CHAPTER 11 BANKRUPTCY PROTECTION IN THE US

							          CHAPTER 11 BANKRUPTCY PROTECTION IN THE US


US law allows debtors to voluntarily file     After being granted bankruptcy protection,
for bankruptcy protection and for debtors     a company may seek debtor-in-possession
to seek court imposed bankruptcy              financing from bankers. Banks will
protection. Once the court has officially     usually request the court to grant them
accepted the petition, all debt collection    priority repayment rights as a condition
activities are suspended.                     for providing loans, as the bankrupt
                                              company is unlikely to be able furnish
The bankruptcy company must then              any collateral for fresh loans.
negotiate debt restructuring or repayment
plans with creditors under court
supervision and approval. Normally, all       Export Risk
creditors are treated equally regardless of
the size of individual debts. If the debtor   For many exporters, the news that a buyer
cannot submit a Plan of Recoganization        has filed for bankruptcy protection is
to the court within 120 days of applying      nothing less than devastating. With
for Chapter 11 protection, creditors have     creditor    rights    usually    unsecured,
the right to submit their own Plan of         exporters are often unable to claim their
Recoganization in lieu.                       debts in full after Chapter 11 restructuring.
                                              Taking out export insurance cover for
Many bankruptcy cases involve a large         credit business is one solid measure for
number of creditors. US bankruptcy laws       minimizing potential losses.
empower the United States Trustee to
appoint a Creditors’ Committee (usually
consisting of creditors who hold the seven
largest claims against the debtor) to         Prompt Action Reduces Loss
ensure that debt – restructuring
negotiations run smoothly.
                                              If a buyer has filed bankruptcy protection,
                                              the exporter should immediately contact
                                              the buyer or receiver and establish his
                                              claims.
Operations Recorganization

Once Chapter 11 bankruptcy protection is      If goods are still in transit, a first step is to
                                              ask the buyer whether he is prepared to
filled, the debtor may continue to engage
in business but must recorganize              take possession on arrival. If he is, the
                                              buyer should be obliged to reconfirm the
operations and produce a plan for
                                              order and make immediate full payment.
improvements that will facilities debt
                                              Otherwise, the exporter should act
repayment.
                                              promptly to withhold either the shipment
                                              document or the goods themselves, at the
During the bankruptcy protection period,
                                              same time trying to locate possible
the court and Creditors’ Committee
closely monitor the debtor’s operations.      alternative buyers. The original buyer can
                                              be requested to cover losses arising from
After operational costs have been met all
revenue is applied to repaying the debt.      such re-sale arrangements; the exporter
                                              should also seek legal advice if necessary.
                                               before bankruptcy protection was filed
In cases where the buy er has collected        must return these amounts to the trustee,
goods after having filed for bankruptcy        who then redistributes this money to
protection the exporter is entitled to         creditors specified in the restructuring
reclaim the goods within ten days. In the      plan. This rule does not apply if payments
event of losses incurred as a result of the    made by the buyer are not for the
bankruptcy protection filing, he may           settlement of existing debts but instead
submit a Proof of Claim to the bankruptcy      related to the sale and delivery of new
court and register officially as a creditor.   shipments during those ninety days.

                                               Under bankruptcy protection, the buyer
                                               earns a breathing spell and a chance to
                                               revive business. At the end of the day,
Preferential Payment                           however, the bankruptcy court has the
                                               authority to reverse the bankruptcy
                                               protection order and switch to Chapter 7
Is an export ‘safe’ if a bankruptcy buyer
                                               proceedings for liquidation if, in its view,
owes him no outstanding payments?
                                               the debt-restructuring plan submitted by
                                               the debtor is not feasible, or if operations
The US Bankruptcy Law principle of
                                               during the relief period fail to turn around
‘Preferential Payment’ means that              the business.
creditors (including counter parties in
overseas trade) who have received debt
repayment from the buyer ninety days




  - Reproduced with kind of courtesy of the Hong Kong Credit Insurance Corporation -