CIRA CIRA Bankruptcy & Restructuring Procedures 2

Question 1

What does 'DIP financing' stand for, and what is its primary purpose in a Chapter 11 case?

Accepted Answer

Debtor-in-Possession financing; provides working capital to fund operations during restructuring

Answer

DIP financing is new credit extended to a bankrupt debtor, typically with super-priority status, to ensure the business has sufficient liquidity to continue operating while it reorganizes.

Question 2

An 'executory contract' in bankruptcy is best described as:

Accepted Answer

A contract where both parties still have material unperformed obligations

Answer

An executory contract is one where both the debtor and counterparty have ongoing obligations; the debtor may assume (keep) or reject (breach and treat as pre-petition claim) such contracts.

Question 3

Which term describes the process by which a bankruptcy court confirms a Chapter 11 reorganization plan over the objection of a dissenting class of creditors?

Accepted Answer

Cramdown

Answer

Cramdown allows the court to confirm a plan even if a class votes against it, provided the plan satisfies statutory requirements including the absolute priority rule.

Question 4

In an out-of-court restructuring, what is a 'forbearance agreement'?

Accepted Answer

A creditor's agreement to temporarily refrain from exercising remedies in exchange for concessions from the debtor

Answer

A forbearance agreement buys the distressed debtor time to negotiate a more permanent solution by having lenders agree not to accelerate loans or enforce defaults for a defined period.

Question 5

Which metric in a restructuring plan indicates whether the reorganized company can realistically meet its future debt obligations?

Accepted Answer

Feasibility, demonstrated by projected cash flows sufficient to service reorganized debt

Answer

Under 11 U.S.C. § 1129(a)(11), a plan must be feasible, meaning the court must find that the reorganized company will not likely require further liquidation or reorganization.

(CIRA) Certified Insolvency & Restructuring Advisor Practice Test

(CIRA) Certified Insolvency & Restructuring Advisor Practice Test

CIRA CIRA Bankruptcy & Restructuring Procedures 2