This post is part of a series of posts entitled First Considerations for the Financially Distressed Business. For a comprehensive list of articles contained in this series, click here.
In chapter 11 cases, the debtor typically continues to operate its business during the bankruptcy case. The debtor may enter into transactions that are in the “ordinary course” of its business without the approval of the bankruptcy court. For example, a retail debtor may continue to purchase and sell inventory in the ordinary course of is business. A debtor may also incur unsecured debt, such as unsecured trade debt, in the ordinary course of business without bankruptcy court approval. However, transactions that are not in the ordinary course of a debtor’s business, the incurrence of unsecured debt not in the ordinary course of business and the incurrence of secured debt not in the ordinary course of business all must be approved by the bankruptcy court. Any such transaction or debt that is not approved by the bankruptcy court may be set aside.
