Prearranged Chapter 11 Case Timeline

Prearranged Chapter 11

This type of bankruptcy case occurs when there is consensus, among institutional creditors who are owed large amounts of debt by the debtor company, that a chapter 11 case should be filed, but the terms and conditions cannot be agreed upon prior to filing

If terms and conditions of treatment of creditors and debtor release provisions can be agreed upon by creditors in advance, the company could complete and obtain acceptance of a proposed plan of reorganization before the bankruptcy case and it would become a "prepackaged chapter 11 case".

But here, in a prearranged case, the company prepares for chapter 11 bankruptcy by negotiating with lenders for debtor-in-possession financing, preparing pleadings for filing with the bankruptcy court, and preparing a disclosure statement and plan of reorganization for immediate post-filing solicitation to creditors.

The goal is to enter into bankruptcy, obtain immediate approval of disclosure statement and plan of reorganization for solicitation to all classes of creditors, and exit bankruptcy within six to eight months after the filing of the case.

While the purpose is to allow the debtor company time and distance from pre-bankruptcy debts, a company in prearranged bankruptcy typically has fewer issues to restructure, which allows it to exit bankruptcy quicker and get back to going concern operations.

There are three distinct phases to every bankruptcy case, and a traditional chapter 11 is no different:

  1. Pre-petition or before bankruptcy/bankruptcy case preparation
  2. Post petition or during bankruptcy/bankruptcy case execution
  3. Post confirmation or after bankruptcy/bankruptcy estate closure 

The first two relate to the petition date or the date on which the company filed for chapter 11 bankruptcy.  The last refers to the confirmation or court order approving the plan of reorganization or the legal document which provides for creditor settlements. 

The petition date is an important marker of time because it distinguishes how a debt should be classified in a plan of reorganization and in turn, how it should be paid. 

With pre-petition debts, the payment cannot occur until after a plan of reorganization has been accepted by a majority of creditors, approved by the federal bankruptcy court, and all creditor claims within a particular class have been settled.  

With post petition debts, the payment would occur post petition to maintain good standing creditor relationships.  If a post petition payment is not made, it can become an administrative claim which might be subject to a different payment treatment according to the plan of reorganization. 

In each of the phases of the case, different restructuring actions take place with the ultimate goal of settling all debts of the bankruptcy estate and closing of the case. 

Below is a summary of each of the actions which occur during each of the prearranged chapter 11 phases is as follows:

  1. Pre-petition phase: Preparation for solicitation of plan of reorganization, chapter 11 filing preparation, negotiating with creditors and operational controls. 
  2. Post petition phase:  Chapter 11 compliance, deleveraging of business operations, solicitation execution and financial restructuring which culminates in plan confirmation. 
  3. Post confirmation phase: Business operations wind down, claims objection and resolution, disbursement payments and litigation actions to recover funds.

The following prearranged chapter 11 timeline explains events graphically:

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