When a business files for Chapter 11 bankruptcy, it can keep operating while fixing its financial problems. The company leaders stay in control as the “debtor in possession” instead of having someone from the court take over. This setup helps the business keep running while it works out a plan to pay its debts.
The debtor in possession must follow specific rules that protect the people and companies owed money. If you’re a business owner thinking about filing for Chapter 11, while you will get to keep managing your business, you will have important responsibilities to your creditors that you must take seriously throughout the bankruptcy process.
Fiduciary obligations to creditors
As debtor in possession, you must put your creditors’ interests first. This means making business decisions that maximize value for everyone owed money, not just yourself or business partners. You cannot play favorites among creditors or make choices that mainly benefit insiders. You must protect company assets, avoid wasteful spending and keep proper insurance to safeguard the business value.
Operational and financial reporting duties
You must file detailed monthly reports showing all business activities and financial performance. These include profit and loss statements, balance sheets, cash flow details and accounts information. You also need to file taxes on time and attend meetings with creditors and the bankruptcy overseer to answer questions about your business and reorganization plans.
Management of claims and estate assets
You must review all claims filed against your business and can object to wrong ones. You need to track all company property and keep accurate inventory. You also have special powers to take back certain payments made shortly before filing and can choose to keep or break contracts and leases if it helps the bankruptcy estate.
Plan proposal and implementation responsibilities
Your most important job is creating a workable reorganization plan. This plan must address all creditor groups, show it can succeed and meet legal requirements. After court approval, you must follow the plan exactly, paying creditors as promised and completing all required reports.
Legal guidance is important when filing Chapter 11 to handle these responsibilities while working toward rebuilding your business successfully. It’s a weighty situation, but you don’t have to navigate it alone.