Chapter 11 and Its Alternatives for the Troubled Business Organization: Business and Estate Planning

By: E. Lee Morris
Presented at the University of Houston Law Foundation
2001

I. Introduction
Given the apparent slow-down in the economy, increasing energy costs and supply issues, and the instability in the stock market and corresponding illiquidity in the capital markets, business organizations (whether sole proprietorships, partnerships or corporations) are beginning to feel the pinch on operations and profitability. It is not anticipated that these factors will be changing in foreseeable future. Businesses which find themselves facing extreme financial pressure and no realistic means for ordinary resolution of its problems will be presented with multiple options, one of which is reorganization under Chapter 11 of the U.S. Bankruptcy Code, 11 U.S.C. § 101, et seq. (the “Bankruptcy Code”).

This paper is intended to provide the practicing business lawyer with a brief overview of the benefits and detriments of Chapter 11 bankruptcy relief and a brief description of the most significant alternatives available to the troubled business to enable the business lawyer to have a meaningful discussion with the business client who is considering extreme measures to resolve its financial distress.

II. Reorganization Under Chapter 11 of the Bankruptcy Code
Chapter 11 of the Bankruptcy Code provides the vehicle for a distressed business to effectuate a reorganization of the business enterprise within a controlled environment. While seeking relief under Chapter 11 enables the business to enjoy significant benefits not otherwise available outside of bankruptcy, it also has its detriments. Both the benefits and detriments must be understood and considered prior to recommending pursuit of a Chapter 11 reorganization.

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