Debtor in possession

Debtor in Possession

A Debtor in Possession (DIP) is a term used in bankruptcy proceedings, particularly under Chapter 11 of the United States Bankruptcy Code. When a business files for Chapter 11 bankruptcy, it typically continues to operate its business as a debtor in possession. This means that the debtor retains possession and control of its assets while undergoing a reorganization under the supervision of the bankruptcy court.

Role and Responsibilities

The debtor in possession has many of the same duties and responsibilities as a trustee in bankruptcy. These include:

• Accounting for property
• Examining and objecting to claims
• Filing informational reports as required by the court
• Operating the business in a manner that preserves the value of the estate

The DIP also has the authority to employ professionals such as attorneys, accountants, and appraisers to assist in the reorganization process, subject to court approval.

Advantages

One of the primary advantages of being a debtor in possession is that the existing management retains control of the business operations. This can be crucial for the continuity of the business and can help in maintaining relationships with customers, suppliers, and employees. Additionally, the DIP can obtain debtor-in-possession financing, which is a special kind of financing provided for companies in financial distress.

Debtor-in-Possession Financing

Debtor-in-possession financing, or DIP financing, is a special form of financing provided to companies under Chapter 11 bankruptcy. This financing is unique because it usually has priority over existing debt, equity, and other claims. DIP financing is intended to help the company continue operations during the bankruptcy process and to help it emerge from bankruptcy in a stronger financial position.

Termination

The status of debtor in possession can be terminated if the court appoints a trustee to take over the operations of the business. This can happen if there is evidence of fraud, dishonesty, incompetence, or gross mismanagement by the current management.

Related Concepts

• Automatic stay
• Bankruptcy trustee
• Chapter 7 bankruptcy
• Chapter 13 bankruptcy
• Creditors' committee
• Reorganization plan

See Also

• Bankruptcy
• Chapter 11, Title 11, United States Code
• Trustee in bankruptcy
• Debtor-in-possession financing
• Automatic stay