interest in the company's inventory and
"accounts" (i.e., receivables).
In addition to the use of "cash collateral"
in the preparation for a Chapter 11,
typically the attorney and turnaround
consultant will evaluate the need for
and availability of Chapter 11 financing,
called "DIP" or debtor in possession
financing. Many businesses need ad-
ditional financing to make it through the
Chapter 11. This type of financing also
requires court approval.
Although the filing of the bankruptcy
creates an automatic stay precluding
creditors from pursuing the company's
assets, creditors are not stayed indefi-
nitely. Typically, secured creditors can
seek relief from stay by asking the courts
to allow them "for cause" to pursue their
pre-bankruptcy remedies. The court will
evaluate whether cause exists on a case
by case basis by balancing the needs
of the company that has filed with the
impact of the stay on the creditor.
A typical Chapter 11 filing for a
middle market company takes about 12
to 15 months. This is the amount of time
the court typically will give the business
to start showing progress on the reorga-
nization and turnaround. Even though a
Chapter 11 can provide a "legal cocoon"
around the business to allow the busi-
ness time to reorganize, the fact is that
the business must ultimately be viable.
Ultimately the objective of any Chap-
ter 11 is to reorganize either through the
filing of a Chapter 11 plan of reorganiza-
tion or by selling the assets (dealt with
below). If the reorganization is approved
by the court, it is essentially a contract
that is approved by the court which
becomes binding on both the company
in bankruptcy and all of its creditors.
The plan of reorganization divides the
creditors into various classes, which
follow a certain order of priority. Secured
creditors are first, priority creditors are