Debtor in Possession
What does "Debtor in Possession" mean in law?
A debtor in possession (DIP) is a debtor who retains control and management of its property and business operations after filing a Chapter 11 bankruptcy petition, exercising many of the same powers and duties as a bankruptcy trustee under 11 U.S.C. sections 1107 and 1108. The DIP owes fiduciary duties to all creditors and the estate, must operate the business prudently, and may use, sell, or lease property of the estate in the ordinary course of business without court approval. For transactions outside the ordinary course, the DIP must obtain court authorization after notice and a hearing. A court may appoint a Chapter 11 trustee to replace the DIP under section 1104 for cause, including fraud, dishonesty, incompetence, or gross mismanagement.
Definition
A debtor in possession (DIP) is a debtor who retains control and management of its property and business operations after filing a Chapter 11 bankruptcy petition, exercising many of the same powers and duties as a bankruptcy trustee under 11 U.S.C. sections 1107 and 1108. The DIP owes fiduciary duties to all creditors and the estate, must operate the business prudently, and may use, sell, or lease property of the estate in the ordinary course of business without court approval. For transactions outside the ordinary course, the DIP must obtain court authorization after notice and a hearing. A court may appoint a Chapter 11 trustee to replace the DIP under section 1104 for cause, including fraud, dishonesty, incompetence, or gross mismanagement.
Example
After filing Chapter 11, the restaurant chain continued operating all 200 locations as a debtor in possession, negotiating lease modifications with landlords while the CEO remained in charge subject to court oversight.