Principles & Practices Flashcards

Under the Bankruptcy Code, a 'preference payment' subject to avoidance is generally a transfer made to a creditor:

Answer: Within 90 days before filing (or one year for insiders) on account of an antecedent debt while the debtor was insolvent

Preference payments under § 547 are transfers within 90 days (one year for insiders) that improve a creditor's position over what they'd receive in a Chapter 7 liquidation.

What is a 'fraudulent transfer' in the context of insolvency law?

Answer: A transfer made with intent to hinder creditors or for less than reasonably equivalent value while insolvent

Fraudulent transfers under § 548 include transfers made with actual intent to defraud creditors or constructively fraudulent transfers where the debtor received less than reasonably equivalent value while insolvent.

In restructuring, 'equitable subordination' is a doctrine that allows a court to:

Answer: Subordinate a creditor's claim due to inequitable conduct that harmed other creditors

Equitable subordination under § 510(c) permits courts to subordinate a creditor's claim as a remedy for misconduct that caused harm to other creditors.

Which test does the Bankruptcy Code apply to confirm that a reorganization plan is feasible?

Answer: The plan must not be likely to be followed by liquidation or further reorganization

Under § 1129(a)(11), a plan is feasible if confirmation is not likely to be followed by liquidation or the need for further reorganization, i.e., the reorganized company can meet its obligations.

A 'stalking horse' bid in a § 363 asset sale serves primarily to:

Answer: Set a floor price and terms for competitive bidding, protecting the process

A stalking horse bidder establishes a minimum price and deal terms, encouraging higher competing bids while receiving bid protections such as a break-up fee.

In analyzing a distressed company's capital structure, 'fulcrum security' refers to:

Answer: The security class where value breaks, giving that class the most influence over restructuring outcomes

The fulcrum security is the debt or equity layer where enterprise value is exhausted, making that class the pivotal negotiating party in a restructuring.

What is the role of the Official Committee of Unsecured Creditors (UCC) in a Chapter 11 case?

Answer: To represent the collective interests of general unsecured creditors and provide oversight of the debtor

The UCC is appointed by the U.S. Trustee and acts as a fiduciary for all unsecured creditors, investigating the debtor's affairs and negotiating plan terms.