A term commonly used in the field of finance, particularly in the context of bankruptcy proceedings. A debtor in possession refers to a party, typically a business entity, that continues to maintain control and possession of its assets while it undergoes a Chapter 11 bankruptcy reorganization process. The debtor in possession, as the name suggests, is the debtor itself, as opposed to a third-party receiver or trustee. This status provides the debtor with certain rights and responsibilities, empowering it to operate and manage its business operations during the reorganization phase.
In a Chapter 11 bankruptcy, the debtor in possession assumes the role of a fiduciary to both its creditors and shareholders. This arrangement recognizes the debtor’s ability and willingness to manage its affairs in a productive and responsible manner, thus allowing it to continue its operations instead of being forced into liquidation. Often, this is deemed preferable as it maximizes the potential for creditors to recover their debts and preserves the value of the debtor’s assets, ultimately benefiting all parties involved.
One of the key features of a debtor in possession is the ability to access post-petition financing. This enables the debtor to secure additional funding during the bankruptcy process to meet its obligations and continue operations. Such financing is typically obtained by pledging the debtor’s remaining assets, and it is subject to court approval. By securing this financing, the debtor in possession can maintain its day-to-day operations, pay its employees, fulfill ongoing contracts, and develop a viable plan of reorganization.
To maintain transparency and protect the interests of creditors, a debtor in possession must comply with various reporting and disclosure requirements. These obligations include submitting periodic operating reports to the bankruptcy court, which detail the financial performance and progress of the business. Additionally, the debtor in possession is required to disclose key decisions relating to asset sales, executive compensation, and significant contracts.
Another critical responsibility of a debtor in possession is the formulation and submission of a reorganization plan. This plan outlines the debtor’s proposed strategy for emerging from bankruptcy as a financially stable and viable entity. The plan, subject to court approval and the acceptance of creditors, delineates how the debtor intends to repay its debts and addresses any necessary changes to its operations, such as restructuring or asset sales.
Under the supervision and oversight of the bankruptcy court, the debtor in possession must demonstrate transparency, accountability, and good faith in its dealings throughout the reorganization process. The court may appoint a committee of creditors to represent the interests of the various stakeholders, ensuring that the debtor’s actions align with the objectives of a fair and equitable resolution.
In summary, a debtor in possession represents a debtor that retains control and possession of its assets during Chapter 11 bankruptcy proceedings. This status allows the debtor to continue operating its business, access post-petition financing, and develop a reorganization plan. By fulfilling reporting obligations and acting in the best interests of all parties involved, a debtor in possession aims to restructure its debt, preserve asset value, and emerge from bankruptcy as a financially sustainable entity.