Sunday, 30 August 2009

A quick guide to Chapter 11

Chapter 11 relates to US bankruptcy law. It's a legal tool that gives a company, in difficult times, a period to reorganise. Either the company itself, or one or more of its creditors, can file a petition in a US bankruptcy court for Chapter 11 protection.

In many cases it will be the owners or managers of a company who continue to run and reorganise the company during Chapter 11. This is known as Debtor in Possession (DIP). Any reorganisation needs to be approved by the bankruptcy judge, with a creditors' committee being influential in the planning of the reorganisation.

Chapter 11 provides protection from creditors. Any legal moves made by creditors are basically put on hold, and inevitably a negotiation concerning those debts will be part of any reorganisation. Should the debts exceed the assets, and reorganisation prove impossible, then Chapter 7 is the next step. Chapter 7 is effectively a liquidation. A court will appoint a trustee who will sell any remaining assets and distribute the funds.

So why the words on Chapter 11 in a UK General Aviation blog? Most US airlines have been through Chapter 11 at one time or another, and some of the big names in GA have also used its protection. From what I'm hearing, there may be a couple more before too long.

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