Debtor-in-possession financing or DIP financing is a special form of financing provided for companies in financial distress, typically during restructuring under corporate bankruptcy law (such as Chapter 11 bankruptcy in the US or CCAA in Canada[1]). Usually, this debt is considered senior to all other debt, equity, and any other securities issued by a company[2] — violating any absolute priority rule by placing the new financing ahead of a company's existing debts for payment.[3]
DIP financing may be used to keep a business operating until it can be sold as a going concern,[4] if this is likely to provide a greater return to creditors than the firm's closure and a liquidation of assets. It may also give a troubled company a new start, albeit under strict conditions. In this case, "debtor in possession" financing refers to debt incurred while in bankruptcy, and "exit financing" is debt incurred upon emerging from reorganisation under bankruptcy law.[5]
- ^ Lyndon Maither, B.C. (2013). The Canada Income Tax Act: Enforcement, Collection, Prosecution, 4th Ed. Lyndon Maither. p. 319. ISBN 9781300772286.
- ^ Stuhl, S.A.; Vault (Firm) (2003). Vault Guide to Bankruptcy Law Careers. Vault Incorporated. p. 147. ISBN 9781581312577.
- ^ Liu, L. (2008). Subnational Insolvency: Cross-Country Experiences and Lessons. World Bank. p. 20.
- ^ Lyndon Maither, B.C. The Canada Income Tax Act: Enforcement, Collection, Prosecution, 6th Edition.
- ^ Hecker, J.E.Z. (2006). Commercial Aviation: Bankruptcy and Pension Problems Are Symptoms of Underlying Structural Issues. DIANE Publishing Company. p. 10. ISBN 9781422304327.
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