CIRA Legal & Regulatory Environment 5 — Questions and Answers
Question 1: A company filed Chapter 11 and wants to obtain postpetition financing (DIP financing). Which section of the Bankruptcy Code governs this?
- Section 364 (Correct answer)
- Section 361
- Section 506
- Section 503
Correct answer: Section 364
Section 364 governs postpetition financing, allowing courts to authorize DIP loans with superpriority claims, priming liens, or other enhanced protections to attract lenders.
Question 2: What distinguishes a 'structured dismissal' of a Chapter 11 case from a traditional plan confirmation?
- A structured dismissal always results in a liquidating trust for creditor distributions
- A structured dismissal resolves the case without a reorganization plan, often including negotiated distributions (Correct answer)
- A structured dismissal converts the case to Chapter 7 automatically
- A structured dismissal requires unanimous creditor consent and U.S. Trustee approval
Correct answer: A structured dismissal resolves the case without a reorganization plan, often including negotiated distributions
A structured dismissal resolves a bankruptcy case without full plan confirmation, often through a negotiated order that includes distributions and releases but bypasses the plan process.
Question 3: Under WARN Act provisions relevant to restructuring, what notice period must most employers provide before mass layoffs?
- 30 days written notice
- 60 days written notice (Correct answer)
- 90 days written notice
- No notice is required if the employer is insolvent
Correct answer: 60 days written notice
The federal WARN Act (29 U.S.C. § 2101) generally requires 60 days' advance written notice before plant closings or mass layoffs affecting 50 or more employees.
Question 4: Which section of the Bankruptcy Code governs the treatment of pension plan obligations (PBGC claims) in a corporate restructuring?
- Section 1113 — rejection of collective bargaining agreements
- Section 1114 — modification of retiree benefits
- ERISA Title IV as enforced through PBGC's bankruptcy priority claims (Correct answer)
- Section 507(a)(5) — priority for employee benefit plan contributions
Correct answer: ERISA Title IV as enforced through PBGC's bankruptcy priority claims
PBGC pension obligations are governed by ERISA Title IV; the PBGC asserts substantial priority and unfunded benefit liability claims in bankruptcy, often ranking as major creditors.
Question 5: In a bankruptcy case, what is the legal effect of plan confirmation on claims not addressed in the confirmed plan?
- Unaddressed claims survive confirmation and remain enforceable against the reorganized debtor
- Confirmation discharges all prepetition debts except those specifically provided for in the plan (Correct answer)
- The court retains jurisdiction to adjudicate unaddressed claims for 5 years post-confirmation
- Unaddressed claims are automatically converted to equity in the reorganized entity
Correct answer: Confirmation discharges all prepetition debts except those specifically provided for in the plan
Under Section 1141(d), plan confirmation generally discharges the debtor from all prepetition debts, whether or not a claim is provided for in the plan or the creditor voted.
Question 6: What is a 'section 1113 motion' and when is it used in Chapter 11 restructurings?
- A motion to sell substantially all assets free and clear of liens under an expedited timeline
- A motion to reject or modify collective bargaining agreements with unionized employees (Correct answer)
- A motion to terminate the debtor's existing management and appoint a Chapter 11 trustee
- A motion to extend the exclusivity period beyond the initial 120-day window
Correct answer: A motion to reject or modify collective bargaining agreements with unionized employees
Section 1113 establishes a specific procedural framework and standards that a debtor must follow to reject or modify collective bargaining agreements with unionized workers.
Question 7: Which regulatory filing obligation does a Chapter 11 debtor-in-possession have with respect to the U.S. Trustee throughout the case?
- Annual audited financial statements filed with the SEC
- Monthly operating reports disclosing cash receipts, disbursements, and business operations (Correct answer)
- Quarterly earnings releases distributed to all creditors of record
- Biannual appraisals of all real property held by the estate
Correct answer: Monthly operating reports disclosing cash receipts, disbursements, and business operations
Chapter 11 debtors-in-possession must file monthly operating reports (MORs) with the U.S. Trustee, providing transparency into cash flows and business operations during the case.
CIRA Legal & Regulatory Environment 5
A company filed Chapter 11 and wants to obtain postpetition financing (DIP financing).
Which section of the Bankruptcy Code governs this?