USA Law and Practice Contributed by: Davis Lee Wright, Natalie D. Ramsey, Katherine M. Fix and Rachel Jaffe Mauceri, Robinson & Cole LLP
• reduce the potential for reputational damage or business interruptions resulting from a public bank - ruptcy announcement; and • provide a company with an option of filing a pre- packaged or a pre-negotiated bankruptcy case. Companies engaging in OCR negotiations will often simultaneously prepare for a bankruptcy as a contin - gency. 3.2 Legal Status As consensual, contractual arrangements, OCRs are implemented without court approval. Parties to the various restructuring agreements retain their rights to enforce the terms of these agreements through litiga - tion. 4. Statutory Restructuring, Rehabilitation and Reorganisation Proceedings 4.1 Opening of Statutory Restructuring, Rehabilitation and Reorganisation Voluntary Proceedings An eligible debtor initiates a case under the Bank - ruptcy Code by filing a petition with the appropriate bankruptcy court (11 USC Sections 109, 301). A company’s governing body (generally its board), usually with input from key employees and advisers, has the discretion to authorise a bankruptcy filing. It is not obligated by law to do so, and a company’s directors and officers will not suffer civil or criminal penalties for failing to file. Directors and officers do, however, continue to owe fiduciary duties to an insol - vent company and, in certain circumstances, may be sued for breach of those fiduciary duties. Whether a director or officer would be personally liable for such breaches depends on factors such as the nature of the breach, the company’s governing documents and the
tors holding “noncontingent, undisputed claims”, then three or more such creditors holding claims totalling at least USD21,050 may initiate the bankruptcy case (or one such creditor, in the case of a company with fewer than 12 such creditors). Following the filing of an involuntary bankruptcy peti - tion and until the bankruptcy judge enters an order for relief, the company may continue to operate and use, sell, lease or acquire assets in the ordinary course. If a company contests the petition, the bankruptcy court will grant the order for relief if the petitioning creditors can establish the following (11 USC Section 303 (h)): • the entity is generally not paying its debts as they become due (other than debts subject to a bona fide dispute as to liability or amount); or • a custodian, receiver or trustee was appointed to take charge of substantially all the debtor’s prop - erty within 120 days before the filing of the petition. 4.2 Statutory Restructuring, Rehabilitation and Reorganisation Procedure Typical Chapter 11 case types and procedures are described in this section. See 5. Statutory Insolven- cy and Liquidation Procedures for a description of Chapter 7 liquidations. General Overview Chapter 11 enables companies to reorganise their debts or business operations (or both) while they con - tinue to operate. A bankruptcy court-approved plan details how the debtor’s creditors will be treated. Types of Chapter 11 Cases Debtors may seek to implement consensual bankrupt - cies through a pre-packaged or pre-negotiated Chap - ter 11 case. In a “pre-pack”, the debtor solicits votes on a proposed plan prior to filing the Chapter 11 case. If creditors holding at least two thirds in amount and at least one half in number for each proposed creditor class vote in favour (see 11 USC Section 1126 (c)), then the debtor will file a Chapter 11 case and seek confirmation on an accelerated basis. Where a plan is “pre-negotiated” (and most bank - ruptcies are at least partially so), one or more key constituents may agree to memorialise plan terms in
availability of insurance. Involuntary Proceedings
Creditors satisfying certain statutory requirements may commence an involuntary bankruptcy case against a financially distressed company (11 USC Section 303). If a business has more than 12 credi -
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