Obligors file for protection under Chapter 11 only to discover that creditors do not approve the reorganization plan or that the plan doesn’t work out. If so, the assets would then be liquidated and proceeds used to pay off the creditors, who would, in most instances, receive less than 100 percent of the debt. In the United States., the bookseller Borders Inc. tried, as part of a Chapter 11 reorganization plan, to shut unprofitable stores in order to keep the profitable ones as ongoing businesses, but theyultimately liquidated. Circuit City, the electronics retailer, initially fled for Chapter 11 with the same intention; then, when no alternatives were found, it switched its fling toChapter 7 to accelerate the liquidation.For both Chapter 11 and Chapter 7, one of the priorities is to maintain access to liquidity during the bankruptcy process. Specialized institutions provide debtor‐in‐possession or DIP fnancing that enables a company to keep operating. Credit analysts involved in DIP have to decide what level of collateral to require. The DIP lender has priority against all cash collected as a result of the sale of assets and liquidation, or upon reorganization with new fnancing, DIP is repaid.
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Temple University Fox School of Business ‘17, Course Hero Intern
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University of Pennsylvania ‘17, Course Hero Intern
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