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Understanding the Bankruptcy Paper Trail
Understanding the Bankruptcy Paper Trail
Understanding the Bankruptcy Paper Trail
Understanding the Bankruptcy Paper Trail
Understanding the Bankruptcy Paper Trail
Understanding the Bankruptcy Paper Trail
Understanding the Bankruptcy Paper Trail
Understanding the Bankruptcy Paper Trail
Understanding the Bankruptcy Paper Trail
Understanding the Bankruptcy Paper Trail
Understanding the Bankruptcy Paper Trail
Understanding the Bankruptcy Paper Trail
Understanding the Bankruptcy Paper Trail
Understanding the Bankruptcy Paper Trail
Understanding the Bankruptcy Paper Trail
Understanding the Bankruptcy Paper Trail
Understanding the Bankruptcy Paper Trail
Understanding the Bankruptcy Paper Trail
Understanding the Bankruptcy Paper Trail
Understanding the Bankruptcy Paper Trail
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Understanding the Bankruptcy Paper Trail

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Information on first day orders.

Information on first day orders.

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  • 1. Understanding the Bankruptcy Paper Trail
  • 2. <ul><li>ROBERT M. FISHMAN </li></ul><ul><li>Shaw Gussis Fishman Glantz Wolfson &amp; Towbin LLC 321 North Clark Street, Suite 800 Chicago, Illinois 60654 </li></ul><ul><li>Tel: 312.541.0151 </li></ul><ul><li>Fax: 312.980.3888 [email_address] </li></ul>
  • 3. I. Introduction to First Day Orders <ul><li>Motions filed (with limited notice) contemporaneously with voluntary petition for relief under Code seeking immediate relief on an interim and/or final basis. </li></ul>
  • 4. <ul><ul><ul><li>December 1, 2007 amendment to Federal Rule of Bankruptcy Procedure 6003 limits the granting of interim and final relief by the court during the first twenty days of the bankruptcy case absent a showing of immediate and irreparable harm with respect to: </li></ul></ul></ul><ul><ul><ul><ul><li>Applications to employ professionals, </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Motions for the use, sale, or lease or property other than cash collateral, and </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Motions to assume or assign executory contracts and unexpired leases. </li></ul></ul></ul></ul>
  • 5. <ul><ul><li>First impressions count. Nature of relief requested and manner in which motions are noticed and presented will set the tone for bankruptcy case vis-à-vis the debtor, creditors, other interested parties, and the court. </li></ul></ul><ul><ul><ul><li>Generally offer a preview of the where the debtor’s case is going and what issues the debtor considers priority or of immediate concern. </li></ul></ul></ul><ul><ul><ul><li>Demonstrate how the debtor will manage relationships with creditors, employees, customers, and vendors on a prospective basis. </li></ul></ul></ul>
  • 6. II. Standard Types of First Day Motions <ul><ul><li>Motion to Pay Prepetition Payroll and Employee Benefits </li></ul></ul><ul><ul><ul><li>Main goal: preservation of human capital. </li></ul></ul></ul><ul><ul><ul><li>Request to pay prepetition employee wages, salaries, and commissions, including severance, vacation, and sick pay, for amounts earned within 180 days prior to petition date and in amounts up to statutory cap ($10,950 for cases commenced after April 1, 2007). </li></ul></ul></ul><ul><ul><ul><li>Generally includes request to continue contributions to and maintenance of employee benefit plans in the ordinary course. </li></ul></ul></ul><ul><ul><ul><li>May include a request to direct all banks to honor prepetition checks for payment of prepetition employee obligations. </li></ul></ul></ul><ul><ul><ul><li>Authorized under 11 U.S.C. §§ 105(a), 363(b), 507(a). </li></ul></ul></ul>
  • 7. <ul><ul><li>Motion to Use Cash Collateral and Incur Postpetition Indebtedness </li></ul></ul><ul><ul><ul><li>Permission to spend secured creditor’s collateral or obtain secured debt to fund ongoing operations. </li></ul></ul></ul><ul><ul><ul><li>Request to use cash and cash equivalents in which another party holds an interest in exchange for the debtor’s grant of adequate protection for the benefit of such secured party, absent the secured party’s consent. </li></ul></ul></ul><ul><ul><ul><li>Request, under certain circumstances, to obtain postpetition credit or incur debt: </li></ul></ul></ul><ul><ul><ul><li>December 1, 2007 amendment to Fed. R. Bankr. P. 4001 imposes additional restraints on motion for use of cash collateral or to obtain credit: </li></ul></ul></ul><ul><ul><ul><li>Authorized under 11 U.S.C. §§ 363, 364 and Fed. R. Bankr. P. 4001. </li></ul></ul></ul>
