Blog Archives

Inside the Trenches of a Chapter 11: The Firehose of the First 30 Days

fire-hydrant-flushing    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.

Advertisements

StonePepper’s Grill in Robinson Twp. files for Chapter 11

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 Grill's LogoStonePepper’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.

Bankruptcy Docket Beat: Levittown’s Renee’s Pizza & Grill Files for Chapter 11Bankruptcy

pizza                  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.

Inside the Trenches of a Chapter 11 Bankruptcy Case-Preparing the Initial Filing

       In the world of business law, many seem to be mystified by the chapter 11 bankruptcy process.   When I tell my friends and colleagues what I do, they still don’t seem to understand me.  I get that glazed, deer-in-headlights look.   I just recently filed a Chapter 11 case and I decided to write a series of blog posts as we are going through the process.

        The chapter 11 process is expensive but can be a worthwhile option and a financially prudent decision for certain businesses wishing to reorganize, restructure their debts, reject undesirable contracts, and/or orderly liquidate certain assets under the jurisdiction and protection of the bankruptcy court.

Triggering Event.  Usually an event triggers the filing (a pending auction of assets, an inability to payroll, the threat of a shut-off notice for utilities, a impending freezing of bank accounts, a filed lawsuit, etc.).  A debtor can file an emergency petition in such an instance.

Emergency Petition.  To file an emergency petition, at the very minimum a debtor needs to submit the 2-page petition, its list of 20 largest unsecured creditors, and a creditor matrix (listing all of the creditors the debtor believes it currently has).    This sounds like a simple initial filing; but, it might not be.   The preparation of the debtor’s bankruptcy petition and related schedules can be very time-consuming depending upon the nature of the debtor’s business, how orderly its books and records are, and how many divisions or locations, it has etc.

Automatic Stay.  Once the minimal skeletal documents are filed, an “automatic stay” goes into immediate effect; the automatic stay is basically an injunction against any and all actions against the debtor and is property.    If a creditor violates the stay, it is a serious infringement and the bankruptcy court can award sanctions  against the creditor.

After the initial bankruptcy petition is filed, a Ch. 11 debtor has another 14 days within which to file its complete schedules and statement of financial affairs.   This timeframe can be extended for cause.

“Debtor In Possession” Bank and Insurance Information.  Also once the petition is filed, generally within 10 days, the debtor and its counsel have to submit certain bank account and insurance information to the United States Trustee (part of the Department of Justice).    Importantly, a business must close its books as of its bankruptcy “Petition Date” and open up  a new set of financial books and records.  New “Debtor-in-Possession” (“DIP”) Bank accounts must be opened at certain approved banks;  the United States Trustee’s Office has the “approved” list of banks.  The debtor and its counsel also may have an initial debtor interview with the agent for the United States Trustee (depending  upon the district in which you file), at which the debtor discusses its business operations and assets and liabilities.

The Bankruptcy Court Is Watching.  Once a bankruptcy petition is filed, a business will then have to seek bankruptcy court approval prior to taking many actions (paying its lawyers and accountants, paying pre-petition wages, utilizing cash (“cash collateral”) to pay expenses, selling anything outside the ordinary course).   A business debtor post-petition generally CANNOT pay any pre-petition obligations, otherwise serious consequences may ensure, including “avoidance” lawsuits. 

Drama.  The initial filing process can be intense for everyone involved.  Lots of information gathering, document review, fact checking.   Many phone calls may be made to and from creditors about the impact of the filing of the case.

Often, a distressed situation, not surprisingly, involves drama.  In some instances I have had to file the case right before the auction on the courthouse steps, right before the repossession crew found the vehicle, or right after the doors to a business were locked and the business suddenly went dark.  After the petition is filed and is made known to the public, media outlets may starting calling to find out more about the future of the business.

STAY TUNED FOR MORE DETAILS REGARDING INSIDE THE TRENCHES OF A CHAPTER 11 BANKRUPTCY CASE

MAZURKRAEMER represents debtors and creditors in bankruptcy courts all over the country.   The information, comments and links posted on this blog do not constitute legal advice. No attorney-client relationship has been or will be formed by any communication(s) to, from or with the blog and/or the blogger. For legal advice, contact an attorney at MAZURKRAEMER or an attorney actively practicing in your jurisdiction.