Principles & Practices Flashcards

Under Chapter 11, what is the primary purpose of the automatic stay?

Answer: To halt most collection actions against the debtor and its property

The automatic stay under 11 U.S.C. § 362 immediately halts most collection actions, lawsuits, and enforcement efforts against the debtor upon filing.

A debtor-in-possession (DIP) loan is typically granted 'super-priority' status, meaning it:

Answer: Has priority over most pre-petition unsecured claims and may prime existing liens with court approval

DIP financing under § 364 can receive super-priority administrative expense status and, with court approval, can prime existing liens to attract post-petition lenders.

Which financial metric is most commonly used to determine a company's enterprise value during a restructuring?

Answer: EBITDA multiple based on comparable transactions

Enterprise value in restructurings is typically derived by applying an EBITDA multiple from comparable company or transaction analyses.

In a prepackaged bankruptcy, the plan of reorganization is:

Answer: Negotiated and voted on by creditors before the bankruptcy petition is filed

A prepackaged bankruptcy involves securing creditor votes on a reorganization plan before filing, significantly shortening the in-court process.

What does the 'absolute priority rule' require in a confirmed Chapter 11 plan?

Answer: Senior classes must be paid in full before junior classes receive any distribution

The absolute priority rule mandates that senior creditor classes be paid in full before any junior class (including equity) receives a recovery.

A restructuring advisor performing a '13-week cash flow' analysis is primarily focused on:

Answer: Near-term liquidity management and cash runway

The 13-week cash flow model is a short-term liquidity tool used to track weekly cash receipts and disbursements and forecast the company's near-term cash position.

Which of the following best describes a 'cram-down' in Chapter 11?

Answer: Confirmation of a plan over the objection of a dissenting class of creditors

A cram-down allows a bankruptcy court to confirm a plan even if a class of creditors rejects it, provided the plan meets specific statutory requirements.