Welcome to Scribd, the world's digital library. Read, publish, and share books and documents. See more
Download
Standard view
Full view
of .
Look up keyword
Like this
3Activity
0 of .
Results for:
No results containing your search query
P. 1
Glossary of Bankruptcy Terms

Glossary of Bankruptcy Terms

Ratings: (0)|Views: 138|Likes:
Published by Enrique
Practical glossary of Bankruptcy Terms from Mirus Capital Advisors, a leading investment banking firm in Boston (www.merger.com)
Practical glossary of Bankruptcy Terms from Mirus Capital Advisors, a leading investment banking firm in Boston (www.merger.com)

More info:

Published by: Enrique on Sep 23, 2009
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as DOC, PDF, TXT or read online from Scribd
See more
See less

08/24/2011

pdf

text

original

 
GLOSSARY OF BANKRUPTCY TERMSA
§363 Sale
A sale of assets by a debtor, with the approval of the Bankruptcy Court, is effected pursuant to section 363 of the Bankruptcy Code. Therefore, any sale of a business or its assetsout of a bankruptcy is commonly referred to as a §363 sale. “Bankruptcy Sale” and “§363 sale”are synonymous.
Chapter 11
The most common form of bankruptcy that A company would deal with. Chapter 11 is a reorganization proceeding in which the debtor may continue in business or in possessionof its property as a fiduciary. A Chapter 11 proceeding can go one of three ways: (1) a sale of assets (a), whereby the proceeds of the sale are to be used to satisfy the debt; (2) A confirmedChapter 11 plan that provides for the manner in which the debtor will repay the claims of creditors in whole or in part over time; or (3) a conversion to a Chapter 7 (in the event options 1and 2 don’t pan out) followed by a liquidation of assets.
Administrative Claims
Admin claims include claims by professionals retained in the bankruptcycase, such as attorneys, investment bankers, etc. If the bankruptcy does not produce adequateliquidity through the sale of assets or other actions to repay all secured claims plus administrativeclaims, the bankruptcy estate is deemed “administratively insolvent”. This happens with somefrequency, which is why it is important for A company to get a “carve-out”.
Article 9 Proceeding
In lieu of allowing the debtor to file for Bankruptcy, a secured creditor may elect to foreclose on their collateral (the debtor’s assets) and liquidate the assets in order torepay their claim. Article 9 proceedings are a state court proceeding, and therefore the venue isan important consideration for the lender (some states are more debtor-friendly than others).Generally, the creditor(s) need to have a compelling reason (such as the avoidance of massivelegal fees in a Chapter 11) to pursue an Article 9 transaction, and will only do so if it will lead to asignificantly better recovery than the alternative.
“ABC” (Assignment for the Benefit of Creditors)
In lieu of filing for Bankruptcy (Chapter 7in the case of a proposed liquidation), a Company may elect to make an assignment (of its assets)for the benefit of creditors. In this situation, the priority creditor(s), typically the bank, wouldtake control of the Company’s assets and liquidate them as payment for their claim. Generally,the creditor(s) need to consent in advance to such assignment, otherwise the officers of theCompany may have personal liability for what happens to the assets when they “hand over thekeys”.
Assume (as in
assume an obligation)
 
An agreement to continue performing duties under acontract or lease. In the context of an M&A transaction, if the buyer “assumes” certain contracts,such as a real estate lease or a lease for equipment, that assumption reduces the total obligationsof the bankruptcy estate.
Automatic stay
An injunction that automatically stops lawsuits, foreclosures, garnishments, andall collection activity against the debtor the moment a bankruptcy petition is filed. The timing of most bankruptcies is geared toward triggering the automatic stay in order to avoid a lawsuit or other action against the Company.B
 
