Chapter 4: Entry Routes and Corporate Control
3. Fundamental features of the US Chapter 11 In the US the law on corporate reorganisation is contained in Chapter 11 of the US Bankruptcy Code. This chapter will look at the basic features of Chapter 11 with subsequent chapters addressing particular aspects of Chapter 11 and making comparisons between Chapter 11 and the relevant English law. Chapter 11 is generally considered to be pro-debtor rather than pro-creditor though there is much to be said for the view that this label is nothing more than a potentially misleading over-simplification. The pro-debtor label is used for a number of reasons. These include the fact that the Chapter 11 process is normally begun by the company itself seeking protection from its creditors; the existing management is not displaced in favour of some court-appointed outsider; the management itself can prepare a reorganisation plan and put it to creditors and shareholders; there is a specific mechanism for the financing of the company during the Chapter 11 period, which may include the ‘priming’ or ‘trumping’ of existing security interests and finally, in certain circumstances, secured creditors can be crammed down, i.e. forced to accept a reorganisation plan against their wishes.1 COMMENCING A CHAPTER 11 CASE AND THE AUTOMATIC STAY Normally, a Chapter 11 case begins when the company voluntarily files a peti- 1 See generally R La Porta et al ‘Law and Finance’ (1998) 106 Journal of Political Economy 1113. It should also be noted that under s 365 of the US Bankruptcy Code so-called...
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