Discussion Question 1: Chapter 11 Creditors

Chapter 11 bankruptcy allows the struggling company to stay in business while reorganizing its debts. However, negotiating with creditors remains key to the success of a Chapter 11 because the debtor usually needs to retain assets and inventory to stay in business; many times, one or more creditors has a security interest in the assets.

ABC Corporation borrowed $2 million from Marry Bank and gave the bank a perfected security interest in its present and after-acquired inventory. Later ABC filed a Chapter 11 bankruptcy petition. ABC has only $1.5 million of inventory.

Based on the given information, examine the options Marry Bank has. Support your answer with reason and examples.

Discussion Question 2: Protecting Assets in the Chapter 11 Case

Like we saw in question one, debtors often need to retain assets to stay in business through the Chapter 11 process. Obviously, it is in the best interests of the business debtor to retain assets necessary to its operation; what benefits does the creditor receive for allowing the debtor to retain its secured assets?

ABC Corporation has a $1 million machine used for manufacturing widgets. ABC has filed for bankruptcy, and Maximum Machines wants either the value of the machine or the machine returned. Returning the machine will result in ABC having to close its facilities.

Based on the above information, answer the following questions:

• What can be done to prevent Maximum Machines from taking back its machine?
• How does this protect the creditor as well as the debtor? Support your answers with reason and examples.
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