Chapter 11, which can be a reorganization, is a legal process established by the U.S. Bankruptcy Code. The Chapter 11 procedure enables a business to benefit from bankruptcy court protection while reorganizing operations and restructuring finances to reduce debt over time. Completion of the complex process enables the company to remain in business, operate more efficiently, and repay debts without overly burdensome obligations. In the discussion that follows, the Chapter 11 bankruptcy attorneys at Wernick Law PLLC explain what reorganization and restructuring mean under Chapter 11.

Overview of the Chapter 11 Reorganization Process

To understand the meaning of reorganization and restructuring, it is important to understand the overall Chapter 11 process. While Chapter 11 is a highly complex procedure, the following overview lays the groundwork for explaining reorganization and restructuring.

The process begins with filing a petition for Chapter 11 bankruptcy in a federal bankruptcy court where the debtor has a domicile, residence, or principal place of business. There are specific official forms that must be used to file a Chapter 11 petition. Additional detailed financial information must accompany the petition. Importantly, filing the petition creates an automatic stay that prohibits most creditors from pursuing payment requests, collections, eviction, foreclosure, and other property seizure and collection processes.

After the petition is filed, the petitioner becomes a debtor-in-possession, maintaining control over the business assets and operations. The debtor may stay open and continue to operate the business during the Chapter 11 process, subject to significant responsibilities including filing monthly operating reports with the court, responding to creditor claims, and complying with other requirements. The office of the United States Trustee monitors the activities of the debtor. Unlike other types of bankruptcy, the trustee usually does not take control of the assets.

The Chapter 11 process is detailed, complicated, and time-consuming. Specific requirements and timelines apply throughout the proceeding. If you consider filing this type bankruptcy, you should talk with a knowledgeable Chapter 11 bankruptcy lawyer before you file, to be certain you fully understand the process and your obligations under the Bankruptcy Code. Legal representation is extremely important, because of the complexity of the Chapter 11 process.

Preparation and Submission of Reorganization Plan

After a petition is filed, detailed requirements and timelines relating to filing and processing a Chapter 11 reorganization plan apply immediately. Unless an extension is requested and received, the debtor must submit a Plan of Reorganization and a Disclosure Statement to the court within 120 days of the petition filing. The reorganization plan includes a classification of claims and proposes how each class will be paid. The disclosure statement contains information about the debtor’s assets, liabilities, and business affairs sufficient to enable a creditor to make an informed judgment about the reorganization plan.

After the court reviews and approves the disclosure statement, the creditors’ committee for the case, if one is appointed, reviews the reorganization plan and may request modifications. Extensive negotiations and discussions frequently take place, involving many details of the reorganization plan. Eventually, the debtor files a modified pan with the court. After the creditors’ committee approves the modified plan, the court reviews the plan to determine whether it meets legal requirements and specific criteria for confirmation (approval) by the court.

Reorganization and Restructuring Terms in the Plan

The terms of a reorganization plan depend substantially on the nature of the operations and financial obligations of the business. In every case, the reorganization plan details how the business will reorganize and restructure in order to become a more efficient, leaner, and meaner company without the previous overwhelming financial obligations. The goal is to create a substantially overhauled business that can survive and thrive. The terms of reorganization and restructuring are negotiated by the debtor during the Chapter 11 process.

Generally, the terms reorganization and restructuring are used interchangeably in referring to the Chapter 11 process. The procedure usually reorganizes some business operations in important ways. Most significantly, the debts of the business are restructured substantially in one or more ways. Examples of the types of changes that may be implemented include:

• Spreading out repayment of debt
• Reducing the amount of interest owed on debt
• Reducing the principal balance
• Bringing new equity or investment into the business
• Changing the equity structure of the business
• Eliminating overly burdensome contracts and leases

The debtor, with assistance from an experienced Chapter 11 attorney, negotiates the details of the restructuring terms with the creditors’ committee and the bankruptcy court. Ultimately, the goal is to complete the Chapter 11 process with a reorganization plan approved by the creditors’ committee and confirmed by the court, so the business can proceed with the planned restructuring over the term of the plan.

Connect With an Experienced Florida Chapter 11 Bankruptcy Lawyer

Wernick Law welcomes Florida business owners and individuals to schedule a consultation by calling 561-287-3050 or using our contact form.