Chapter 11 liquidating trust
Among the requirements for confirmation of a plan is that administrative priority creditors be paid in full.In the event that insufficient funds exist to pay administrative creditors, the case is referred to as being "administratively insolvent." Administratively insolvent cases are typically converted to chapter 7.
Such claims must now be paid in full in order to confirm a reorganization plan, whereas prior to BAPCPA, these claims were paid in the same manner as general unsecured claims.In many ways, liquidating a business is simpler and quicker than attempting to make the necessary operational changes and to restructure the many obligations that modern companies have on their balance sheets.Rather than allowing the company the time it would need to restructure, secured and unsecured creditors appear to desire certainty.The pressure to liquidate appears most widespread in the retail sector, where reorganization is especially difficult.Famous retail brands such as Circuit City, Whitehall Jewelers, Linens 'n Things, Friedman's Inc., The Sharper Image, Boscov's, Mervyn's, Steve & Barry's and Bombay Company have all recently liquidated in bankruptcy.Chapter 7 Liquidations In addition to chapter 11 liquidations, some prominent companies have filed for chapter 7 relief at the outset.
For example, the parent company of the Steak & Ale and Bennigan's restaurant chains filed for chapter 7 bankruptcy in 2008. In addition, the Peanut Corporation of America filed for chapter 7 relief in the wake of accusations that it produced tainted peanut products.
Similarly, jewelry store operator Christian Bernard filed for chapter 7 bankruptcy just after Christmas in 2008, as did the U. Often, however, a case is converted from chapter 11 to chapter 7 where the administrative costs of chapter 11 have resulted in a scenario in which general unsecured creditors are likely to receive little or no distribution.
Unlike a chapter 11 liquidation, in which the debtor's management remains in control of the business during the liquidation process, in a chapter 7 bankruptcy case, an independent trustee is automatically appointed at the outset of the case.
Most often, these sales are administered by an "agent" hired by the debtor that guarantees the estate a certain percentage of the cost value of the debtor's inventory, with a higher recovery possible depending upon the ultimate results of the sales.
Several companies may bid at auction for the right to be the debtor's GOB agent.
Companies often use chapter 11 to liquidate their assets because management remains in place during the bankruptcy process.