Chapter 11: Reorganization

Chapter 11 is a complex form of bankruptcy and is generally filed to restructure their capital allocation to operate more efficiently and effectively, primarily by eliminating debts and contracts (such as office leases or union contracts) that they can no longer afford. Chapter 11 involves the reorganization of a debtor business affairs, assets and liabilities. The bankruptcy gives the debtor a fresh start, subject to the debtor’s fulfillment of its obligations under its plan of reorganization (a company must file a Plan of Reorganization for the Bankruptcy Court’s approval demonstrating it will be viable after exiting bankruptcy). Chapter 11 bankruptcy can also be used to liquidate some of the assets of a private company and pay the creditors from the proceeds of the sale (these are referred to as “Section 363 sales transactions; PrivCo tags M&A transactions resulting from a bankruptcy order as a Section 363 sale).