CBS Business Bankruptcy & Reorganization 2 — Questions and Answers
Question 1: Under Chapter 11, what is the 'exclusivity period' and how long does it initially last?
- The period during which only the debtor may file a plan of reorganization, lasting 120 days (Correct answer)
- The period during which creditors cannot file claims, lasting 90 days
- The period during which the automatic stay is in full effect, lasting 180 days
- The period during which the debtor must pay all administrative expenses, lasting 60 days
Correct answer: The period during which only the debtor may file a plan of reorganization, lasting 120 days
Under 11 U.S.C. § 1121(b), the debtor has an initial 120-day exclusivity period to file a plan, which can be extended up to 18 months.
Question 2: What is a 'cram down' in the context of Chapter 11 bankruptcy?
- Confirming a plan over the objection of a dissenting class of creditors if the plan meets statutory requirements (Correct answer)
- Forcing the debtor to liquidate assets immediately upon filing
- Requiring secured creditors to accept below-market interest rates
- Eliminating all unsecured debt without creditor consent
Correct answer: Confirming a plan over the objection of a dissenting class of creditors if the plan meets statutory requirements
A cram down under § 1129(b) allows plan confirmation over a rejecting class if the plan is fair and equitable and does not discriminate unfairly.
Question 3: Which entity typically serves as the primary oversight body in a Chapter 11 case without a trustee appointed?
- The debtor in possession (DIP) (Correct answer)
- The U.S. Trustee
- The creditors' committee
- The bankruptcy court clerk
Correct answer: The debtor in possession (DIP)
In Chapter 11, the debtor in possession retains management and operates the business under the supervision of the bankruptcy court.
Question 4: What is the 'absolute priority rule' in Chapter 11 reorganization?
- Senior classes must be paid in full before junior classes receive anything under a plan (Correct answer)
- Administrative expenses must be paid before the petition is filed
- Secured creditors must be paid before any plan is filed
- Tax claims must be paid before all other unsecured claims
Correct answer: Senior classes must be paid in full before junior classes receive anything under a plan
The absolute priority rule under § 1129(b)(2)(B) requires that a senior class be paid in full before a junior class receives any distribution.
Question 5: A business files Chapter 11 and seeks to reject an executory contract with a supplier. When is the rejection effective?
- Upon court approval of the rejection motion (Correct answer)
- Automatically upon filing the bankruptcy petition
- 30 days after the debtor notifies the counterparty
- When the plan of reorganization is confirmed
Correct answer: Upon court approval of the rejection motion
Rejection of an executory contract under § 365 requires court approval and is effective upon entry of the court's order.
Question 6: What is a 'prepackaged' Chapter 11 bankruptcy?
- A reorganization where the debtor solicits creditor votes on a plan before filing the bankruptcy petition (Correct answer)
- A bankruptcy filing where all assets are pre-sold to a stalking horse bidder
- A Chapter 11 case where the debtor pre-negotiates DIP financing before filing
- A liquidating Chapter 11 with a pre-arranged sale to a single buyer
Correct answer: A reorganization where the debtor solicits creditor votes on a plan before filing the bankruptcy petition
In a prepackaged Chapter 11, creditors vote on and accept the plan before the bankruptcy petition is filed, allowing for a faster reorganization.
Question 7: Under the Bankruptcy Code, what is the treatment of reclamation claims by sellers of goods to a Chapter 11 debtor?
- Sellers may reclaim goods delivered within 45 days before the petition date if the debtor was insolvent at delivery (Correct answer)
- Sellers have no reclamation rights once bankruptcy is filed
- Sellers may reclaim any goods delivered within 90 days pre-petition
- Sellers must file an adversary proceeding within 20 days to reclaim goods
Correct answer: Sellers may reclaim goods delivered within 45 days before the petition date if the debtor was insolvent at delivery
Under § 546(c), sellers can reclaim goods if written demand is made within 45 days of delivery and the debtor was insolvent when the goods were received.
CBS Business Bankruptcy & Reorganization 2
Under Chapter 11, what is the 'exclusivity period' and how long does it initially last?