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Glossary
- University of Michigan Press
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Glossary Absolute priority rule (APR)-Arises in a cramdown when, to achieve fairness and equity, unsecured classes must receive their claim in full, or if they receive less than that amount, creditors junior to them must receive nothing at all. In a cramdown, equity classes receive nothing. Administrative claim-Expenses associated with professionals hired to administer the bankruptcy case - including a trustee, an examiner, and attorneys or other professionals approved by the court - costs of preserving the estate, and some taxes. Section 507(a)(l) of the Code gives these claims first priority. Allowed claim - A court-approved claim, debt or equity, that must be satisfied in some way in the plan of reorganization. Automatic stay - A court order that takes effect coincident with the bankruptcy petition filing that prohibits collection actions by creditors. There are exceptions to the application of the order. It keeps one creditor from seizing an asset before other creditors are aware of the firm's financial difficulties. Balance of equities test - Invoked in bankruptcy cases in which the debtor seeks to invalidate a labor contract. The Bankruptcy Amendment Act of 1984 requires management to demonstrate that all parties in the case suffer proportionately and that pain is not disproportionately affecting workers. Bankruptcy - The acknowledgment of inability to pay one's creditors, resulting from a variety of causes, including financial. operational, legal, and strategic . It implies the state of being insolvent. Bankruptcy Code- The current federal law, Bankruptcy Reform Act of 1978, governing issues pertaining to bankruptcy, effective as of October 1, 1979, with amendments. Bankruptcy judges- Appointed by the president of the United States to fourteen-year terms, bankruptcy judges serve in one of ninety-four local federal districts. Each court has a chief judge and several associate justices. Officially the bankruptcy judge is a special assistant to the federal district court judge; in fact, in bankruptcy cases, the judge's authority is virtually absolute. Bankruptcy petition-A document filed with the bankruptcy court that initiates the processes and procedures spelled out in the Bankruptcy Code. It automatically initiates protection of debtors through the automatic stay. 383 384 Glossary Bankrupt estate- The assets of the debtor, which include off-balance-sheet items such as intellectual property and settlements from lawsuits, that are subject to the jurisdiction of the bankruptcy court. Bar date - The last date to file a proof of claim. Best-interest-of-creditors test - Also known as fairness in a plan of reorganization ; can be established by showing that every impaired class of claims receives no less than it would receive in a liquidation. Cash collateral- Liquid funds or monies soon to be received by the bankrupt firm that are subject to creditor liens. Chapter 7 liquidation - A trustee-supervised liquidation of a business or an individual . May be either voluntary or involuntary. Adheres to rules and guidelines promulgated in Chapter 7 of the Bankruptcy Code. Chapter 9 municipal bankruptcy - The reorganization of a municipality following rules and guidelines established in Chapter 9 of the Bankruptcy Code. Chapter 11 corporate reorganization - The reorganization of a business or an individual using procedures in Chapter 11 of the Bankruptcy Code. Old debts are discharged and a new capital structure is created following completion of the court-supervised reorganization. Chapter 12 family farm bankruptcies - Family farm bankruptcies conforming to rules in Chapter 12 of the Bankruptcy Code. Chapter 13 individual bankruptcies - Bankruptcies of persons limited to those with a regular income and secured debts of less than $350,000 and unsecured debts less than $100,000. Follows Chapter 13 in the Bankruptcy Code. Chapter 22 - A company that has filed Chapter 11 twice. Collection laws - Laws determining which creditors may seize the assets of a debtor. They generally permit a first-come, first-served allocation of assets to creditors. Confirmation - Bankruptcy court approval of a plan of reorganization. Requires both creditor and court approval. A confirmation hearing determines that claims are properly classified and that the plan is fair and feasible. Consensual plan - A plan supported by all the participants in the bankruptcy. Normally this includes the debtor, secured creditors, unsecured creditors, and the equity class. Consummation - Attests to the completion of all the commitments laid out in a plan of reorganization. See Effective date. Corporate renewal- The comprehensive classification for all activities directed at the improvement of a company's condition. The subclassifications are corporate transformation, turnaround management, and crisis management. Corporate transformation - The reassessment by a healthy company of its policies , procedures, and methods...