Some biodiesel manufacturers have resorted to Chapter 11 of the U.S. Bankruptcy Code to attempt to reorganize their finances in order to stay in business and preserve value. 
 
 This article discusses some of the key events that happen once you've decided to seek Chapter 11 protection.
 
 The purpose of Chapter 11 is to keep the dogs at bay while you negotiate the resolution of your financial difficulties and stay in business. The Chapter 11 process may allow you to reject certain contracts and give you time to renegotiate others. Your bankruptcy lawyer will prepare and file the bankruptcy petition in the U.S. Bankruptcy Court in the district where your assets or your principal place of business is located. 
 
 Once the petition is filed, the automatic stay immediately kicks in. The automatic stay means that all of the creditors must immediately cease collection efforts, actions to obtain judgments and foreclosure activities pending the procedures of the court and the protective provisions of the bankruptcy laws. Creditors may obtain relief from the automatic stay in certain circumstances. If the court grants relief from stay, the creditor is permitted to foreclose on their collateral, sell the property and apply the proceeds to their debt. The court may grant creditors relief if there is a lack of adequate protection or if the debtor has no equity in the property, and the property is not necessary for the debtor to effectively reorganize. The creditor seeking relief must file a motion with the court requesting relief from the stay. A hearing is held if the biodiesel producer resists the motion. 
 

 Upon the filing or the bankruptcy petition, your company, the debtor, immediately becomes the debtor-in-possession of the assets of the bankruptcy estate. The assets in the bankruptcy estate are all of the debtor's assets wherever they are, including product that is in transit and the cash proceeds of sales still in the possession of the buyer or the marketing agent. These cash proceeds are typically known as cash collateral. It is collateral because virtually all biodiesel manufacturers have bank loans that grant security interests to those lenders in cash proceeds. Access to the cash collateral is often critical to a successful reorganization in order to make necessary payments to run your business. 
 
 To use cash collateral you will have to get the consent of the secured creditors or an order from the court. This process will run more smoothly if you can negotiate with the secured creditors for their agreement, but that is not absolutely necessary provided that the secured creditors have adequate protection of getting paid. These creditors will have adequate protection if they have enough security in other assets or if they are provided with additional protections. Obtaining permission to use cash collateral will require a detailed budget or plan for the use of the cash collateral in the event the creditor is secured in inventories and cash proceeds. This budget should dovetail to the greater plan of reorganization that you will have to propose to creditors and ultimately seek to have approved by the court. In addition to using cash collateral, your company may need additional operating capital to stay in business. Bankruptcy laws may allow you to give a lender a superpriority over other unsecured creditors in order to assist you in obtaining the capital you require.
 
 The purpose of Chapter 11 is to allow you to obtain a debt repayment plan funded primarily from future income. Operation of the automatic stay and the use of cash collateral are key to the success of that plan. Ultimately, the court will only confirm your plan to stay in business if your assumptions about your operations are likely to yield a glide path toward solvency given a fair and reasonable adjustment of your debts. 
 
 Bill Hanigan and Miranda Hughes are corporate financing and debt restructuring attorneys with BrownWinick, a Des Moines, Iowa-based law firm serving the renewable fuels industry. Reach Hanigan at <a href="mailto:hanigan@brownwinick.com">hanigan@brownwinick.com</a> or (515) 242-2473. Reach Hughes at <a href="mailto:hughes@brownwinick.com">hughes@brownwinick.com</a> or (515) 242-2477.

Using Chapter 11 to Stay In Business

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Upcoming Events

North American SAF Conference & Expo

2026 International Biomass Conference & Expo

Using Chapter 11 to Stay In Business