Lecture-11-Bankruptcy+Liquidation+and+Reorganization

Ereducetheprincipalamount

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Unformatted text preview: to issue debtor in possession (DIP) financing A DIP in United States bankruptcy law is a person or corporation who has filed a bankruptcy petition, but remains in possession of property upon which a creditor has a similar security interest. A corporation which continues to operate its business under Chapter 11 bankruptcy proceedings is a debtor in possession). Gives debtor exclusive right to submit a proposed reorganization plan for agreement from the parties involved. 25 Reorganization in Bankruptcy­Advantages Reduces fraudulent conveyance problem A fraudulent conveyance is a transfer of money or property from a debtor to someone or something else when either (1) the debtor intends to defraud creditors or (2) the debtor received less than a reasonably equivalent value in exchange for the transfer and made it while insolvent. So, for example, the proverbial: “I transfered my house out of my name so my creditors wouldn’t get it” is a fraudulent conveyance. Finally, the debtor in possession can avoid or set aside transfers that are not properly recorded or perfected under state law 26 Reorganization in Bankruptcy­Advantages A cramdown is the involuntary imposition by a court of a reorganization plan over the objection of some classes of creditors. Under current US law, bankruptcy courts are not allowed to perform cramdowns (i.e., reduce the principal amount or change the interest rate or other terms) on secured creditors. Various classes of debt is reduced to a lower amount. For confirming a bankruptcy plan, creditors are divided into classes based on the nature of their claims against the debtor. Each class gets the opportunity to vote yes or no on the plan for reorganization. 27 Reorganization in Bankruptcy­Advantages This can be confirmed only if at least one class votes yes— which means a yes vote from more than 50% in the number of creditors (called numerosity) and 75% in the total value of claims. If one or more classes vote against the plan, but at least one class votes in favor, the debtor can still get the plan of reorganization approved through the process of cram down. Cram down requires a debtor to prove that the plan is fair and equitable to the nonconsenti...
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This note was uploaded on 02/11/2014 for the course MANA 2028 taught by Professor Sisterennis during the Winter '12 term at Marquette.

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