A DIP is a company that continues to operate under Chapter 11. In this circumstance, the company submits a reorganization plan. It is permitted to manage in this manner without bankruptcy trustee oversight. Typically, its plan for reorganization includes proposed refinancings.
When an entity files for bankruptcy, it is essentially requesting protection from its creditors through the court system. The rights of a DIP granted bankruptcy protection and the rights of creditors interacting with a DIP can vary between jurisdictions. In these situations, parties are commonly referred to specialized legal counsel.
It is feasible for a DIP not only to continue operating assets subject to claim by creditors, but also to frequently acquire them from creditors at their estimated fair market value. This is especially true when the debtor can demonstrate that the asset is required for employment and repayment of creditors.
Over many years, bankruptcy law has evolved to protect debtors from undue creditor pressure. It dates back several centuries to the early merchants of Florence in the 1400s. In that era, insolvent debtors had few, if any, legal protections. Creditors held all the aces; delinquent creditors routinely petitioned the courts to grant them possession of the bankrupt's remaining assets and to have the individual incarcerated. Debtors were given no opportunity to recover from their hardship.
Since then, society and the legal system have adopted progressively more lenient attitudes toward insolvent debtors. Bankruptcy is now regarded as an inevitable consequence of contemporary business existence. Some bankruptcies are inevitable as a result of commercial risk, typically due to environmental circumstances rather than personal shortcomings. To encourage risk-taking, the law has established a framework to safeguard insolvent debtors.
Today, the majority of national legal systems acknowledge that business risk is an inherent element of doing business. Not everything goes according to plan. The law recognizes that in some instances, debtors will not be able to completely honor their obligations to creditors. The law has developed protections not only for creditors, but also to enable debtors the opportunity to recover as much as possible from their hardship.""
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