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Key
Definitions in Bankruptcy
The U.S. Bankruptcy Code contains a number of key definitions that are
essential to maneuvering in pre-bankruptcy and post-bankruptcy business
relationships. Here are a
few.
“Claim” means either “the right to payment” or the
“right to an equitable remedy for breach of performance if such breach gives
rise to a right to payment.” Such
rights are deemed to constitute “claims” in bankruptcy whether or not they
are “reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, dispute, undisputed, legal, equitable, secured, or
unsecured.” 11 USC 101(5).
“Debtor” means the “person or municipality concerning which
a [bankruptcy] case” has been commenced.
11 USC 101(13). “Debtor-in-Possession” means the bankrupt company
after filing the petition, prior to the appointment of any trustee.
A debtor-in-possession has the rights and duties of a trustee and
conducts its business operations subject to judicial review.
“Executory Contract” is not defined in the statute.
Generally, it includes contracts (incuding leases) on which performance
remains due to some extent on both sides.
“Farmout Agreement” means “a written agreement in which the
owner of a right to drill, produce, or operate liquid or gaseous hydrocarbons on
property agrees or has agreed to transfer or assign all or a part of such right
to another entity; and such other entity…agrees to perform drilling,
reworking, recompleting, testing or similar or related operations, to develop or
produce liquid or gaseous hydrocarbons on the property.”
11 USC 101(21A). This
is the only type of outsourcing contract that is specifically protected under
the Bankruptcy Code. (Too bad you
didn’t lobby for protections for your own outsourcing contracts.)
“Insider” has a long definition.
11 USC 101(31). In general
an insider is one who has a sufficiently close relationship with the debtor that
his conduct is made subject to closer scrutiny than those dealing at arm’s
length with the debtor.
“Insolvent” means (for entities other than partnerships and
municipalities) “financial condition such that the sum of such entity’s
debts is greater than all of such entity’s property, at fair valuation,
exclusive of” property that is either exempt or has been fraudulently
transferred. 11 USC 101(32).
“Petition” means the bankruptcy petition filed concerning the
debtor.
“Trustee” means the person or corporation that is judicially
appointed to exercise the function of a trustee under the Bankruptcy Code.
The trustee is the representative of the debtor’s estate and has the
capacity to sue and be sued. 11 USC
323. The trustee may
prosecuted or appear and defend any any pending actions or proceedings by or
against the debtor, or commence or prosecute any action or proceeding on behalf
of the estate before any tribunal. B.R.
6009. The trustee may employ
professionals, such as attorneys, accountants, appraisers, auctioneers and other
professionals, to assist in carrying out his duties. The
Debtor-in-Possession exercises the rights of a trustee.
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