University:
Massachusetts Institute of Technology
Course:
15.992 | S-Lab: Laboratory for Sustainable Business
Academic year:

2023
Views:

99

Pages:

3
Author:

mlfaaki

Bankruptcy and Reorganization • • • • The rights creditors are the underlying point for which these negotiations take place in reorganization. Basic concepts Liquidation transactions Chapter 11 • bankruptcy law (some rules apply only to bankruptcy code. o Title of US laws Title 11 (organized in chapters) Chapter 11 (general corporate reorganization) Chapter 7 (business being liquidated) Chapter 9 (municipal reorganization) • A body of states for creditors’ rights, sales. o Article 9: secured creditor’s rights in personal property (everything that is not real estate) o Each state has a body of law dealing with mortgages. • fraudulent convergence law o state component (uniform transfer act) o some states have landlord laws o all of the above needs to be taken into account for the rights of creditors. o The classes of creditors become significant if there are multiple problems between entities and creditors. Second Creditor: • leans on A/R • lean on equipment • bank has a lean on inventory, put mortgage on property perfection: banks have done things that give them 1st claim to collateral rights that a secured party has. Second party: when you grab a lean some collateral can only be perfected if you take it into possession. * Example: special statues withholding taxes: if these taxes aren’t paid, the withholder has to pay them. General unsecured creditor = “everyone else” • the landlord (in some cases, the supermarket guy) • creditor’s rights are set out in statues in bankruptcy code. • Cost of administration done by the people who administer bankruptcy • For example, you are company that is fairly have lots of debt you want to transfer assets, sell something worth $1M for 100,000 o Fraudulent convergence: because it brings about an unfair advantage o But the company who buys it for cheaper price has to worry about the creditors among after him. • • • • insolvency: debts greater than assets in fraudulent convergence it means you don’t have enough cash to run business. To be in bankruptcy: file a voluntary petition or involuntary petition. Preference: payment on an account of an antecedent debt that allows the creditor to receive more than they would with bankruptcy o 90 day o while insolvent o creditors get more money “the automatic stay”: special pros; creditors cannot take actions on their collateral to foreclose. • “frozen”: no transaction can occur o if someone does make a transaction, they violate the “automatic stay.” o Automatic stay only guarantees the creditor. • • • • company and a lot of subsidiaries “substitute consolidation”: treat many subsidiaries/parts as one entity. If holding company goes into bankruptcy, operating entities are treated as assets Chapter 7 Consolidation: lists assets, liabilities, creditors, etc. o Laborious process (couple of weeks) bankruptcy trustees: take on responsibility of liquidating assets, then distributes them. “trustee meets with creditors and bankruptcy person.” Collecting assets is easier for equipment o More difficult for IP Trustee figures this out Chapter 11: reorganize business. You are going to salvage the business o How is the business going to act in its salvaged form? o The debtor continues to run business in Chapter 11 • • • • o Where are you going to file bankruptcy? Has to be in the area where you are incorporated or where your headquarters are.