regulatory or electoral approval necessary
to carry out the plan has been obtained. 15
A Powerful Tool
Chapter 9 is a powerful tool and, in
the right circumstances, is useful in
providing municipalities the breathing
spell and control necessary to focus on
improving their finances and operations
while, most importantly, providing
essential services to their residents.
Given the rise in the number of troubled
municipalities across the country,
turnaround professionals would be wise
to retool their practices and obtain at
least a basic understanding of Chapter 9.
Fortunately, while Chapter 9 raises
a host of new and complex issues,
seasoned turnaround professionals
with experience in dealing with
Chapter 11 should have no trouble
understanding many of its key concepts.
1 11 U.S.C. § 101( 40).
2 11 U.S.C. § 109(c)( 2).
3 CBO Economic and Budget Issue
Brief, “Fiscal Stress Faced by Local
Governments” (December 2010).
4 11 U.S.C. § 109(c)( 1)-( 5).
5 11 U.S.C. § 903.
6 11 U.S.C. § 904.
7 However, DIP financing Sections 364(c)-364(f)
are available in a Chapter 9. While a Chapter 9
debtor has yet to avail itself of DIP financing, as
of the date of this article the City of Detroit had
announced that it was requesting proposals for a
$350 million DIP facility. See Bernie Woodall and
Tom Hals, “Detroit Seeks $350 Million Ground-
Brendan Best (top photo) is a partner at Schafer and
Weiner PLLC, a business restructuring boutique
law firm located in Bloomfield Hills, Michigan,
and Paul R. Hage is a partner in the Insolvency &
Reorganization Practice Group at Jaffe Raitt Heuer &
Weiss, P.C. in Southfield, Michigan. Best represents
debtors, secured creditors, creditor committees, and
other parties in interest in complex workouts and
restructurings across a wide variety of industries,
including automotive, health care, and real estate.
Hage represents the full range of debtor and
creditor parties in bankruptcy and other insolvency
proceedings nationwide. He currently serves as
president of the TMA Detroit/Grand Rapids Chapter.
Best can be reached at firstname.lastname@example.org,
and Hage can be reached at email@example.com.
Breaking Loan,” Reuters.com, August 29, 2013.
8 In re City of Stockton, California, 484 B.R. 372
(Bankr. E.D. Cal. 2012) (Section 922(a) stay
prohibited litigation against the city manager
and others for wrongful termination).
9 11 U.S.C. § 922(b).
10 11 U.S.C. § 922(d).
11 In re City of Vallejo, 403 B. R. 72, 78 9Bankr.
E.D. Cal. 2009); In re County of Orange,
179 B.R. 177, 181 (Bankr. C.D. Cal. 1995).
12 NLRB v. Bildisco & Bildisco, 465 U. S. 513 (1984).
13 11 U.S.C. § 941.
14 Unlike Chapter 11, the “best interest of
creditors” test does not compare the plan to
a liquidation analysis (since a municipality
cannot be liquidated); rather, the “best interests”
requirement of Section 943(b)( 7) is generally
regarded as requiring that a proposed plan
provide “a better alternative for creditors
than what they already have,” which in most
cases should be an easy fact for the debtor
to establish. See In re Mount Carbon Metro.
Dist., 242 B. R. 18, 34 (Bankr. D. Colo. 1999).
15 11 U.S.C. § 943(b).
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