Answer ... (a) Debtor
In informal restructuring, a proactive debtor will engage with its creditors and facilitate the formation of an ad hoc creditor group to negotiate a resolution of its debt obligations. In most Chapter 11 cases, the debtor’s management remains in place as ‘debtor in possession’ (DIP) during the case, unless a trustee is appointed due to fraud or mismanagement.
(b) Directors of the debtor
Directors maintain their positions and their governance rights during restructuring and in formal bankruptcy proceedings. There is case law in the United States limiting directors’ governance rights when they exercise them in ways that interfere with the restructuring. Under the law of most (if not all) states, directors must affirmatively authorise management to commence a voluntary bankruptcy case and pass other resolutions authorising retention of professionals and financing for the case.
(c) Shareholders of the debtor
Shareholders generally do not have a role in a restructuring unless they can demonstrate that the shares have or may have value if certain claims are reduced or eliminated. In Chapter 11 cases where such a showing is made, the bankruptcy court may appoint an official equity committee to represent the interests of all shareholders.
(d) Secured creditors
Secured creditors – especially those with liens on substantially all the debtor’s assets – play a significant role in restructuring. Secured lenders are often a source of DIP financing and in most cases their consent is required for the debtor to use cash collateral. Secured creditors are entitled to ‘adequate protection’ from decline in the value of their collateral during a bankruptcy case. Secured creditors are also entitled to receive the ‘indubitable equivalent’ of the value of their collateral on the effective date of a plan.
(e) Unsecured creditors
Unsecured creditors also have a significant role in a bankruptcy case. In Chapter 11, the interests of unsecured creditors are represented by an official committee with standing to be heard on nearly all issues. Unsecured creditors must file proofs of claim to participate in distributions under a Chapter 11 plan.
(f) Employees
For a debtor that is an operating company, employees are essential to the continuation and thus the reorganisation of the debtor. In addition to their pre-bankruptcy wages being entitled to priority over general unsecured claims, debtors in Chapter 11 often seek approval of retention and incentive plans to keep employees from leaving during bankruptcy.
(g) Pension creditors
The interests of pension creditors are largely represented by the Pension Benefits Guaranty Corporation (PBGC), an agency of the federal government. In cases where debtors have significant pension obligations, PBGC is often appointed to the official unsecured creditors’ committee
(h) Insolvency officeholder
There is no specifically designated ‘insolvency officeholder’, but many companies in restructuring appoint a chief restructuring officer. In Chapter 11 cases where management has committed fraud or mismanagement, a trustee can be appointed. In cases under Chapter 7, a trustee is always appointed to liquidate the debtor’s assets.
(i) Court
The bankruptcy court presides over the administration of the case and serves as a central forum:
- resolving all disputes;
- ruling on all motions;
- assuring that the case proceeds at an appropriate pace; and
- ultimately confirming a plan.
Chapter 11 plans frequently provide that the bankruptcy court retains post-confirmation jurisdiction to resolve ongoing disputes (ie, claims resolution) and enforce the plan.