Chapter 11 Bankruptcy Explained for Australians (2025 Update)

When major US companies like WeWork or Hertz hit the headlines for filing Chapter 11 bankruptcy, it’s easy for Australians to shrug it off as a foreign problem. But in 2025’s increasingly global market, understanding the ins and outs of Chapter 11 is crucial for Aussie investors, business owners, and anyone with cross-border business interests. Let’s unpack what Chapter 11 bankruptcy really means, why it’s making news, and how it compares to insolvency laws in Australia.

What Is Chapter 11 Bankruptcy?

Chapter 11 bankruptcy is a US legal process designed for businesses—and sometimes individuals—facing serious financial distress. Unlike liquidation bankruptcies, Chapter 11 allows struggling companies to reorganise, restructure their debts, and (ideally) emerge as viable operations. It’s often called “reorganisation bankruptcy.”

• Who uses it? Large corporations, smaller businesses, and sometimes high net-worth individuals.

• Key feature: Debtors maintain control of their business as a ‘debtor in possession’—a stark contrast to some Australian insolvency processes.

• Goal: To develop a court-approved plan to pay creditors over time while keeping the company alive.

In 2025, the US has seen a wave of Chapter 11 filings, with sectors like retail, tech, and commercial real estate under pressure from high interest rates and post-pandemic shifts in consumer behaviour.

Why Should Australians Care?

While Chapter 11 is a US-specific law, its ripple effects are felt worldwide. Here’s why it matters down under:

• Australian investors: If you hold shares or bonds in US-listed companies, a Chapter 11 filing can dramatically impact your portfolio. Equity holders often see their stakes diluted or wiped out.

• Supply chain exposure: Aussie firms supplying goods or services to a US company entering Chapter 11 may face delays or losses on outstanding invoices.

• Australian subsidiaries: Some US multinationals’ local branches could be affected by parent company restructures, with flow-on effects for jobs and contracts.

Case in point: When Virgin Australia entered voluntary administration in 2020 (Australia’s closest equivalent to Chapter 11), its US creditors and investors closely tracked the process. In 2025, more Aussie startups and SMEs are pursuing US expansion, making knowledge of Chapter 11 even more relevant.

Key Differences: Chapter 11 vs. Australian Insolvency Laws

It’s tempting to draw direct parallels between Chapter 11 and Australian voluntary administration, but the processes are different in key ways:

• Control: In Chapter 11, company management usually stays in charge as ‘debtor in possession.’ In Australia, administrators typically take control during voluntary administration.

• Restructuring plans: Chapter 11 gives companies more flexibility to propose and negotiate complex restructuring plans with creditors. Australian Deeds of Company Arrangement (DOCA) are often simpler and resolved faster.

• Duration and cost: Chapter 11 cases can drag on for years and rack up significant legal fees, while Australian processes are generally quicker and less costly.

• Recent changes: In 2021, Australia introduced a streamlined small business restructuring process, allowing eligible companies to restructure debts without handing over control—a partial nod to the US approach. In 2025, this option is growing in popularity among distressed SMEs.

2025 Trends: Chapter 11 in the Global Spotlight

This year, several factors are driving a renewed focus on Chapter 11 bankruptcy:

• Persistent high interest rates in the US are squeezing corporate borrowers and increasing default risk.

• Commercial real estate woes—especially in office and retail—are pushing more landlords and tenants into restructuring talks.

• Tech sector shakeouts: Overvalued startups, especially those reliant on venture capital, are hitting financial walls and considering Chapter 11 as a lifeline.

For Australians, the lesson is clear: global financial distress doesn’t respect borders. Understanding Chapter 11’s mechanics and risks can help you make smarter investment decisions, negotiate contracts with global partners, and prepare for cross-border legal challenges.

Conclusion

Chapter 11 bankruptcy isn’t just an American headline—it’s a process with real implications for Australian investors, business owners, and professionals with global ties. As the world economy faces fresh headwinds in 2025, now’s the time to brush up on the basics, recognise the risks, and stay alert to cross-border insolvency issues. If your business or investments are linked to the US, understanding how Chapter 11 works could make all the difference in turbulent times.