What is “debtor’s equity litigation” in a Chapter 11 bankruptcy?

Debtor’s equity litigation is a type of dispute that occurs in Chapter 11 bankruptcy cases. In a Chapter 11 case, a debtor is a business organization that petitions for bankruptcy protection and is allowed to reorganize its financial affairs. During the reorganization, the debtor may need to litigate against its creditors, or the persons or entities to whom it owes money, to protect its assets. Debtor’s equity litigation involves the debtor fighting to keep its majority interest in the company. This type of litigation is necessary when creditors try to reduce or eliminate the debtor’s ownership of the company by using their legal leverage to take control of it. For example, the creditor may try to force the debtor to liquidate assets or sell off parts of the company. In New York, debtor’s equity litigation typically requires a court ruling that decides whether the debtor has the right to keep its majority interest in the company or not. If the court determines that the debtor has the right to keep its ownership, the debtor will be allowed to reorganize its financial affairs under the protection of the bankruptcy court. The court will also set out the terms of the reorganization plan, which must be approved by all parties involved. Failure to follow the terms of the reorganization plan can result in the debtor losing its majority interest and having to liquidate its assets.

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What is “debtor’s equity litigation” in a Chapter 11 bankruptcy?

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