USA Law and Practice Contributed by: Davis Lee Wright, Natalie D. Ramsey, Katherine M. Fix and Rachel Jaffe Mauceri, Robinson & Cole LLP
4.5 The Position of Office Holders in Restructuring, Rehabilitation and Reorganisation See 1.3 Statutory Officers for additional information on the tasks and powers of office holders. 4.6 The Position of Shareholders and Creditors in Restructuring, Rehabilitation and Reorganisation Under Section 1109, any party-in-interest has a right to appear and be heard “on any issue” in a Chapter 11 case. “Party-in-interest” includes, but is not limited to, “the debtor, the trustee, a creditors’ committee, an equity security holders’ committee, a creditor, an equity security holder, or any indenture trustee”. The right to appear and be heard entitles the party- in-interest: • to seek relief from the automatic stay; • to request other forms of relief from the bankruptcy court; • to object to relief sought by the debtor or other parties-in-interest; and • to object to the plan solicitation and confirmation process. Due to the costs associated with participating in a Chapter 11 case, individual creditors and equity hold - ers generally do not take an active role in the case and are instead represented by any official committee appointed to represent their interests. Secured Creditors A claim is secured to the extent of the value of the collateral (11 USC Section 506 (a)). Secured creditors that failed to perfect their liens or security interests before the debtor filed Chapter 11 will be treated as unsecured creditors. While Chapter 11 does place additional restrictions on a secured creditor’s ability to enforce its liens or recover on its collateral, the secured creditor retains certain rights. • Adequate protection – Secured creditors may be provided cash payments or replacement liens on other debtor property to protect the secured credi -
the date on which all conditions to consummation of the Chapter 11 Plan have been satisfied (or waived). Following confirmation, the reorganised debtor must perform the obligations set forth in the plan, includ - ing the payments of the various creditor classes (11 USC Section 1142 (a)). Any party’s failure to perform according to the terms of the confirmed plan may result in the court enforcing the terms of the plan (11 USC Section 1142 (b)). Once the confirmation order is considered final and the debtor performs the obligations set forth in the Chapter 11 Plan, the debtor seeks a “Final Decree” from the bankruptcy court that declares the estate “fully administered”; once issued, it officially closes the case and terminates any oversight by the bank - ruptcy court and the UST. Once a voluntary Chapter 11 petition is filed, the debt - or company is automatically authorised to continue operating its business as a DIP without the need for bankruptcy court approval (11 USC Section 1108). For additional information regarding the use of assets and obtaining credit, see 4.2 Statutory Restructuring, Rehabilitation and Reorganisation Procedure . Under 11 USC Section 1104 (a), the bankruptcy court appoints a Chapter 11 trustee if a party-in-interest can demonstrate that current management engaged in “fraud, dishonesty, incompetence, or gross misman - agement of the affairs of the debtor… either before or after the commencement of the case” and that such appointment is in the creditors’ best interests. A Chapter 11 trustee displaces current management and operates the debtor’s business. Alternatively, the bankruptcy court may appoint an “examiner”, if such appointment is in the creditors’ best interests, to investigate the debtor, its management or its affairs, as is appropriate and ordered (11 USC Sections 1104 (c), 1106 (b)). 4.4 The Position of the Debtor in Restructuring, Rehabilitation and Reorganisation
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