Operating a Business During Chapter 11

The key to a successful Chapter 11 case is the continued operation of the debtor's business. In addition to running the business, the debtor (as debtor in possession) or the trustee must fulfill additional duties required by the Bankruptcy Code and work with creditors, the court, and other parties to obtain financing for ongoing business operations.

If you have questions about or would like assistance with operating a business during Chapter 11, contact Jon B. Clarke, P.C. in Greenwood Village, Colorodo, to schedule a consultation with an attorney.

Who Operates the Business?

In most Chapter 11 cases, the debtor assumes the status of debtor in possession (DIP) and continues to run the business in that capacity until confirmation of the Chapter 11 plan. In some cases, a trustee will be appointed by the court to run the debtor's business and perform other tasks required by law or court order.

Debtor in Possession (DIP). In most Chapter 11 cases the debtor continues to manage and run the business as a debtor in possession (DIP). As a DIP, the debtor is usually responsible for additional duties, including:

• Accounting for property
• Examining and objecting to claims
• Filing required reports with the Bankruptcy Court
• Employing attorneys, accountants, appraisers, auctioneers, and other professionals to assist with the case

Trustee. Any party in interest or the US trustee may request that a trustee be appointed at any time prior to confirmation of the plan. A trustee may be selected by the creditors or, with court approval, by the US trustee. The court will only appoint a trustee after notice and a hearing if there is cause (fraud, dishonesty, gross mismanagement, or incompetence of the debtor) or if appointing a trustee is "in the interest of creditors, any equity security holders, and other interests of the estate." 11 USCA § 1104(a). In addition to operating the debtor's business, the trustee is responsible for managing the property of the estate and filing the plan. The trustee's appointment may be terminated at any time prior to confirmation upon the request of a party in interest or the US trustee.

Other Parties Involved in Chapter 11 Cases

Examiner. In some Chapter 11 cases, a party in interest may request the appointment of an examiner. An examiner can only be appointed after notice and a hearing if a trustee has not been appointed and the debtor's non-trade, non-tax, unsecured debt is greater than $5 million or the appointment is "in the interest of creditors, any equity security holders, and other interests of the estate." 11 USCA § 1104(c). An examiner does not run the debtor's business, formulate the plan, or perform other duties of the trustee unless the court orders the DIP not to perform those functions. The examiner does investigate and file a report regarding the competency or honesty of the debtor and perform other duties assigned by the court.

United States Trustee (US Trustee). The US trustee supervises the administration of the case and monitors the progress of the case, the operation of business, the submission of required fees and reports, and the applications for compensation of professionals filed with creditor’s committee. The US trustee also conducts the “section 341 meeting” of the creditors.

For more information about operating a business during Chapter 11, contact Jon B. Clarke, P.C. in Greenwood Village, Colorodo, to schedule a consultation with a lawyer.

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