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Business Debtors Cannot Use Chapter 11 Bankruptcy To Gain Litigation Advantage

Posted By admin || 12-Oct-2010

Business Debtors Cannot Use Chapter 11 Bankruptcy To Gain Litigation Advantage

The Chapter 11 bankruptcy case of Antelope Technologies, Inc. was dismissed by District Judge Sim Lake because it was determined that the business debtor was attempting to use the bankruptcy filing as leverage in a shareholder derivative lawsuit and the debtor did not have an urgent need to file Chapter 11 bankruptcy.

Antelope had argued that it needed to file Chapter 11 bankruptcy because it was unable to attract the capital business investments needed to sustain their business.  In the proposed Chapter 11 bankruptcy plan the business debtor requested that the shareholder derivative lawsuit claims be dismissed.  The business debtor further argued that the shareholder derivative lawsuit should be dismissed because it was preventing the company from attracting the capital investment needed.  But the bankruptcy court noted that 3 months before the company filed Chapter 11 bankruptcy they were granted a secured loan of $395,000 which disputes their claim that they were not able to secure investors. Furthermore, the bankruptcy court said that their bankruptcy plan was proof that they were trying to use bankruptcy to gain leverage in the lawsuit because the plan called for the dismissal of the lawsuit claims.

The bankruptcy court subsequently dismissed the company's Chapter 11 bankruptcy filing because they said there was evidence that the bankruptcy was filed in a bad faith effort to gain leverage in the shareholder derivative lawsuit and that they had no clear need for bankruptcy.

Chapter 11 bankruptcy is only designed for companies that have a clear need for the breathing room bankruptcy gives them to reorganize their debts.  Failure to meet good faith and need "tests" will end in the dismissal of a company's bankruptcy filing.

Categories: Bankruptcy
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