Jared Mayer Writes About Involuntary Chapter 11

Reorganization By Force

In 1978, the United States adopted the Bankruptcy Code and its Chapter 11, which allows companies to restructure their obligations. Chapter 11’s hallmark is that it’s company driven; the company’s management decides if, when, and how it will use Chapter 11 to address its financial distress. To be sure, other stakeholders, such as secured lenders and private equity sponsors, heavily influence those corporate decisions by working in tandem with, and at times taking over, the company’s management. Yet however the company’s management is constituted and whoever decides how to constitute it, it’s the company’s management that initiates and runs the company’s Chapter 11 process.

Despite Chapter 11’s management-centric orientation, the Bankruptcy Code contains a curious oddity: an involuntary Chapter 11, where a group of unsecured creditors can force a company to reorganize through Chapter 11 if they can show that the company owes them a definite, undisputed amount of money¾the current statutory minimum is $18,600¾and either that (a) the company is generally not paying its debts as they become due or (b) a fiduciary was appointed over the company no more than 120 days prior to the involuntary chapter 11 filing.

Read more at Oxford Business Law Blog