Good Faith and Financial Distress: Can a Solvent Debtor Have a Valid Reorganizational Purpose?
In the 45 years since the enactment of the Bankruptcy Code, the Chapter 11 process has been successfully used by companies to address and resolve mass tort liabilities. However, what were once considered legitimate uses of Chapter 11 may now be rejected by bankruptcy courts as bad faith filings.
September 11, 2023 at 10:00 AM
8 minute read
Bankruptcy
Historically, Chapter 11 has been used by companies to restructure debtor-creditor relationships of all shapes and sizes. The Bankruptcy Code provides companies with useful tools to achieve such restructuring objectives including the power to shed burdensome contracts and leases, sell valuable contracts and leases, sell company assets free and clear of liens, claims, encumbrances and other interests, restructure debt (consensually or through the Code's "cram-down" provisions), renegotiate or reject labor contracts, resolve multi-district litigations through global plan settlements, and implement broad liability releases in favor of officers, directors and other parties in interest.
Additionally, in the 45 years since the enactment of the Bankruptcy Code, the Chapter 11 process has been successfully used by companies to address and resolve mass tort liabilities (e.g, Dow Corning, Johns-Manville, Texaco). What were once considered legitimate uses of Chapter 11 may now be rejected by bankruptcy courts as bad faith filings.
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