Prepackaged Chapter 11 Case Timeline

Prepackaged Chapter 11

Unlike a traditional or prearranged chapter 11 case--where solicitation of a plan of reorganization occurs during the course of a bankruptcy case--this type of bankruptcy proceeds by soliciting acceptance of a plan of reorganization prior to filing the chapter 11 case. 

The prepackaged case is able to solicit a plan of reorganization in advance of a filing, because there is agreement among institutional creditors on the treatment of their claims and most of the creditors will be paid in full. 

A goal of the prepackaged chapter 11 is to maximize the effects of a bankruptcy in a minimum amount of time, resulting in case and cost efficiencies which benefit both creditors and debtors. 

In a prepackaged 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 executing solicitation of a plan of reorganization.

The goal is to enter into chapter 11 protection with an accepted plan of reorganization and exit bankruptcy within three to nine months after the filing of the case.

There are three distinct phases to every bankruptcy case and a prepackaged 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 activities which occur during each of the prepackaged chapter 11 phases is as follows:

  1. Prepetition phase: Execution of plan of reorganization solicitation, chapter 11 filing preparation, negotiating with creditors and operational controls. 
  2. Post petition phase: Chapter 11 compliance, deleveraging of business operations, 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 prepackaged chapter 11 timeline explains events graphically:
   

    

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