Chapter 11 Reorganization – Business

ANAND LAW represents businesses in a variety of industries to reorganize affairs, restructure debt, and maintain operations though Chapter 11 of the Bankruptcy Code.

We are attorneys, real estate brokers, and business valuation/intellectual property experts.  Combining expertise, we add value, reduce overall cost, and maximize efficiency for our clients.  Some examples of what can be accomplished through a Chapter 11 Reorganization are:

• Continue business operations (including payroll and accounts receivable)
• Obtain financing / refinancing
• Sell properties & other assets
• Restructure debts
• Employ professionals as needed to manage company affairs
• Pursue claims

Chapter 11 bankruptcy is a powerful tool to prevent your business from going under.  It allows your company breathing room from creditors in order to reorganize and continue operations successfully.

TYPES OF BUSINESSES

• Restaurants
• Shopping Centers / Commercial Property Owners
• Retail & Goods (Label, Designer, Manufacturer)
• Real Estate Companies (including owners of one property)
• Health Care Clinics
• Entertainment Companies (e.g. venues, touring, events production)

CONTINGENCY PLANNING

If your business is facing financial difficulties, it is critical to evaluate options as early as possible. Wait too long, and you may miss the boat to an optimal restructuring.

Prior to making the decision to file Chapter 11, other options should be considered. Your business may benefit most from settling with creditors out of court (modifications / workouts). Or, it may be wise to litigate outside of Bankruptcy Court.

However, Chapter 11 offers powerful tools that simply aren’t available without it—one of the most significant among these is the Automatic Stay (discussed below), which gives you breathing room to engage in the restructuring necessary. Keep in mind that you can also litigate within the bankruptcy court (e.g., to contest interest rates, or determine the validity of other loan provisions).

FIRST DAY MOTIONS

The first two to three weeks of a Chapter 11 case are busy with filings, and ideally much of these filing are prepared prior to fling the case, again stressing the importance of pre-filing planning.  While the Automatic Stay under Section 362 of the Bankruptcy Code prevents creditors from continuing collection activity, other provisions of the Bankruptcy Code prevent your business from operating freely.

Depending on your business’ needs and structure, it may be necessary to file motion(s) and obtain one or more Court Orders immediately after filing the Chapter 11 case.  These orders, typically called “first day orders” are critical to a smooth transition for your business.

Examples of the types of orders sought through first day motions are:

• Payment of Pre-Filing Wages Due to Employees
• Payment of Pre-Filing Claims of Vendors / Partners
• Rejection or Assumption of Executory Contract(s) (including leases)
• Use of “Cash Collateral”
• Maintain Current Bank Accounts (rather than the default under the Bankruptcy Code, which is to require new bank accounts)
• Cash Management Procedures

Other administrative motions may need to be filed on day one, or may need be filed shortly after commencement of the case:

• Post-filing Financing
• Employment of Professionals (e.g. attorney, broker, ombudsmen)

Again, planning is critical.  You want to be ready to go as soon as the filing is made.  This requires due diligence to be performed prior to filing, by both your attorney and principals.  A great deal of discretion must often be exercised during this time period, as it may be necessary to keep news of the impending filing limited to certain employees.  If word leaks, the consequences can be disastrous—vendors may stop supplying, creditors may push collection activity into overdrive, competitors may steer away business, and employees may jump ship.

MONTHLY OPERATING REPORTS

Reports documenting all money received and all expenses paid must be submitted to the Court, creditors and the Trustee monthly in a Chapter 11.  ANAND LAW has professionals on staff that can handle all aspects of such reports in house, or in conjunction with your own professionals.

THE CHAPTER 11 REPAYMENT PLAN

A Chapter 11 will allow you to retain assets, assume active leases, and reorganize debts.  You will be required to continue to make loan payments make and monthly “plan” payments to the Bankruptcy Trustee. The Bankruptcy Trustee then pays your unsecured creditors.  ANAND LAW can devise an economically feasible plan which will allow you to continue operations and pay creditors at an affordable rate.

THE AUTOMATIC STAY

Pursuant to Section 362 of the Bankruptcy Code, the “Automatic Stay” goes into effect as soon as a Chapter 11 case is filed.  See 11 U.S.C. §362.  Generally, we can file online, any time or day of the year.

The Automatic Stay protects the debtor by preventing creditors from taking any collection activity against the business—including, (a) commencing or continuing legal, or other, proceedings against the company; (b) obtaining possession of property of the company; (c) creating, perfecting, or enforcing any lien against property of the Debtor’s estate.  See 11 U.S.C. § 362(a).  The Automatic Stay also protects creditors, as a group, as it prevents an individual creditor from satisfying their claim through state law remedies.

However, the Automatic Stay is not unlimited.   Creditors can obtain relief from the stay, and, if the relief is granted, they can proceed with pursuing legal remedies outside of Bankruptcy Court. See 11 U.S.C. § 362(d).