  • 8. <ul><ul><ul><li>Request, under certain circumstances, to obtain postpetition credit or incur debt: </li></ul></ul></ul><ul><ul><ul><ul><li>With priority over all administrative expenses, </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Secured by lien on property of the estate that is not otherwise subject to a lien and/or secured by a junior lien, or </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Secured by senior or equal lien as long as adequate protection is provided to primed lien. </li></ul></ul></ul></ul>
  • 9. <ul><ul><ul><li>December 1, 2007 amendment to Fed. R. Bankr. P. 4001 imposes additional restraints on motion for use of cash collateral or to obtain credit: </li></ul></ul></ul><ul><ul><ul><ul><li>Debtor must provide notice to interested party with a proposed order granting the requested the relief, and </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Motion must contain a concise statement (not to exceed five pages) describing the material provisions of the requested relief. </li></ul></ul></ul></ul>
  • 10. <ul><ul><li>Motion to Authorize Use of Existing Cash Management System </li></ul></ul><ul><ul><ul><li>Permission to continue (or modify) the debtor’s existing cash management system, including maintenance of existing bank accounts, checks, and other business forms, without the need to incur the inconvenience and expense of new “DIP” bank accounts, checks, and forms. </li></ul></ul></ul><ul><ul><ul><li>Generally includes a request to waive or limit the guidelines imposed by 11 U.S.C. § 345(b) with respect to deposits and investments of the debtor. </li></ul></ul></ul><ul><ul><ul><li>Authorized under 11 U.S.C. §§ 105, 345, 363 </li></ul></ul></ul>
  • 11. <ul><ul><li>Motion to Maintain Existing Insurance Programs </li></ul></ul><ul><ul><ul><li>Seeks to comply with applicable federal and state law, as well as U.S. Trustee guidelines, that require debtor to maintain certain insurance coverage by authorizing debtor to pay any unpaid premiums and/or premium financing payments, including, but not limited to: </li></ul></ul></ul><ul><ul><ul><ul><li>Workers Compensation, </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Casualty and loss coverage on plant, property, and equipment, and/or </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Directors and officers liability. </li></ul></ul></ul></ul><ul><ul><ul><li>Authorized under 11 U.S.C. §§ 105, 363, 365 </li></ul></ul></ul>
  • 12. <ul><ul><li>Motion to Pay Prepetition Sales, Use, or Other Taxes </li></ul></ul><ul><ul><ul><li>Authority to pay certain accrued prepetition sales, use, franchise, trust fund, and other taxes and related obligations. </li></ul></ul></ul><ul><ul><ul><li>Certain taxes may be entitled to priority status under 11 U.S.C. § 507(a)(8). </li></ul></ul></ul><ul><ul><ul><li>Failure to pay such obligations could interfere with operations of the debtor or expose directors and/or officers (who may be entitled to indemnification by the debtor) to personal liability. </li></ul></ul></ul><ul><ul><ul><li>Authorized under 11 U.S.C. §§ 105, 541, 507 </li></ul></ul></ul>
  • 13. <ul><ul><li>Motion to Maintain Customer Programs </li></ul></ul><ul><ul><ul><li>Preservation of goodwill. </li></ul></ul></ul><ul><ul><ul><li>Permits debtor to honor coupons, customer credits, warranty programs, rebates, returns, gift certificates, and other customer service or practices to promote an ongoing business relationship between the debtor and its customers. </li></ul></ul></ul><ul><ul><ul><li>Request for relief generally outlines applicable programs, as well as cost-benefit of maintenance thereof. Long-term benefits generally exceed short-term cost. </li></ul></ul></ul><ul><ul><ul><li>Authorized by 11 U.S.C. §§ 105, 363 </li></ul></ul></ul>
  • 14. <ul><ul><li>Motion to Pay Prepetition Shipping Charges and Related Charges </li></ul></ul><ul><ul><ul><li>Permits debtor to pay certain prepetition amounts for shipping, warehouse, customs broker, and/or import/export fees necessary to obtain release of goods in storage or transit or to avoid the imposition of liens on such goods. </li></ul></ul></ul><ul><ul><ul><li>General authority under 11 U.S.C. § 105. </li></ul></ul></ul>
