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California Gas Plant Files for Bankruptcy Protection

business-bankruptcy.jpgAccording to reporting from Business Insider, La Paloma Generating Co LLC, a California power producer, has filed for Chapter 11 bankruptcy protection. A representative from the company told reporters that the current market conditions and regulatory environment made it impossible for the natural gas plant to operate with its current debt load. The company has at least $524 million worth of outstanding debts. As such, the McKittrick based power plant will now enter Chapter 11 bankruptcy proceedings with the goal of shedding some of its burdensome financial obligations so that it can come out of bankruptcy on a more stable financial footing.

The Makings of a Successful Chapter 11 Restructuring Plan

To get through the Chapter 11 bankruptcy process successfully, La Paloma, like any other company in a similar situation, will need to craft a viable reorganization plan. Additionally, this plan must be approved by the bankruptcy court. There are two basic ways for filing businesses to get a restructuring plan approved:

  • Voluntary creditor approval: A reorganization plan can be confirmed voluntarily by the company's creditors. In Chapter 11 bankruptcy proceedings, all of the creditors are broken down into classes. These classes are determined based on the characteristics of each party's claim. So, creditors with substantially similar claims to the company's assets will be in the same class. Each class of creditors gets to vote on the proposed reorganization plan. To move forward in the Chapter 11 process, the plan will need to be approved by all of the different class of creditors. If one class dissents, the plan will not be confirmed.
  • Court-mandated approval: There is also an alternative way to get a restructuring plan approved. This involves a bankruptcy court forcing the approval of the plan over the objections of creditors. This is known as a 'cramdown'. Bankruptcy courts will only force a cramdown of a restructuring plan if the plan is determined to be fair and equitable to each of the different classes of creditors.

For filing companies, getting a Chapter 11 reorganization plan approved is not by itself good enough. When going through the bankruptcy process, companies must be sure that their plan will actually put their firm back onto a sustainable financial path. Creditors can be highly aggressive and they will often try to force a company into a bad plan. If your business is going through restructuring, you need to be sure that you plan allows for enough financial space for your business to get back to successful. Otherwise, your business may soon end up back in the bankruptcy process.

Do You Need Business Bankruptcy Assistance?

Our experienced San Jose business bankruptcy attorneys can help. Let us use our skills and experienced to protect the legal rights and financial interests of your company. Please do not hesitate to contact our office today to request your free initial consultation. At Diemer, Whitman & Cardosi, LLP, we serve companies throughout the region, including in San Jose, San Francisco, Mountain View and Oakland.

Sources:

http://www.investopedia.com/terms/c/cramdown.asp

http://www.businessinsider.com/r-california-gas-power-plant-la-paloma-files-for-bankruptcy-2016-12

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