According to BankruptcyData.com, 257 public companies with declared assets in excess of $258 billion filed chapter 11 petitions during 2001, exceeding the prior record of 176 filings in 2000. Included in the public filings in 2002 were Enron, Pacific Gas and Electric, and Finova Group, representing declared assets in excess of $100 billion. The increase in public filings continued into 2002 with filings by Worldcom, Global Crossings, Adelphia Communications, NTL, and K-Mart, with assets exceeding $185 billion. A large number of the filings in the twenty-first century are in the telecommunications and steel industries; however, companies in all of the major industries have filed chapter 11 petitions, including the retail and health care sectors.
Total bankruptcy filings for the year ending June 30, 2002 exceeded
1.5 million, mostly driven by consumer filings. During this time period only
2.5 percent of the filings were by business, as reflected in the statistics issued by the Administrative Office of the U. S. Courts. While the number of pub lic company filings has exceeded all prior records, the number of business filings of approximately 40,000 is significantly below the filings in the 1980s. Some bankruptcy experts expect the number of nonpublic filings to increase as the number of public filings reaches its peak.
The large number of filings indicates how chapter 11 is used by many companies experiencing problems created by operating inefficiencies and excess leverage. Chapter 11 gives some of these companies an opportunity to improve their internal operations and reduce their debt by transferring all or part of the ownership to the creditors. Unfortunately for others, such as Montgomery Ward, chapter 11 represents an orderly process for the business to liquidate its assets and distribute the cash to its creditors.
The objective of this book is to describe the bankruptcy process beginning with an identification of the cases of the financial difficulties and ending with the confirmation of the plan. Chapter 2 deals with the alternatives available—out-of-court, chapter 11—to reorganize, as well as the methods companies use to liquidate. This chapter also deals with selected actions that may be taken prior to filing to minimize the impact of the filing. Chapter 3 describes in greater detail the impact of a bankruptcy filing, including the information that must be included with the petition or submitted shortly after the filing. Included in this chapter is a discussion of how multiple entities may be consolidated, how the business operates after the filing, and the impact the automatic stay has on the ability of the debtor to operate its business. Chapter 4 includes a discussion of several issues related to the administration of the bankruptcy case, including dealing with creditors and their committee or committees, rejection of leases, and utility service. Included in Chapter 5 is a discussion of claims and how they are allowed in bankruptcy. Chapter 6 describes the various types of actions that may be taken in an attempt to increase the recovery of various classes of creditors, including recovery from preferential payments and fraudulent transfers. Chapter 7 describes how businesses are liquidated, and Chapter 8 focuses on the valuation of the company in bankruptcy. Chapters 9 and 10 describe the process of developing a chapter 11 plan, obtaining acceptance of the plan from creditors and receiving the confirmation of the plan by the bankruptcy judge. Chapter 11 covers the accounting and reporting issues associated with a chapter 11 reorganization, including the adoption of fresh-start reporting. The last chapter describes how professionals are retained and how they are compensated in bankruptcy cases.
The author gratefully acknowledges the contributions of Paul N. Shields, Neilson Elggren LLP, and James F. Hart, Taylor Consulting Group, to Chapter 8. As usual, it was a pleasure to work with Sheck Cho, Executive Editor at John Wiley & Sons, Inc., in the development of this book; and my thanks to Jennifer Gaines, Associate Managing Editor at John Wiley & Sons, Inc., for her assistance. Finally, I acknowledge the support and assistance received from my wife, Valda.
Comments from readers are welcomed.
GRANT W. NEWTON Medford, Oregon November, 2002
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256 pages. A step-by-step guide to liquidating and reorganizing–in court and out
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