  • 15. <ul><ul><li>Motion to Approve Procedure to Pay and/or Reconcile Reclamation Claims </li></ul></ul><ul><ul><ul><li>Allows debtor to pay holders of valid reclamation claims and/or establish procedures for resolving asserted reclamation claims. </li></ul></ul></ul><ul><ul><ul><li>Sellers may generally reclaim goods received by the debtor within forty-five days prior to the petition date pursuant to 11 U.S.C. § 546(c), provided that the seller makes a written demand within the applicable notice period. </li></ul></ul></ul><ul><ul><ul><li>Alternatively, sellers may assert an administrative expense claim for such goods. </li></ul></ul></ul><ul><ul><ul><li>Authorized under 11 U.S.C. §§ 105, 362, 503, 546 </li></ul></ul></ul>
  • 16. <ul><ul><li>Motion for Entry of Order Prohibiting Utilities from Altering, Refusing, or Discontinuing Service </li></ul></ul><ul><ul><ul><li>Enables debtor to continue operations with the benefit of its utilities, generally without having to fully satisfy its prepetition indebtedness. </li></ul></ul></ul><ul><ul><ul><li>Relief is typically granted to the extent that the debtor furnishes adequate protection of payment for postpetition services, generally in the form of a cash deposit based on prior amounts due, within twenty days of the order for relief. </li></ul></ul></ul><ul><ul><ul><li>May include request to establish procedures for determining sufficiency of adequate protection proposed by the debtor and/or to resolve disputes about same </li></ul></ul></ul><ul><ul><ul><li>Authorized under 11 U.S.C. §§ 105,366, 503, 507 </li></ul></ul></ul>
  • 17. III. Administrative and Procedural First Day Motions <ul><ul><li>Applications for Retention and Interim Compensation of Professionals </li></ul></ul><ul><ul><li>Motion to Establish Notice, Case Management, and Administrative Procedures </li></ul></ul><ul><ul><li>Motion for Extension of Time to File Statements of Financial Affairs and Schedules </li></ul></ul><ul><ul><li>Motion for Joint Administration of Debtors’ Cases </li></ul></ul><ul><ul><li>Motion to Limit Information to be Provided to Creditors’ Committee </li></ul></ul>
  • 18. Extending Credit to a Debtor in Possession <ul><ul><li>Debtor in possession may obtain unsecured or secured credit on behalf of the estate depending on certain circumstances. </li></ul></ul><ul><ul><li>The rights of the lender vary according to the applicable subsections of 11 U.S.C. § 364. </li></ul></ul><ul><ul><li>DIP lender is often (but not always) the prepetition lender. In that case, requested relief is often accompanied by request to use cash collateral. </li></ul></ul><ul><ul><li>December 1, 2007 amendment to Fed. R. Bankr. P. 4001 imposes additional restraints on motion to obtain credit: </li></ul></ul>
  • 19. <ul><ul><li>The rights of the lender vary according to the applicable subsections of 11 U.S.C. § 364. </li></ul></ul><ul><ul><ul><li>If the DIP obtains unsecured credit in the ordinary course of business , the lender is granted a first priority administrative claim under § 364(a). </li></ul></ul></ul><ul><ul><ul><li>If the DIP obtains unsecured credit outside of the ordinary course , the lender is still granted a first priority administrative claim but only if the transaction is approved by the court after notice and a hearing under § 364(b). </li></ul></ul></ul><ul><ul><ul><li>If the DIP is unable obtain unsecured credit under §364(a) or (b), the court may, pursuant to § 364(c), authorize the DIP to </li></ul></ul></ul><ul><ul><ul><ul><li>obtain credit that grants the lender a superpriority over all other administrative expense claims of the kind specified in §§ 503(b) or 507(b), or </li></ul></ul></ul></ul><ul><ul><ul><ul><li>obtain credit secured by lien on property of the estate that is not otherwise subject to a lien and/or secured by a junior lien. </li></ul></ul></ul></ul><ul><ul><ul><li>If the DIP is unable to obtain credit under § 364(a)-(c) above, the court may, pursuant to § 364(d), authorize the DIP to obtain credit secured by senior or equal lien as long as adequate protection is provided to primed lien. </li></ul></ul></ul>
  • 20. <ul><ul><ul><li>December 1, 2007 amendment to Fed. R. Bankr. P. 4001 imposes additional restraints on motion to obtain credit: </li></ul></ul></ul><ul><ul><ul><ul><li>Debtor must provide notice to interested party with a proposed order granting the requested the relief, and </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Motion must contain a concise statement (not to exceed five pages) describing the material provisions of the requested relief. </li></ul></ul></ul></ul>

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