CFL Bankruptcy & Insolvency Litigation

Question 1

What is the 'automatic stay' in a bankruptcy proceeding and what does it prevent?

Accepted Answer

An immediate injunction that stops virtually all collection actions, lawsuits, and enforcement of judgments against the debtor upon filing

Answer

A court order requiring the debtor to stay in business during reorganization

Answer

A freeze on the debtor's bank accounts pending trustee review

Answer

A delay in the bankruptcy discharge granted only in Chapter 7 cases

Question 2

What is a 'preference payment' under 11 U.S.C. § 547, and why is it subject to avoidance in bankruptcy?

Accepted Answer

A payment made to a creditor within 90 days before filing that allows the creditor to receive more than they would in a Chapter 7 liquidation

Answer

Any payment made to a secured creditor during the bankruptcy case

Answer

A court-approved payment to critical vendors during reorganization

Answer

The first payment made under a confirmed Chapter 11 plan

Question 3

Under the Bankruptcy Code, what is the 'absolute priority rule' in Chapter 11 reorganizations?

Accepted Answer

Senior creditors must be paid in full before junior creditors or equity holders receive any recovery under a reorganization plan

Answer

Secured creditors have absolute priority over all estate assets regardless of value

Answer

The rule requires all employee wages to be paid before any other claims

Answer

Administrative expenses are the first priority in all bankruptcy cases

Question 4

What is a 'fraudulent conveyance' in the context of bankruptcy litigation?

Accepted Answer

A transfer of assets made with actual intent to hinder, delay, or defraud creditors, or a transfer made for less than reasonably equivalent value while the debtor was insolvent

Answer

Any transfer of assets made within six months of a bankruptcy filing

Answer

A payment to an officer or director that exceeds market compensation

Answer

A transfer of intellectual property to a subsidiary

Question 5

What is 'equitable subordination' under 11 U.S.C. § 510(c) in bankruptcy proceedings?

Accepted Answer

A court-ordered remedy that lowers a creditor's priority to below other creditors if the creditor engaged in inequitable conduct that harmed other creditors

Answer

The automatic subordination of all insider claims to general unsecured claims

Answer

A provision that subordinates secured claims to unsecured employee claims

Answer

The recharacterization of debt as equity for all related-party loans

Question 6

In a Chapter 11 bankruptcy, what is 'DIP financing' and why do lenders providing it receive special treatment?

Accepted Answer

Debtor-in-possession financing that provides the reorganizing company with working capital; DIP lenders receive super-priority administrative claims and often first-priority liens

Answer

Pre-petition credit facility that automatically converts to equity upon filing

Answer

Financing provided by the debtor to its subsidiaries during restructuring

Answer

Post-confirmation financing arranged by the plan proponent