Chapter 11 Debtor in Possession
By Kurt O'Keefe, Attorney at Law on Jan 4, 2009 in Chapter 11 Bankruptcy
In a Chapter 11 bankruptcy case, the debtor, the person or company that files the case, is a debtor in possession.
The debtor in possession, or D.I.P, has the power to keep running the business. It also imposes duties and powers on the debtor.
The United States Trustee’s office has guidelines for the duties of a debtor in possession.
Once a Chapter 11 case is filed, the debtor becomes the debtor in possession, and has the obligations and powers of a trustee.
As the trustee, the debtor has the duty to operate the business in the best interest of the creditors, preserving the assets, making sure there is insurance.
The debtor in possession has the right to do anything necessary in the ordinary course of business, but must obtain court approval for actions outside the ordinary course of business.
If the business is a car dealership, selling cars is in the ordinary course of its business.
If the business is a farm, selling cars or other vehicles or equipment is not in the ordinary course of business, and court approval would be required to sell such things.
The debtor in possession must maintain accurate, complete financial records of the business. Tax returns must be timely filed.
New bank accounts must be opened, usually stating debtor in possession on the account. Duplicate original statements must be sent to the U. S. Trustee so it can monitor the status of the Chapter 11 case.
If the debtor is losing money, the U. S. Trustee will know, and be able to question the debtor and/or file a motion to dismiss or convert the case.
For cause, the court can terminate the debtor in possession and appoint a trustee. This usually only happens in cases in which assets are, or before filing, were, mysteriously disappearing and/or the debtor in possession is not complying with all the court orders.
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