CIRA Legal & Regulatory Environment 4 — Questions and Answers
Question 1: Which type of bankruptcy proceeding under Chapter 11 allows a company to pre-negotiate a reorganization plan with major creditors before filing?
- Involuntary bankruptcy
- Prepackaged bankruptcy (Correct answer)
- Subchapter V small business reorganization
- Structured dismissal proceeding
Correct answer: Prepackaged bankruptcy
A prepackaged bankruptcy involves negotiating and obtaining creditor acceptance of a reorganization plan before filing, significantly accelerating the court process.
Question 2: Under Section 365, which of the following is NOT a requirement for a debtor-in-possession to assume an unexpired lease?
- Cure of monetary defaults
- Adequate assurance of future performance
- Court approval
- Consent of all counterparties to the lease (Correct answer)
Correct answer: Consent of all counterparties to the lease
Section 365 requires cure of defaults, adequate assurance of future performance, and court approval, but does not require consent of all counterparties for assumption.
Question 3: What is a 'stalking horse' bidder in a Section 363 asset sale?
- A creditor who files an involuntary petition to force a sale
- An initial bidder who sets the floor price and terms for a competitive auction (Correct answer)
- The U.S. Trustee's appointed representative for asset liquidation
- A creditor holding a perfected lien on substantially all assets
Correct answer: An initial bidder who sets the floor price and terms for a competitive auction
A stalking horse bidder in a 363 sale is the initial buyer who negotiates the purchase agreement, setting a floor price and terms while the debtor seeks higher competing bids.
Question 4: In the context of cross-border insolvency, which international framework has the U.S. adopted to coordinate multinational bankruptcy proceedings?
- The Basel III International Insolvency Protocol
- The UNCITRAL Model Law on Cross-Border Insolvency (Chapter 15) (Correct answer)
- The Hague Convention on Insolvency Recognition
- The IMF Special Drawing Rights Framework for Sovereign Restructuring
Correct answer: The UNCITRAL Model Law on Cross-Border Insolvency (Chapter 15)
Chapter 15 of the Bankruptcy Code implements the UNCITRAL Model Law on Cross-Border Insolvency, providing a framework for cooperation in multinational insolvency cases.
Question 5: Which provision of the Bankruptcy Code allows a trustee or DIP to avoid a lien that was not perfected at the time of the bankruptcy filing?
- Section 544, the strong-arm clause (Correct answer)
- Section 547, the preference avoidance provision
- Section 548, the fraudulent transfer statute
- Section 552, the after-acquired property rule
Correct answer: Section 544, the strong-arm clause
Section 544(a) grants the trustee or DIP the powers of a hypothetical lien creditor, allowing avoidance of unperfected liens that a lien creditor could have avoided under state law.
Question 6: What is the primary function of a creditors' committee in a Chapter 11 case?
- To replace the debtor-in-possession as operator of the business
- To represent the collective interests of unsecured creditors and monitor the estate (Correct answer)
- To approve or reject all postpetition financing arrangements
- To set the reserve price for any Section 363 asset sale
Correct answer: To represent the collective interests of unsecured creditors and monitor the estate
The official committee of unsecured creditors, appointed by the U.S. Trustee under Section 1102, represents unsecured creditors collectively and actively monitors case administration.
Question 7: Under the Sarbanes-Oxley Act, which requirement is most relevant to a restructuring advisor working with a public company debtor?
- Mandatory arbitration of all creditor disputes
- CEO and CFO certification of financial statements under Section 302 and 906 (Correct answer)
- Prohibition on DIP financing from affiliated entities
- Mandatory quarterly auction of non-core assets
Correct answer: CEO and CFO certification of financial statements under Section 302 and 906
SOX Sections 302 and 906 require executive certification of financial statements, a requirement that continues during bankruptcy and is critical for restructuring advisors to monitor.
CIRA Legal & Regulatory Environment 4
Which type of bankruptcy proceeding under Chapter 11 allows a company to pre-negotiate a reorganization plan with major creditors before filing?