Debtor-in-possession financing
Debtor-in-possession financingorDIP financingis a special form offinancingprovided for companies infinancial distress,typically during restructuring under corporate bankruptcy law (such asChapter 11bankruptcyin the US orCCAAin Canada[1]). Usually, this debt is considered senior to all otherdebt,equity,and any othersecuritiesissued by a company[2]— violating anyabsolute priority ruleby placing the new financing ahead of a company's existing debts for payment.[3]
DIP financing may be used to keep a business operating until it can be sold as agoing concern,[4]if this is likely to provide a greater return to creditors than the firm's closure and aliquidationof assets. It may also give a troubled company a new start, albeit under strict conditions. In this case, "debtor in possession" financing refers to debt incurred while in bankruptcy, and "exit financing" is debt incurred upon emerging from reorganisation under bankruptcy law.[5]
Examples[edit]
Two notable examples are the government financing ofChrysler[6]andGeneral Motors[7]during their respective 2009 bankruptcies.
American law vs. French law[edit]
The willingness of governments to allow lenders to place debtor-in-possession financing claims ahead of an insolvent company's existing debt varies; US bankruptcy law expressly allows this[8]while French law had long treated the practice assoutien abusif,requiring employees and state interests be paid first even if the end result was liquidation instead of corporate restructuring.[9]
See also[edit]
References[edit]
- ^Lyndon Maither, B.C. (2013).The Canada Income Tax Act: Enforcement, Collection, Prosecution, 4th Ed.Lyndon Maither. p. 319.ISBN9781300772286.
- ^Stuhl, S.A.; Vault (Firm) (2003).Vault Guide to Bankruptcy Law Careers.Vault Incorporated. p. 147.ISBN9781581312577.
- ^Liu, L. (2008).Subnational Insolvency: Cross-Country Experiences and Lessons.World Bank. p. 20.
- ^Lyndon Maither, B.C.The Canada Income Tax Act: Enforcement, Collection, Prosecution, 6th Edition.
- ^Hecker, J.E.Z. (2006).Commercial Aviation: Bankruptcy and Pension Problems Are Symptoms of Underlying Structural Issues.DIANE Publishing Company. p. 10.ISBN9781422304327.
- ^Engel, G.T. (2010).Financial Audit: Office of Financial Stability (Troubled Asset Relief Program) Fiscal Year 2009 Financial Statements.DIANE Publishing Company. p. 61.ISBN9781437926811.
- ^Barofsky, N. (2011).Troubled Asset Relief Program (SIGTARP): Quarterly Report to Congress by the Office of the Special Inspector General (SIGTARP)(October 26, 2010).DIANE Publishing Company. p. 145.ISBN9781437942019.
- ^Warren, E. (2010).Use of TARP Funds in the Support and Reorganization of the Domestic Automotive Industry.DIANE Publishing Company. p. 44.ISBN9781437923698.
- ^Pomerleano, M.; Shaw, W.; Bank, W. (2005).Corporate Restructuring: Lessons from Experience.World Bank. p. 130.ISBN9780821359280.
External links[edit]
- Calpine closes $5 billion DIP financing
- Bankruptcy basics - Operating capital
- 11 USC 364 - Obtaining credit
- Federal Rules of Bankruptcy Procedure - Rule 4001c: Obtaining Credit
