TMA Legal and Bankruptcy Framework 2 — Questions and Answers
Question 1: What is the Official Committee of Unsecured Creditors (UCC) in a Chapter 11 case?
- A government body overseeing bankruptcies
- A committee appointed by the US Trustee to represent general unsecured creditors' interests (Correct answer)
- The company's board of directors during bankruptcy
- A committee of secured lenders
Correct answer: A committee appointed by the US Trustee to represent general unsecured creditors' interests
The UCC is appointed by the US Trustee from among the largest unsecured creditors to represent that class's collective interests in plan negotiations and case administration.
Question 2: What does 'preference payment' mean under bankruptcy law?
- Payments made to preferred shareholders
- Payments made to creditors within 90 days before filing that may be recoverable by the estate (Correct answer)
- Interest payments that are given priority treatment
- The first payment made under a reorganization plan
Correct answer: Payments made to creditors within 90 days before filing that may be recoverable by the estate
A preference payment is a transfer made to a creditor within 90 days before bankruptcy (or one year for insiders) that the trustee can seek to recover to ensure equitable treatment of all creditors.
Question 3: What is a 'fraudulent transfer' in the context of bankruptcy law?
- Transferring assets at less than fair value or with intent to defraud creditors, which can be avoided (Correct answer)
- Any transfer made during a bankruptcy case
- A payment made to a creditor without court approval
- Paying employees during the bankruptcy case
Correct answer: Transferring assets at less than fair value or with intent to defraud creditors, which can be avoided
A fraudulent transfer occurs when a debtor transfers assets for less than fair value or to hinder creditors; the bankruptcy estate can avoid (reverse) such transfers to recover value.
Question 4: What is 'Section 363' commonly used for in bankruptcy?
- Approving the reorganization plan
- Selling assets of the bankruptcy estate outside the ordinary course of business with court approval (Correct answer)
- Setting professional fee rates
- Filing the debtor's initial financial disclosures
Correct answer: Selling assets of the bankruptcy estate outside the ordinary course of business with court approval
Section 363 of the Bankruptcy Code allows a debtor to sell assets free and clear of liens and encumbrances with court approval, often used for quick asset sales to maximize value.
Question 5: What is 'adequate protection' in the context of secured creditors during bankruptcy?
- Insurance required for all bankruptcy estates
- Compensation provided to secured creditors for any decline in the value of their collateral during the case (Correct answer)
- A covenant package for DIP lenders
- Protection from creditor lawsuits during the automatic stay
Correct answer: Compensation provided to secured creditors for any decline in the value of their collateral during the case
Adequate protection ensures secured creditors are compensated for any erosion in their collateral value during the bankruptcy — typically through cash payments, additional liens, or replacement collateral.
Question 6: Under Chapter 15 of the US Bankruptcy Code, what is addressed?
- Small business reorganizations
- Cross-border insolvency and cooperation with foreign courts (Correct answer)
- Consumer debt restructuring
- Railroad company reorganizations
Correct answer: Cross-border insolvency and cooperation with foreign courts
Chapter 15 implements the UNCITRAL Model Law on Cross-Border Insolvency, providing a framework for US courts to cooperate with foreign insolvency proceedings involving multinational debtors.
TMA Legal and Bankruptcy Framework 2
What is the Official Committee of Unsecured Creditors (UCC) in a Chapter 11 case?