Since Chapter 11 proposes the reorganization of the enterprise at liquidation, the filing of protection can offer an important vital artery to companies in difficulty that need financing. With regard to the financing of self-management (DIP), the Tribunal must approve the financing plan compatible with the protection granted to the company. The lender`s control of the loan is also subject to the approval and protection of the Tribunal. If the financing is approved, the entity has the liquidity it needs to stop operations. In the context of the Great Recession, two bankrupt American automakers, General Motors and Chrysler, benefited from self-financing (DIP). When a company is able to provide DIP financing, it notifies suppliers, suppliers and customers that the debtor will be able to remain in operation during its reorganization, provide services and make payments for goods and services. If, after reviewing its finances, the lender has found that the business is solvent, it is obvious that the market comes to the same conclusion. In 1999, creditors filed an involuntary claim against RTC in the Northern District of Illinois, pursuant to Chapter 7. Following the conversion of the case to Chapter 11 by the Bankruptcy Court, the court authorized RTC to obtain DIP financing from banco Panamericano (“BP”). The Financing Order provided that BP`s claims, pursuant to Section 364(c)(1) of the Bankruptcy Act, had priority and that the loans were secured “by rights of pledge and guarantees over the bulk of all RTC`s assets”. The loan agreement defined BP`s collateral so that it included “all the assets of the debtor . . .
including, but not limited. . Landfill rights and rental contracts for collection facilities. . . . and the debtor`s entire residual right to the underlying rental property. Funding for PIDs is often provided through fixed-term loans. These loans are fully financed throughout the insolvency proceedings, resulting in higher interest costs for the borrower.
Previously, revolving credit facilities were the most widely used method to allow a borrower to benefit from the loan and repay it if necessary; like a credit card. This allows for greater flexibility and, therefore, the possibility of keeping interest costs low, given that a borrower can actively manage the amount of the loan borrowed. Self-financing (DIP) is a particular mode of financing for bankrupt companies. .