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Getting Through Chapter 11

by A. Thomas Dewoskin

Your attorney has just filed your company’s Chapter 11 reorganization case and you have no clue what to do next. Seriously, the first thing you should do is nothing. Take a breath and keep running your business.

That’s not to say there’s nothing for you to do during the entire Chapter 11 process - there’s actually quite a lot for which you will be responsible. Any competent bankruptcy attorney already has discussed your statutory and practical responsibilities in a Chapter 11 case with you prior to filing.

Now is the time to implement those decisions made before the case was filed. If you forget a decision you made (or come across an issue you hadn’t discussed), call your attorney. The two of you should be in frequent contact during the case to be sure that you don’t take any actions which don’t make sense in the Chapter 11 context, or which might violate the Bankruptcy Code, Bankruptcy Rules, or Local Rules.

Your primary concern after the case is filed is, of course, money to operate with. That topic should be discussed thoroughly with your attorney prior to filing. Be sure your attorney discusses post-petition financing and use of ‘cash collateral’ with you. Be sure that you have post-petition financing lined up before you file, either from internal operations or from a lender. If your post-petition financing falls through, or you’re not as profitable as you expected to be after filing, you may not be able to afford to operate during the Chapter 11. If so, there is no way for you to reorganize and your Chapter 11 case may be dismissed outright.
During Chapter 11 reorganization, you’re not allowed to pay any pre-petition debts or take any actions not within the “ordinary course of business.” If you are concerned about an action you think would be a good idea, don’t take it without checking with your attorney and, if necessary, obtaining prior court approval. If you haven’t discussed the concept of “critical vendors” with your attorney before the filing, you should do so now. Having the court deem a creditor to be “critical” allows you much more flexibility in negotiating terms for receiving necessary goods or services during the Chapter 11 case.

Be sure you’ve explained all your concerns about all aspects of your business to your attorney, providing complete and accurate information. This will help both of you come up with good ideas for successfully navigating a reorganization case. If your attorney isn’t aware of a problem, it’s hard for the attorney to address it. If a new problem develops, advise your attorney about it so you can consider all the potential solutions available to you.

Your next major responsibility is to work with your attorney and your accountant to nail down the details of your Plan of Reorganization and to get it confirmed by the bankruptcy court. That’s a good topic for another article!

A. Thomas DeWoskin, bankruptcy attorney with Danna McKitrick, P.C., practices in the areas of bankruptcy, creditor’s rights, and commercial law. He represents creditors, as well as business debtors, and individuals with difficult or unusual financial situations. Tom served as a bankruptcy trustee in the Eastern District of Missouri for more than 35 years. Tom can be reached at 314.889.7128 or tdewoskin@dmfirm.com

For a more in-depth look, see Tom’s blog posts at https://www.beyondthefineprint.com/.

Submitted 122 days ago
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Categories: categoryLegal Matters
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