Understanding Affiliate (Bankruptcy): Key Legal Insights
Definition & meaning
In the context of bankruptcy, the term "affiliate" refers to entities or individuals that have a significant ownership or control relationship with a debtor. Specifically, it includes:
- An entity that owns, controls, or holds the power to vote at least twenty percent of the debtor's voting securities.
- A corporation where twenty percent or more of its voting securities are owned or controlled by the debtor or another affiliate.
- A person whose business is operated under a lease or agreement with the debtor.
- An entity that operates the debtor's business or property under a lease or agreement.
Legal use & context
The term "affiliate" is commonly used in bankruptcy law to identify relationships that may influence the debtor's financial situation. Understanding who qualifies as an affiliate is crucial for determining the scope of bankruptcy proceedings and the rights of creditors. This term is particularly relevant in:
- Corporate bankruptcy cases, where ownership structures can complicate asset distribution.
- Personal bankruptcy filings, where family members or business partners may be considered affiliates.
Users may find it beneficial to utilize legal templates from US Legal Forms to navigate these situations effectively.
Real-world examples
Here are a couple of examples of abatement:
Example 1: A corporation, ABC Corp, owns twenty-five percent of the voting shares of a debtor company, XYZ LLC. In this case, ABC Corp is considered an affiliate of XYZ LLC.
Example 2: A person who leases a commercial property to a debtor and operates their business from that location may also be classified as an affiliate due to their operational relationship (hypothetical example).
Relevant laws & statutes
The key statute governing the definition of "affiliate" in bankruptcy is the Federal Bankruptcy Code, specifically 11 USCS § 101. This section outlines the criteria for determining affiliate relationships in bankruptcy contexts.