Operating after a Chapter 11 filing: what management needs to change

The business may continue, but authority has a framework

Chapter 11 does not necessarily mean that a business closes its doors. Section 1108 authorizes operation of the debtor's business unless the court orders otherwise. Section 1107 gives a debtor in possession many of a Chapter 11 trustee's rights and duties, subject to statutory exceptions and court-imposed limitations.

The useful operational question is therefore not simply whether the company may trade. It is who may authorize each transaction, what restrictions apply, and how compliance will be recorded. Existing management should obtain a clear account of the orders governing its particular case.

Separate ordinary operations from exceptional decisions

Section 363 distinguishes ordinary-course transactions from transactions outside the ordinary course and imposes separate restrictions on cash collateral. A familiar supplier payment may still involve restricted cash. Conversely, an unusual asset disposal may need attention even when it involves no new borrowing.

Create a short approval matrix with counsel and the finance team. It can identify routine purchases, new debt, material contract changes, transfers involving affiliates, and proposed asset sales. The matrix should point to actual legal authority and decision makers rather than invent a generic monetary safe harbor.

Keep a reliable record of the new period

A filing creates a natural boundary for account reconciliations and supporting records. Preserve prepetition balances and track later activity clearly. Employees who handle purchasing, customer credit, and bank payments need practical instructions about escalation and recordkeeping.

For an illustrative service firm, the most urgent change might be routing proposed refunds and contract amendments through a designated reviewer. The purpose is to catch a legal question before the company makes a commitment it cannot carry out. Business continuity depends on disciplined information flow as well as available cash.

Management’s first operating questions

• Which court orders limit spending, borrowing, or asset transfers?
• Who approves exceptions and documents the authority relied on?
• How are prepetition and postpetition transactions distinguished?
• Who updates staff when an interim order is replaced or amended?