Chapter 11 Overview

Chapter 11 Overview     

The day a chapter 11 bankruptcy case is filed with a federal bankruptcy court is known as "the petition date" or the date on which the company petitioned for federal bankruptcy protection from pre-petition creditors. 

The overall purpose of the chapter 11 bankruptcy is to prohibit creditors from collecting on pre-bankruptcy debts, while allowing a company the chance to reorganize its existing finances and operations through the use of federal bankruptcy law. 

A chapter 11 case will allow a company to propose a settlement to pre-bankruptcy creditors through a plan of reorganization.  If accepted by a majority of creditors and the bankruptcy judge, the plan will be "confirmed" under federal law, a federal court order will be issued, and the company will be allowed to "exit" chapter 11 protection. 

The chapter 11 process contains three distinct phases during which different actions occur: pre-petition, post petition, and post confirmation

Phases of the Chapter 11 Case Overview

Actions, debts and events occurring prior to the petition date are known as "pre-petition", while actions, debts and events occurring after the petition date are known as "post petition". 

Pre-petition/post petition is an important distinction to make, particularly concerning debts owed by debtor companies. 

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

The purpose of the bankruptcy case is to prohibit continued creditor collection of the pre-petition debts, allow the company a chance to restructure operations and financial arrangements and provide a settlement to creditors who hold pre-petition debts. 

The settlement to pre-petition creditors is drafted into the plan of reorganization and approved by a federal bankruptcy judge after the plan has been solicited and accepted by a majority of creditors. 

A federal bankruptcy judge approves the plan of reorganization by court order and it is entered onto the company's bankruptcy case docket.   Upon entry onto the court docket, the case begins the "post confirmation" phase.    

Though each chapter 11 case has a pre-petition, post petition and post confirmation phase, each case is distinct because of creditor and operational circumstances and therefore each may require a slightly different approach to the activities which occur in each of the phases.

Please refer to the phases of the case section for more detail.

Chapter 11 Case Type Overview

Known as traditional, liquidating traditional, prearranged and prepackaged, chapter 11 case types are legal constructs case professionals utilize to help a company restructure during a bankruptcy case. 

Each of the case types contains a pre-petition, post petition and post confirmation phase, but the activities which occur during these phases differ based on the creditor and operational circumstances of the case.  The single biggest difference among the case types is when solicitation occurs

In a traditional chapter 11, solicitation occurs well into the duration of the bankruptcy case because no agreement among institutional and large scale creditors exists prior to the chapter 11 filing. 

In a liquidating chapter 11, solicitation occurs during the course of the bankruptcy case, but a liquidating plan of reorganization is solicited to creditors for the purpose of offering an orderly process to sell off all assets of the debtors' estate in order to pay pre-petition and post petition debts.

In a prearranged chapter 11, solicitation is prepared before bankruptcy, but does not occur until after the bankruptcy case is filed because institutional and large scale creditors could not reach an agreement on settlement terms for pre-bankruptcy debt and the plan of reorganization.  Once the company commences a chapter 11 case and obtains court approval of a disclosure statement, solicitation can begin and the company can seek a quick confirmation. 

In a prepackaged chapter 11, solicitation occurs before bankruptcy because institutional and large scale creditors are able to agree on settlement terms for pre-bankruptcy debt and a plan of reorganization.  Once solicitation is complete in the pre-bankruptcy phase, the company commences its chapter 11 case and seeks a quick confirmation of the plan.   

Case Professionals Overview

Debtor companies require the efforts of a number of different highly skilled and experienced case professionals, working on combined restructuring efforts during the pre-petition, post petition, and post confirmation phases of the case.

Case professionals include, but are not limited to: accountants, administrative services professionals, attorneys, communication specialists, financial advisors and restructuring professionals.

Each case professional, at each phase of the case contributes different services depending on case type, creditor issues, and company operations.   For more information on services provided by Phase Eleven's case professionals, please refer to our professional roles and services webpage.

Phase Eleven's administrative services are a large part of a successful chapter 11 case because we streamline the administrative efforts of the case, which results in greater efficiencies and cost effectiveness during each phase of each type of chapter 11 case.

Request a presentation of our comprehensive chapter 11 case solutions to conquer your chapter 11 challenges.