Chapter 11 Bankruptcy Survivors – Donald Trump – 50 Cent

What is Chapter 11?

Chapter 11 is a form of bankruptcy that involves a reorganization of a debtor’s business affairs, debts, and assets. Named after the U.S. bankruptcy code 11, corporations generally file Chapter 11 if they require time to restructure their debts. This version of bankruptcy gives the debtor a fresh start. However, the terms are subject to the debtor’s fulfillment of his obligations under the plan of reorganization.

Chapter 11 bankruptcy is the most complex of all bankruptcy cases. It is also usually the most expensive form of a bankruptcy proceeding. For these reasons, a company must consider Chapter 11 reorganization only after careful analysis and exploration of all other possible alternatives.

How Chapter 11 Helps Companies

During a Chapter 11 proceeding, the court will help a business restructure its debts and obligations. In most cases, the firm remains open and operating. Many large U.S. companies file for Chapter 11 bankruptcy and stay afloat. Such businesses include automobile giant General Motors, the airline United Airlines, retail outlet K-mart, and thousands of other corporations of all sizes.

Corporations, partnerships and limited liability companies (LLCs) usually file Chapter 11, but in rare cases, individuals with a lot of debt, who do not qualify for Chapter 7 or 13, may be eligible for Chapter 11. However, the process is not a speedy one.

Business Operations During Bankruptcy Cases

A business in the midst of filing Chapter 11 may continue to operate. In most cases, the debtor, called a debtor in possession, runs the business as usual. However, in cases involving fraud, dishonesty or gross incompetence, a court-appointed trustee steps in to run the company throughout the entire bankruptcy proceedings. The business is not able to make some decisions without the permission of the courts. These include the sale of assets, other than inventory, starting or terminating a rental agreement, and stopping or expanding business operations. The court also has control over decisions related to retaining and paying attorneys and entering contracts with vendors and unions. Finally, the debtor cannot arrange a loan that will commence after the bankruptcy is complete.

Reorganization Plans During Chapter 11

In Chapter 11 bankruptcy, the individual or business filing bankruptcy has the first chance to propose a reorganization plan. These plans may include downsizing of business operations to reduce expenses, as well as renegotiating of debts. In some cases, plans involve liquidating all assets to repay creditors. If the chosen path is feasible and fair, the courts accept it, and the process moves forward. The plan must also be in the best interest of the creditors. If the debtor does not suggest a program, the creditors may propose one instead.

Real World Example

In January 2019, Gymboree Group Inc, a popular children’s clothing store, announced that it had filed for Chapter 11, and was closing all of its Gymboree, Gymboree Outlet and Crazy 8 stores in Canada and the United States. According a press release by Gymboree, the company stated it received a commitment for a debtor in possession in the form of financing ($30 million in new money loans) provided by SSIG and Goldman Sachs Specialty Lending Holdings, Inc. and a “roll up” of all of Gymboree’s obligations under the “prepetition Term Loan Credit Agreement.”

The company stated that if the court approved of this financing plan, the funds would support the company during the Chapter 11 process. CEO Shaz Kahng stated that the company is “continuing to pursue a going-concern sale of its Janie and Jack® business and a sale of the intellectual property and online platform for Gymboree®.” This is the second time in two years that the Gymboree Group Inc. has filed for bankruptcy. The first time occurred in 2017, but at that time, the company was able to successfully reorganize and significantly lower its debts.

Top Personalities who used Chapter 11 Wisely 🙂

U.S. President Donald Trump walks to speak to members of the media before boarding Marine One on the South Lawn of the White House in Washington, D.C., U.S., on Thursday, Dec. 21, 2017. Trump is traveling to Walter Reed National Military Medical Center in Bethesda, Maryland to visit members of the military. Photographer: Andrew Harrer/Bloomberg via Getty Images

President Donald Trump flaunted his business experience as one reason why he was the right choice for commander in chief. But some business failures and bankruptcies had some questioning his financial acumen.

Although Trump has never personally declared bankruptcy, his companies have gone bankrupt six times, according to Politifact. The first occurrence was in 1991 when his Trump Taj Mahal casino in Atlantic City went bust. Several others of his casinos and hotels went bankrupt in 1992. Two other casino and resort bankruptcies happened in 2004 and 2009.

The last bankruptcy made Trump step down as chairman of Trump Entertainment Resorts and reduced his share in the business to 10%. Challenges in the casino industry were responsible for at least some of those business failures, rather than business missteps by Trump, Politifact concluded.

For what it’s worth, Trump sees declaring Chapter 11 bankruptcies as a strategic business decision.

Trump said he wasn’t personally bankrupt, but the company was.

He also said he had used the laws of the country to his advantage, the way many other top businesses would have done.

In May 2015, Forbes named 50 Cent one of the five wealthiest hip-hop artists, he had a net worth at $155 million. But due to bad investments and a big lawsuit — he was ordered to pay $5 million to a woman who says he posted a sex tape of her online — the rapper’s fortune was in jeopardy.

50 Cent,  who once promised to “get rich or die tryin’” filed for Chapter 11 protection in a Connecticut court, which allowed him to reorganize his finances while developing a plan to repay his creditors.

At the time, his debt was estimated to be around $10 million and $50 million and his assets in roughly the same range. In July 2016, he emerged from bankruptcy and had a plan to repay more than $23 million in debt over the next five years.

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