmation, the plan becomes legally binding and sets out the treatment of debts and operations of the business for the duration of the plan.  [2]

FT Articles & Analysis

No articles are associated with this term

Discussion