Bankruptcy Basics: What to Expect When a Partner Goes Bust
By now, almost every institutional investor has been faced with a bankruptcy filing by a partner in a joint venture relationship. The most common scenario is a general partner or managing member that has experienced severe financial difficulties files for protection under Chapter 11 of the U.S. Bankruptcy Code. That filing will impact the operation of the venture, including the ability of the investor to implement rights and remedies, which were negotiated when the relationship was originally structured. This article provides an overview of what to expect if your general partner or managing member files for bankruptcy protection.
WHAT IS CHAPTER 11?
Chapter 11 refers to the chapter in the U.S. Bankruptcy Code that contains provisions for court-supervised reorganizations of businesses. A filing under Chapter 11 provides the debtor with protection from creditors while it reorganizes, and it allows the debtor to continue business operations in the “ordinary course” wh