PRIMER: Chapter 11 Bankruptcy

Author: John Crabb | Published: 24 Apr 2019

What is Chapter 11 and what does it do?

Chapter 11 of the US bankruptcy code is designed to allow a debtor to rehabilitate and to provide an orderly process for creditors and equity holders to recover assets in an orderly manner. Corporations tend to file Chapter 11 if they require time to restructure their debts, and while a Chapter 11 bankruptcy allows a debtor a fresh start, they are required to fulfill the terms in order to successfully exit the process.

Chapter 11 is a tool used to accomplish a very specific goal. "The endgame of Chapter 11 is a plan of reorganisation that establishes a framework of what a company's capital structure should look like, what kind of debt it can sustain, and what creditor recoveries will be. The process can afford companies the opportunity to rework their balance sheets or deal with the operational issues necessary to...