Chapter 11

Definition:

Part of Title 11 of the Bankruptcy Code. Unlike Chapter 7, which is used to liquidate a business and distribute assets, a Chapter 11 bankruptcy filing is used to fundamentally restructure an entity to allow it to continue trading in order to repay its debt.

The Chapter 11 process involves the indebted entity presenting a restructuring plan to the court and a creditors’ committee who have to approve the plan. If the plan is approved, the court will appoint the entity as Trustee of its assets as a debtor in possession, and impose upon the Trustee various reporting requirements. Additionally, the court has the power to stay litigation commenced against the entity and to allow it to raise new finance by giving first Priority over its assets. If the court concludes that the risk of mismanagement, gross negligence or fraud is present, it may appoint an outside Trustee to manage the entity’s affairs instead.

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