CBS Debt Restructuring & Management 2 — Questions and Answers
Question 1: Under a Chapter 11 plan, a class of creditors is deemed to have accepted the plan if what percentage of allowed claim amount votes in favor?
- More than 50%
- At least two-thirds (Correct answer)
- At least 75%
- Unanimous consent
Correct answer: At least two-thirds
A class accepts a Chapter 11 plan if creditors holding at least two-thirds in amount and more than one-half in number of allowed claims vote in favor.
Question 2: What is a 'prepackaged' bankruptcy filing?
- A bankruptcy filed without legal counsel
- A plan of reorganization negotiated and voted on by creditors before filing (Correct answer)
- An emergency filing with no asset schedules
- A filing where only secured debts are addressed
Correct answer: A plan of reorganization negotiated and voted on by creditors before filing
A prepackaged bankruptcy involves soliciting and obtaining creditor votes on the reorganization plan before the bankruptcy petition is filed, reducing time in court.
Question 3: In debt restructuring, what does an 'out-of-court workout' primarily aim to avoid?
- Creditor negotiations
- Formal bankruptcy proceedings (Correct answer)
- Asset liquidation only
- Tax consequences of debt forgiveness
Correct answer: Formal bankruptcy proceedings
An out-of-court workout seeks to restructure obligations through private negotiations with creditors to avoid the cost and publicity of formal bankruptcy proceedings.
Question 4: Which type of debt restructuring involves exchanging existing debt for new debt instruments with different terms?
- Debt-for-equity swap
- Debt exchange offer (Correct answer)
- Debt forgiveness
- Subordination agreement
Correct answer: Debt exchange offer
A debt exchange offer replaces existing debt securities with new instruments that typically have modified maturities, interest rates, or principal amounts.
Question 5: What is 'negative pledge' in the context of debt restructuring agreements?
- A borrower's promise not to pledge assets as collateral to other lenders (Correct answer)
- A creditor's agreement to reduce the principal amount owed
- A guarantee from a third party
- A prohibition on prepayment of debt
Correct answer: A borrower's promise not to pledge assets as collateral to other lenders
A negative pledge clause contractually prohibits the borrower from encumbering its assets with liens in favor of other creditors, protecting existing unsecured lenders.
Question 6: When a debtor proposes to pay unsecured creditors 60 cents on the dollar under a restructuring plan, what term describes this reduction?
- Principal forbearance
- Haircut (Correct answer)
- Cramdown
- Deficiency judgment
Correct answer: Haircut
A haircut refers to the reduction in the face value of a debt that creditors agree to accept as part of a restructuring or settlement.
Question 7: Under Section 1129(b) of the Bankruptcy Code, a plan can be confirmed over a dissenting class's objection if it does not 'discriminate unfairly' and is what?
- Approved by the U.S. Trustee
- Fair and equitable (Correct answer)
- Supported by the debtor's largest creditor
- Filed within 120 days of the petition
Correct answer: Fair and equitable
Section 1129(b) allows cramdown confirmation if the plan is fair and equitable with respect to each dissenting class, meaning it satisfies the absolute priority rule.
CBS Debt Restructuring & Management 2
Under a Chapter 11 plan, a class of creditors is deemed to have accepted the plan if what percentage of allowed claim amount votes in favor?