Professional Documents
Culture Documents
Corporate Bankruptcy and Reorganization
Corporate Bankruptcy and Reorganization
Corporate Bankruptcy and Reorganization
Reorganization
Prof. Jesse M. Fried
U.C. Berkeley School of Law
1
Course Details
1. Contents
-- Chapter 7 and Chapter 11 of US Bankruptcy Code
-- other statutory and non-statutory law relating to bankruptcy
2. Materials
Reading Packages (based on material of Prof. Mark Roe)
Statutory Appendix (“Appendix B”)
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Introduction
4
Sources of Business Financing in the
U.S.
Internal Financing
2% • Retained Earnings
Debt Financing
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Bankruptcy Code
Chapter 1: Definitions, Power of Court
Chapter 3: Administration of Bankruptcy
Estate
Chapter 5: What is in the Bankruptcy Estate
Chapter 7: Liquidation Provisions
Chapter 11: Reorganization Provisions
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Financial Claims on the Corporation
1.Creditors
– Banks
– Finance companies, insurance companies, etc.
– Public bondholders (including “debentureholders”)
– Trade Creditors (suppliers)
– Employees
– Contract breach creditors
– Tort Victims (sometimes)
– Government (tax, regulatory claims)
2. Equityholders
--- Preferred stockholders
--- Common stockholders
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Basic Balance Sheet
8
$Assets = $Debt + $Equity
I. A World Without Bankruptcy
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Creditors’ remedies outside bankruptcy
1. Unsecured creditor
-- goes to court to get judgment
-- if gets judgment, then gets “judgment (or judicial)
lien” – right to payment
-- if debtor does not pay, creditor asks “sheriff” to
seize property
– Two rights
1. Property right – right to repossess collateral from
defaulting debtor
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Two steps to creating effective SI
I. Attachment
• written security agreement
• lender gives value, debtor owns
asset
II. Perfection
• for rights against 3rd parties
• must “perfect” SI by taking possession of
collateral or public filling
• judicial lien has priority over unperfected SI
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What happens when there is “intercreditor
conflict” – 2 or more creditors attempting to seize
asset?
Unsecured vs secured
secured wins
•Automatic Stay
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Automatic Stay
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Overview of Distribution in Chapter 7 (1 of 5)
3 important exceptions
1. Secured debt
2. Subordinated debt
3. Priority unsecured debt (Section 507)
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Overview of Distribution in Chapter 7 (3 of 5)
Subordinated debt
X is subordinated to Y =
X must give all of its share to Y
until Y is paid in full
2. “Gap Claims”
6. Customer deposits
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