Commission Calls for Overhaul of Chapter 11 Bankruptcy Code

Written by Administrator

The "American Bankruptcy Institute’s Chapter 11 bankruptcy Reform Commission", which is given the task of reforming the 40 year old bankruptcy laws, gave a report that showed the current Chapter 11 regimeis behind times. The report asks Congress to give businesses a better go at restructuring with Chapter 11.

Senior creditors could be made to pay “out-of-the-money” lenders, when the first creditors aren't paid off. With this, the creditors get a recovery if the court finds their business is worth more in 3 years thanit currently is. This is supposed to give creditors some of the rebuilding options that only senior creditors receive.

 

The reforms are necessary because creditors have helped a lot of reorganizations to a fire sale liquidation, and not reorganizations into smaller groups. The Commission says that goals are to not make Chapter 11 a deterrent, but help save jobs during reformation. Creditors warn that restructure probably raise credit costs through the economy, namely if the priority is effected.

Commercial lenders and creditors shouldn't immediately be deterred, the Commission says that its probable that the guidelines wouldn't be used for action until 2018.