Manages Assets & Financial Transactions
As the debtor-in-possession manages a business during a bankruptcy proceeding, it must keep its accounts separate from those used before filing informational reports. A corporation exists separate and apart from its owners, the stockholders. All correspondence must also be marked “DIP” to identify it as belonging to this status; furthermore, certain decisions requiring court approval, such as new financing arrangements or contract signings with suppliers and unions, are off-limits to them.
Receipt Management
Debtors-in-possession must deposit all receipts and disbursements into DIP accounts unless otherwise ordered by the U.S. Trustee or court. They also need to attend all major hearings, help develop a plan of reorganization, and ensure payments are made according to it.
DIPs may obtain financing, known as DIP lending, to help finance their operations during reorganization. This financing often takes precedence over existing equity and debt claims. If a debtor fails to file or confirm their proposed plan within its exclusivity period, creditors and equity security holders have the right to file competing recovery plans against the DIP.
The Debtor in Possession Develops a Reorganization Plan
Even during a bankruptcy process, major decisions regarding the company must be approved by a court before being implemented. For example, selling or using property not in the normal course of business, extending or terminating existing lease agreements, or arranging new loans are subject to court approval.
Chapter 11 bankruptcy cases allow businesses to develop plans that keep the business operating while paying creditors over time. Once this plan has been confirmed by most creditors and implemented successfully, exit from bankruptcy may occur with reduced debt than initially incurred.
Chapter 11 bankruptcy allows companies to reorganize debt while still operating the business, creating income that will contribute to repayment efforts. Furthermore, an automatic stay can halt collection efforts, lawsuits, or foreclosures against them, giving their DIP more time to devise a recovery strategy.
