During a Chapter 11 proceeding, the company financially and in some cases operationally, reorganizes so that it can meet the financial claims of those to whom it owes money. A Chapter 11 filing immediately freezes all financial claims against the company that precede the filing, and also stops all lawsuits against the company.

Chapter 11 Bankruptcy Protection is entirely different from other kinds of bankruptcy proceedings where the focus is on liquidating the company. Companies commonly file for Chapter 11 voluntarily because it provides a process for the company to emerge as a viable business with its operations intact.

Under a Chapter 11 proceeding, the company maintains its normal business operations and continues to provide employees with salaries and benefits. It is also able to do business with suppliers and customers in a routine manner so that it can continue to generate funds to support ongoing operations and to satisfy creditors.

After the company files Chapter 11, a government agency, the U.S. Trustee, appoints an Official Creditors Committee. The Creditors Committee typically includes anywhere from 5 to 11 of the company's largest unsecured creditors. Normally these committees become involved in the court-supervised process to ensure that creditors are fairly dealt with. A joint meeting of company representatives and people who believe that the company owes them money typically occurs approximately 30-45 days after a Chapter 11 filing.

Another step in the Chapter 11 process is providing notice to anyone who believes they are owed money, that is, people who have a financial claim against the company. Notice procedures, which normally include advertising, are established and notice is given to people with claims alerting them that their claims must be brought forward by a certain date that is referred to as the "bar date". This notice period may last from 3-4 months.

Meanwhile, the company, as the debtor, will propose a reorganization or recapitalization plan once operations have stabilized and performance has been established. In National Energy & Gas Transmission's (formerly PG&E National Energy Group) case and in agreement in principle of major creditors as to its key terms the company filed a Plan of Reorganization. The company has the exclusive right by law to propose such a plan during the first 120 days of the Chapter 11 process.

If the company is proceeding in good faith, the exclusive period may be, and usually is, extended by the Bankruptcy Court. After the court has gathered all of the claims that resulted from the notice being given, estimation hearings are held to estimate the value of any claims that are disputed. Once the total value is estimated, the company can determine if its financial reorganization is feasible.

Next, a disclosure statement with complete financial information explaining the company's proposed plan for paying its creditors is presented to the Bankruptcy Court. The Court must determine if the statement contains adequate information for the creditors to consider whether to accept or reject the plan of reorganization.

If the disclosure statement is approved by the bankruptcy court, the company will then send the statement, along with the proposed Plan of Reorganization and a ballot, to all creditors and interest holders in the company entitled to vote on the plan. Creditors can then vote on the financial reorganization plan.

If the company's reorganization plan is confirmed by the court, the creditor claims will be satisfied as provided for in the financial reorganization plan. At this point, the company can emerge from Chapter 11 and operate its business as described in its financial reorganization plan.

• Bankruptcy Court – www.mdb.uscourts.gov
  
  
• Plan of Reorganization
  
  
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