Bankruptcy
A legal procedure for dealing with debt problems of individuals and businesses;specifically, a case filed under one of the chapters of title 11 of the United States Code (theBankruptcy Code).
Bankruptcy Code
The informal name for title 11 of the United States Code (11 U.S.C. §§ 101-1330), the federal bankruptcy law.
Bankruptcy Estate
Once a Company files for “Bankruptcy” (typically meaning bankruptcy protection under the terms of Chapter 11, which enable the Company to continue to operate withBankruptcy Court approval), the Company is officially known as the “Debtor”, and the bankruptcy estate (or “debtor’s estate) is defined as all legal or equitable interests of the debtor in property at the time of the bankruptcy filing. The estate includes all property in which the debtor has an interest, even if it is owned or held by another person. Therefore the Court’s power to“disgorge” or unwind any transfers of cash or assets that occurred immediately prior to the filing.
Bankruptcy Petition
When the Company “files for bankruptcy”, the actual document filed bythe debtor (in a voluntary case) or by creditors (in an involuntary case) that opens the bankruptcycase is the petition. (There are official forms for bankruptcy petitions.)C
Carve-Out
Secured claims get priority in any bankruptcy settlement, followed by post-petitionadministrative claims. Pre-petition unsecured claims, such as would be owed to an investment banker who earned a portion of their fee prior to the filing, would be at the end of the line.Therefore, it is important for A company to get a carve-out from the secured creditor(s) at thetime of the engagement. The carve-out is a contractual agreement with the secured creditor(s)whereby they agree to pay our fee out of their recovery in the event that (a) we complete atransaction and earn the fee; and, (b) the estate is administratively insolvent or for whatever reason our fees are not immediately approved.
Chapter 7
A Chapter 7 case is a liquidation proceeding, available to individuals, marriedcouples, partnerships and corporations. For a business, Chapter 7 generally connotes that the business has “shut its doors” and therefore given up on any chance of realizing “going concernvalue” for the business.
 Chapter 11
The most common form of bankruptcy that A company would deal with. Chapter 11 is a reorganization proceeding in which the debtor may continue in business or in possession of its property as a fiduciary. A Chapter 11 proceeding can go one of three ways:(1) a sale of assets (a §363 sale), whereby the proceeds of the sale are to be used to satisfy thedebt; (2) A confirmed Chapter 11 plan that provides for the manner in which the debtor willrepay the claims of creditors in whole or in part over time; or (3) a conversion to a Chapter 7(in the event options 1 and 2 don’t pan out) followed by a liquidation of assets.
Chapter 13
A repayment plan, most common for individuals with debts falling below statutorylevels. This is typically a personal bankruptcy (although many S-Corporations may qualify)which provides for repayment of some or all of the debts out of future income over 3 to 5years.
Collateral
Property which is subject to a lien (or a secured interest) by a creditor. A creditor with rights in collateral is a secured creditor and has additional protections in the Bankruptcy
 
Code for the claim secured by collateral. The measure of the secured claim is the value of thecollateral available to secure the claim: therefore, if the lender provided equipment financingfor a $5 million manufacturing line, and the liquidation value of that equipment is $1 million,then the value of that secured lien is reduced to the $1 million (or whatever value is ultimatelyachieved in a sale of that asset). In the event that the allocation of purchase price to a specificasset that is collateral is deemed “insufficient” – the creditor can object to the sale – andremove the asset from the estate (subject to court approval).
Confirmation
The court order which makes the terms of the plan for repayment of debts in aChapter 11 binding. The terms of the confirmed plan control over all pre-existing contracts or obligations as between the debtor and creditor.
Creditor
The person(s) or organization(s) to whom the debtor owes money or some other form of legal obligation.
Cramdown
If the creditors do not approve a plan of reorganization, the court may stillapprove it, if the bankruptcy judge believes it is in the best interest of all parties. Normally acramdown involves reducing a secured creditor's debt to the fair market value of the property,with the balance of the debt determined to be unsecured.
Claim
A creditor's assertion of a right to payment from the debtor or the debtor's property. An“Allowed” claim is a claim that has been adjudicated by the Court to be valid and in most casessubject to immediate disbursement from the debtor’s account - and not subject to further dispute.For example, when we file a fee application (to get paid for our services) we are filing a claim.When the judge signs an order allowing us to get paid, it becomes an “Allowed Claim”. If theestate is administratively insolvent then our Allowed Claim doesn’t get paid unless and untilenough dollars come in to make the case solvent.
Committee (
also “The Official Committee of Unsecured Creditors”)
 
Early in the Bankruptcy process, the U.S. Trustee will notify all of the unsecured creditors of a meeting (or conferencecall) at which the creditors will form an Official Committee of Unsecured Creditors. ThisCommittee will then appoint an attorney (Committee Counsel) to act on their behalf.
Committee Counsel
The attorney appointed by the Official Committee of Unsecured Creditorsto represent the interest of all general unsecured creditors in the bankruptcy proceeding. If thereis insufficient interest to constitute a Committee, then the U.S. Trustee may stand in.
Creditors' Meeting (also
341 meeting 
 
 
)
The 341 meeting is a meeting of creditors required bysection 341 of the Bankruptcy Code at which the debtor is questioned under oath by creditors, atrustee, examiner, or the U.S. trustee about his/her financial affairs. Also called creditors' meeting.D
Debtor
A person, company, or legal entity that has filed a petition for relief under theBankruptcy Code.

You're Reading a Free Preview

Download
scribd
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->