Sometimes, a smaller company or a wealthy individual will find themselves in too much debt to handle, and when this happens, they may have to call upon the assistance of a bankruptcy court and use bankruptcy law to figure out a sensible and fair solution to this case with their creditors. In some cases, a company and its clients or creditors span multiple nations, and in this case, international arbitration may be necessary to make sure that everyone’s native laws and the laws of the country in which the debtor is based are followed, and that no fraud other dishonest behavior muddles the process. International arbitration may be more complicated than a domestic case, such as in the U.S., but when an international company or other enterprise finds itself needing arbitration when performing bankruptcy filings, international arbitration will have to step in to make sure that the proceedings are productive and fair for everyone involved. How can this be done? What is chapter 11 bankruptcy, for example?
Civil rights around bankruptcy may involve a particular brand of bankruptcy law: chapter 11 bankruptcy. In this case, about 90% of all chapter 11 debtors will have under $10 million in assets or liabilities, under $10 million in annual revenue, and under 50 employees. What is more, except for the ways in which parties modify them, class actions are handled by FedArb Arbitrators or Panels in the same way that they’re handled under FRCP 23, and this may include certification, notice, and settlement. After all, a company or a wealthy individual will declare bankruptcy only when they determine that they cannot pay off their debts to their creditors, and this necessitates mediation by the court to make sure that no one is taken advantage of and that every party behaves honestly, and in the case of international companies, international arbitration may be involved as well.
How does this process begin? Often, a chapter 11 debtor will begin the paperwork on their own, since they are looking for debt relief and can usually get it through the courts, though once in a while, one or more creditors will force the debtor to start this paperwork. Once the process has begun, the debtor will typically be considered DIP, or Debtor in Possession. This means that the debtor company will remain in possession and control of its assets and business functions as normal, provided that they do not commit fraud or other dishonest behavior (or DIP may be taken away by the court). The debtor, however, will face conditions to this, such as needing the court’s and the creditors’ permission to make financial moves like borrowing money, buying or selling items outside of what they normally buy and sell for business reasons, or hiring or using retained lawyers. Debtors that carry out these actions without permission may face trouble.
Another step to the process is a period of time in which the debtor is free to formulate and provide a reorganization plan, which will be a debt relief plan designed to help the debtor pay what they owe and streamline their business, and this may involve taking some drastic steps, all the way up to or including liquidating parts of the company or the entire enterprise. Usually, a plan offered by the debtor will be examined and then certified by the court, and it may take effect, but once in a while, a debtor’s plan will be rejected and the creditors will offer a competing plan. This is uncommon, however, and the debtor’s plan will typically be used, and the debtor, if they act in good faith, may even request and receive time extensions so that they can come up with their reorganization plan. In domestic cases, a bankruptcy case may take six months to two years to settle, but in the case of international arbitration, it is possible for the process to take even longer if need be, since multinational laws are being involved. In any case, the creditors may go as far as liquidate the debtor’s entire enterprise to get their payments, although in some cases, creditors may have to settle for getting only a partial amount of what they are owed, and getting the full amount may prove impossible no matter what is done.