An individual, partnership or corporation that has filed a petition for reorganization pursuant to Chapter 11 is permitted to continue its business as a “debtor-in-possession” unless the court orders otherwise. 11 U.S.C. Sections 1107–1108.
A debtor-in-possession acts in a fiduciary as well as managerial role. The debtor-inpossession is authorized only to carry out those functions that are in the “ordinary course of business.” If a proposed transaction (e.g., sale of property) falls outside the ordinary course of business, prior court authorization is required. If you have any doubts regarding whether or not a particular transaction is outside the ordinary course of the debtor’s business, you should consult with us. A debtor-in-possession must do nothing to diminish the value of the estate. Donations, new mortgages, new security interests, large transactions, or salary increases or bonuses, for example, would be subject to close scrutiny by the court and creditors, and should not be done without prior court approval. Preservation and maintenance of assets is critical. Good relations with creditors and creditors’ committee, if one is appointed, are also essential. The following is a list of guidelines that Debtor in Possession should adhere to in carrying out its duties as debtor-in-possession: