When a Reorganized Debtor is Unable to Fulfill its Chapter 11 Plan

A reorganized debtor is unable to fulfill the terms of its Chapter 11 plan when the circumstances are out of the debtor’s control. The court may grant the debtor an extension of the exclusivity period for up to 18 months if the debtor shows good faith effort. In such a case, the bankruptcy court will likely award the debtor a discharge.

In such a case, a bankruptcy court may appoint a trustee to oversee the debtor’s business operations. The trustee oversees the debtor’s business operations, as well as post-petition expenses and fees. In certain cases, the court may appoint a trustee to oversee the debtor’s business, and a creditors committee will be formed. In the event of fraud or other misconduct, the court may appoint a trustee to oversee debtor operations.

A reorganized debtor can reinstate a previous loan if its terms are favorable. A lower interest rate and favorable terms may make it more desirable. This strategy grew in popularity during the Great Recession, replacing cheap but prohibitively expensive loans. If COVID-19 continues, this strategy may resume its role. If a debtor is unable to fulfill its Chapter 11 plan, they may be forced to file for liquidation. If the debtor can’t fulfill its plan, a bankruptcy judge will order it dissolved.

The Court’s approval of a Chapter 11 plan depends on several factors. The type of business and its number of creditors are among the many factors that determine whether a Chapter 11 filing is appropriate for the debtor. However, if a debtor wants to sell real property, a court approval is required. Otherwise, the debtor will need the consent of each creditor, which could result in a default judgment.

More info: https://www.scura.com/blog/when-a-reorganized-debtor-is-unable-to-fulfill-its-chapter-11-plan-commitments



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