The first 30 days of a Chapter 11 bankruptcy case often are like water spewing violently out of a fire hydrant. Fast. Furious. Urgent. Many issues being thrown at the Debtor, its employees, and its lawyers at one time.
According to the Pre-Bankruptcy Planning for the Commercial Reorganization: A Brief Guide for the CEO, CFO/COO, General Counsel and Tax Advisor, written by the Reorganization and Restructuring Group of Squire, Sanders & Dempsey, LLP (2nd edition, 2008), a whopping 83 percent of chapter 11 reorganizations that are filed generally “die on the vine” and are never confirmed.
I purchased this Brief Guide at the American Bankruptcy Institute that I attended this past Spring and I thought I would write a few blog posts integrating my experience with the concise content of the book. As set forth on Appendix A to the Guide, generally certain matters must be addressed within the first 30 days of a case.
- Petition filed
- Filing of list of 20 largest creditors
- Applications for retention of professionals (attorneys, accountants, turnaround professionals, valuation specialists, real estate brokers). A Debtor cannot pay a professional unless the retention of the firm is first approved by the Judge and the professional files a fee application on the docket, to which parties may review and/or object.
- Filing of ”first day” motions (seeking authority to pay wages, use pre-petition bank accounts, pay deposits for utilities, use of cash collateral, payment of interim compensation to professionals)
- Filing of schedules of assets and liabilities and statement of financial affairs. Getting correct addresses and dollar amounts owed for every single creditor often is a daunting task. Once the Schedules are filed, a creditor matrix is generated. The Bankruptcy Court and parties in interest use this address list to mail or “serve” important pleadings in the case. If the matrix is enormous, certain limited servicing lists can be authorized by the Court. In mega-cases, servicing agents are employed by the Debtor to handle only this aspect of the case, i.e., proper service.
- Filing of Corporate Resolution authorizing the Chapter 11 filing
- Negotiation of debtor in possession financing
- Hearing on use of cash collateral and adequate protection
- Negotiation with trade creditors regarding reclamation claims and/or reestablishment of trade terms.
The first few weeks of a case can be exhausting and dramatic. Often, by the time a petition is filed, a debtor runs out of money and payroll has not been paid (therefore employees are angry and morale is low), bank accounts frozen, the utilities have been shut off, and/or the front doors have been padlocked by a creditor. Once a case is filed, a creditor may immediately file a motion to dismiss the case.
The filing of the petition and related schedules requires a financial autopsy of a business and all of its related entities. In order to avoid confusion down the road, Debtor’s counsel should try to obtain as much factually accurate information as possible during this time. The process requires persistence, diligence and coordination with the Debtor’s employees, who basically become your co-workers for as long as the case is open, which could be 18 months or longer.
During this critical time, management and key employees must be counseled regarding what to do and not do, now that the actions of the Debtor are under close scrutiny by not only a Judge but also a U.S. Trustee as well as the creditor body. Employees should be clear regarding what transfers may or may not be made without court approval. Also, at the same time, the U.S. Trustee’s Office dictates that a debtor comply with its financial reporting requirements (hence the required “Monthly Operating Report”), and the filing of insurance and bank account information. Lack of compliance may lead to a dismissal of the case or a conversion to a Chapter 7. Often the debtor must close pre-petition bank accounts and open new ones.
Keeping all constituencies informed is an important part of the role of Debtor’s counsel. Creditors may include key lenders and critical vendors who will want to know what the turnaround strategy is for the company. Once creditors receive the “Notice of Suggestion of Bankruptcy”, they too will be scurrying around to hire bankruptcy lawyers if the size of their claims warrants such an expense.
Settlers Ridge No. 3, L.P. files for Chapter 11
By Katie Imler, Law Clerk
On May 13, 2013, StonePepper’s Grill, formally known as Settlers Ridge No. 3, L.P., of 1738 North Highland Road, Pittsburgh, PA 15241 filed a voluntary Chapter 11 bankruptcy petition in the Bankruptcy Court for the Western District of Pennsylvania, assigned Case No. 13-22082-CMB. The case has been assigned to the Honorable Judge Carlota M. Bohm.
StonePepper’s Grill is a restaurant that serves brick-oven pizza and won the 2012 Best Burger in Upper St. Clair Contest. The restaurant chain has three (3) locations in Upper Saint Clair, Mars, and Robinson Township. The only location effected by this filing is the Robinson Township location. Counsel for the Debtor is Robert O. Lampl, located at 960 Penn Avenue, Pittsburgh, PA 15222. Lampl’s disclosed hourly rate is $400/hour.
A summary of the docket for the case can be viewed here.
The Debtor has elected to be considered a “small business debtor, ” defined under Bankruptcy Code § 101(51D)(A) as a person engaged in commercial or business activities who as of the date of petition filing or order of relief has an aggregate non-contingent liquidated secured and unsecured debts in an amount not more than $2,000,000.00 (excluding debts owed to 1 or more affiliates or insiders). See also Bankruptcy Code § 1116. The bankruptcy filing showed liabilities and assets between $100,000.00 -$500,000.00. The Debtor listed the largest unsecured debts as $93,940.00 in Employer Withholding, $78,775.00 in Loans to owner Jeff Joyce, $77,535.00 in PA Sales Tax, and $38,465.00 in Business Debt to CRK Management LLC, who also employs Jeff Joyce. It also has a Business Debt of $77,613.00 payable to Settlers Ridge Leased, LP.
A hearing will take place on June 25, 2013 in regards to confirmation of employing Debtor’s counsel. The Chapter 11 Small Business Plan and Disclosure Statement are due November 12, 2013.
On April 12, 2013, Debtor Renees LLC, of 8739 Newportville Road, Levittown, PA 19054, filed a Chapter 11 bankruptcy petition in the Bankruptcy Court for the Eastern District of Pennsylvania (Philadelphia), Case No. 13-13236. Debtor’s counsel is Michael P. Gigliotti of Kashkashian & Associates , 10 Canal Street, Suite 204, Bristol, PA 19007. The case was assigned to Chief Judge Eric L. Frank.
Renee’s LLC did business as Renee’s Pizza and Grill offering a takeout service and grill. Assets and liabilities both were in the range of $0-$50,000. This Chapter 11 is an asset case and it is anticipated that there will be some distribution to creditors.