Question

Oil and Gas Drillers Diamond Offshore filed for bankruptcy under chapter 11 due to cover-19. How can chapter 11 protect them to overcome from this financial crisis?

Answer 1

Chapter 11 bankruptcy refers to the restructuring or reorganizing of a firm's debts.Due to covid 19 many firms are facing a fall in demand due to lock downs.A chapter 11 bankruptcy gives a firm time to reorganize it's debts in a way it gives the firm breathing space.The chapter 11 bankruptcy filing results in a stay on all the actions that a creditor might resort to.these include foreclosures lawsuits repossessions etc.This in turn allows the firm's management to negotiate with the creditors.In addition the chapter 11 bankruptcy entitles the debtor to a right to propose a plan for reorganization within 120 days of filing.When a firm files for chapter 11 bankruptcy the firm it will have a hearing scheduled by the bankruptcy court. in light of recent financial crisis due to covid 19 this can now be done over the telephone.During the hearing process firms often seek relief in order to ensure the continued operations of the firm and minimize the impact on the vendors customers and employees .As a part of the first day relief the bankruptcy court often arranges emergency funding.this is mainly done by a debtor in possession financing.This would help the firm overcome the liquidity issue it's been faced with. A firm that files for chapter 11 bankruptcy can sell it's assets free and clear of liens encumbrances claims and other liabilities.this would incentivize potential buyers to make use of the opportunity.When a firm files for chapter 11 bankruptcy it gives the various stake holders of the firm to come together and negotiate collectively to resolve the crisis.This will add a measure of certainty and fairness to the reorganization process.Another benefit that chapter 11 bankruptcy brings to the table is the right for the firm to reject agreements,and thereby relieving them from performance obligations which may no longer be commercially attractive.It also allows them to take on contracts that would help with their outstanding debt obligations.The aforementioned features of chapter 11 bankruptcy helps the firm overcome the financial crisis its faced with.