WellI am not an accountant butI have had direct experience of the infamous Ch11
The first thing to remember is that it is NOT Bankruptcy as we know it in UK-its closer to but not the same as adminsitration
It is a 'filing for protection from creditors under Chapter 11 of the US Bankruptcy code'
It is an interim step allowing you to freeze claims against you while you get your house in order-in other words creditors cannot enforce their normal legal rights and youget to hold onto cash that otherwisewas out the door.
While it is mis-used the intent is good but the price is high. For a start the management loses control of the company to a creditors committee who oversee and approve everything-they are usually the nastier sort of bankers -the financial worlds equivalent of an organsied crime 'enforcer'.
While a company is in Ch 11 it must decide which of its contracts it will honour and which it will reject on emergence from bankruptcy so it can walk away from a long term contract thatwas hurting it. The Bankruptcy Court who supervise everything over and above the creditors committee impose timelines for a filing of a plan of reorgansiation which is essentially a new busine s plan for the going forward period.
During this time you try and come to agreement with creditors and decide which contracts you hold will be rejected (you can only reject US law contracts not foreign law ones)
For a big company this process takes time as the plan must be acceptable to the creditors and the court and usually involves slashing costs and staff and agreeing to settle certain debts for x cents on the dollar.
It may seem an easy get out of jail card but it isnt-its long painful and agonising process especially for staff and day today management.
Ch11 has ben used extensively in the US airline and more lately Telecoms industries -if a company has a reasonable business with prospects of making money day today after restructuring you can usually agree a plan with the concerned parties. If not then its Chapetr 7 and that is the end of the road or taxiway in this case
Both these companies have lots of assets aircraft-slots offices etc and can be effectively restructured but expect that process and the time in Ch11 to be around a year or even more
Theres lots more to it but I hope that gives a laymans explanation.Ive no doubt a financial proessional could pick me up on details In a nutshell its a process to preserve and protect assets and cash remaining in a troubled company, to allow it to restructure and save some value for stockholders (it will be bond holders cos the common shares are seldom worth anything) and preserve some, hopefully the majority of jobs
PB