HOW IS A REORGANIZATION PLAN FORMULATED UNDER CHAPTER 11?

Thanh N
30.08.14 01:53 AM Comment(s)

Marylanders know that it is not easy to run a business, as a company may face financial hardships at any time. Business debts may rise due to economic downturn, competition or an unfortunate incident. The company may want to file for bankruptcy and will have to decide between Chapter 7 and Chapter 11.

Most companies may choose to file bankruptcy under Chapter 11 as business reorganization, which allows continuation of doing business even after the filing. However, a company in Chapter 11 bankruptcy may need approval of the bankruptcy court before making important business decisions. Under this filing the company can work out a plan to return to profitability and if this plan doesn’t work, it can eventually liquidate.

Also, when the company opts for reorganization under this filing, stocks and bonds continue to trade in the securities markets and the company has to file SEC reports. It will also be required to report the bankruptcy within 15 days on SEC Form 8-K. After court confirmation of the reorganization plan; the company must also submit a plan summary along with Form 8-K.

This reorganization plan will be negotiated by the official committee of unsecured creditors, the indenture trustee, an additional official committee and a committee appointed by the U.S. Trustee. These committees will work with the company to negotiate some of its debt. The reorganization plan, along with the disclosure statement, will be filed with the court and reviewed by the SEC. The creditors and stockholders may vote on the plan. Later this plan will be checked by the court to ensure that it complies with bankruptcy code. Once approved, the company will distribute payments or securities in accordance to the plan.

Source: SEC.gov, “What Every Investor Should Know …,” Accessed on Aug. 21, 2014