Keeping Control of Your Business as a Debtor-in-Possession in Chapter 11 Bankruptcy
When you own a business in the Tampa Bay area and you are thinking about filing for Chapter 11 bankruptcy, you might be wondering whether and how you will be able to retain control of your business. As a website for the United States Courts explains, Chapter 11 bankruptcy cases are known as “reorganization” bankruptcies, which means that debtors develop a repayment plan rather than liquidating their assets in order to repay creditors. Given that Chapter 11 bankruptcies are different from liquidation bankruptcies, they often allow business owners to keep their shops or restaurants open despite the fact that they have filed for bankruptcy protection.
This information might help you to feel secure knowing that bankruptcy does not always mean that you will lose your business. At the same time, how will you obtain financing to move your business forward? Even though you still retain your business as a debtor-in-possession (DIP), how will you maintain control of your company while repaying creditors to whom you are in debt?
Understanding What it Means to Be a Debtor-in-Possession
First, to better understand how you can keep control of your business as a debtor-in-possession in Chapter 11 bankruptcy, you will need to understand some key bankruptcy terms. One of the most important terms to comprehend is the debtor-in-possession, often abbreviated as DIP. As an FAQ sheet from the United States Bankruptcy Court for the Middle District of Florida clarifies, the term debtor-in-possession refers to a debtor—typically a corporation, a partnership, or another type of business venture—that has filed for Chapter 11 bankruptcy. The term debtor-in-possession literally refers to the fact that the debtor retains the business during the bankruptcy process. If you have a small business with only one owner, the owner keeps control of the business. If it is a larger corporation, the executives and/or members of the board of directors will keep possession.
To be sure, Chapter 11 bankruptcy is much different than Chapter 7 bankruptcy. When a business in Tampa Bay files for Chapter 7 bankruptcy, that business must liquidate its assets in order to discharge business debts. However, a company that seeks Chapter 11 bankruptcy protection becomes a debtor-in-possession, meaning that, if you are an owner in that business, you keep control of the company while working through your repayment plan. As the FAQ sheet makes clear, a DIP in Tampa will present a repayment plan to the court, and once the court approves the plan, the debtor can begin making payments to creditors and can actually continue business operations.
Liquidity and Debtor-in-Possession Financing for Tampa Businesses
According to an article in the Tampa Bay Times, the Chapter 11 bankruptcy process allows businesses to “have sufficient liquidity” while also anticipating debtor-in-possession financing while working through a repayment plan. In other words, if you are a debtor-in-possession, you can still retain business financing to continue operations until your repayment plan is completed. The article in the Tampa Bay Times refers specifically to Sports Authority, a national chain with a location in Tampa that, although in the process of Chapter 11 bankruptcy, still anticipates enough liquidity and financing to keep stores open.
For a DIP, what should you know about liquidity and financing? In brief, a company can line up a lender for the business, even during a Chapter 11 process. Once the company has a lender, it will seek approval from the court for debtor-in-possession financing. While creditors can object to the DIP financing, it is ultimately the court’s decision. Once a business has been approved for a DIP loan, it will have the funding it needs to continue company operations.
Contact a Bankruptcy Attorney in Tampa Bay
If you have questions about filing for Chapter 11 bankruptcy in the Tampa area, or if you have concerns about keeping control of your business through the Chapter 11 process, and experienced bankruptcy lawyer in Tampa Bay can discuss your options with you today. Contact Tampa Law Advocates, P.A. to learn more about how we serve a wide variety of small businesses and corporations in the area.