Chapter 11 Agreement
The automatic stay provides for a period during which all judgments, collection activities, executions and withdrawals of property are suspended and cannot be sued by creditors on claims or receivables that were created before the bankruptcy application was filed. As in other cases of the Bankruptcy Code, a stay of creditors` appeals against the Chapter 11 debtor automatically comes into effect when the bankruptcy application is filed. 11 U.S.C No. 362.a. However, filing a petition is not considered a stay for certain types of acts covered in point 11.C 362 (b). The stay provides the debtor with respiratory protection, during which negotiations can take place to resolve the difficulties of the debtor`s financial situation. The U.S. agent also imposes certain requirements on the debtor on matters such as reporting of monthly income and operating expenses, the creation of new bank accounts, and payment of employees` current deductions and other taxes. According to the law, the debtor in possession must pay a quarterly fee to the U.S. agent for each quarter, until the case is processed or dismissed. 28 U.S.C. The amount of the tax, which can range from $325 to $30,000, depends on the amount of payments made by the debtor each quarter.
If a debtor in possession fails to meet the U.S. agent`s reporting obligations or bankruptcy court orders or takes appropriate steps to have the case validated, the U.S. attorney may file an application in court to convert the debtor`s Chapter 11 case to another chapter of the Bankruptcy Act or have the case dismissed. A case in Chapter V contrasts several key points with a traditional Chapter 11: it is intended only for the “small entrepreneur” (as defined by the Bankruptcy Act), so that a single debtor can submit a recovery plan. SBRA requires that, in all cases of Sub-Chapter V, the U.S. Attorney appoint a “Sub-Chapter V Agent” to monitor and control estate funds and facilitate the development of a consensual plan. It also eliminates the automatic appointment of a formal committee of unsecured creditors and abolishes the quarterly fees normally paid to the U.S. agent throughout the proceedings.
In particular, Sub-Chapter V allows the small entrepreneur to retain his or her capital in the business as long as the recovery plan is not unfairly discriminated against and fair for each class of damages. When a Chapter 11 debtor needs working capital, he or she can obtain working capital from a lender by granting the lender a judicial “super-priority” over other unsecured creditors or a pawn on the estate`s assets. 11 U.S.C 364. Creditors` committees can play an important role in Chapter 11. The committee is appointed by the U.S. agent and generally consists of unsecured creditors holding the seven largest unsecured claims on the debtor. 11 U.S.C 1102. The Committee consults, among other things, with the debtor who is in possession on the management of the case; Examines the debtor`s behaviour and activity; and is involved in the development of a plan.
11 U.S.C 1103. A committee of creditors may, with the Tribunal`s approval, recruit a lawyer or other experts to assist in the performance of the Committee`s duties. A creditors` committee can be an important guarantee for the debtor`s proper management of the transaction.