If your business ends up in chapter 11, then yes, you should plan on attending a couple of different hearings and meetings as part of your case. I’m sure everyone wants to minimize these, but the problem is that bankruptcy is a highly bureaucratic process with a lot of rules and parameters. Chapter 11 is a daunting process for everyone, and the reality is that chapter 11 consumes an unusual amount of your time. On top of running the business in a difficult operating environment, you have this whole new job.
Chapter 11 is typically a last resort, though, and out-of-court options deserve a real look first. Put another way, your first step before filing bankruptcy should be to determine if you can obtain all of the relief you need without putting the business into the court. If you can accomplish that without bankruptcy then you won’t have to worry about participating in a court hearing or a creditors meeting. The most obvious way to avoid a court appearance is to come to an agreement with your creditors before you file. If the creditor is still willing to talk, however, you may be able to reach an agreement on how the debt will be repaid. Negotiating with lenders, vendors or landlords is one of those options, and negotiating with creditors on an owner’s behalf is exactly what a business debt settlement company like ours does.
The First Meeting Comes Within the First Few Weeks
If you do file, the first meeting comes within the first few weeks, and representatives of the company must attend it one-on-one. The Initial Debtor Interview is a meeting between the company’s representatives and a US Trustee, who serves as a kind of early referee, helping the bankruptcy judge follow the rules of procedure. Before the interview, you are required to submit information on assets and liabilities, tax returns and proof of insurance. My advice is to prepare ahead of time, with research and to follow-up on requests from the US Trustee. Be sure to get a complete understanding of the issues at hand before the interview. Don’t be intimidated though.
The US Trustee’s office then presides over the 341 Meeting of Creditors. This is where all creditors get a chance to ask questions of the people in bankruptcy. They can question you and your professionals on the case, how you got here, and what you plan to do in the case. It is an opportunity to make your case to them. If it’s handled properly, you can establish a positive atmosphere for your reorganization. So take the meetings seriously. The goal is for you to get to know your creditors, establish a dialogue and begin to build trust.
That room is filled through notice. The company prepares a Creditor Matrix and uses it to notify every known party who could possibly be owed money. This gives creditors an opportunity to participate in the process. It also means no party can later claim it was left out. You need to keep track of your liabilities and be sure to notify everyone. It’s a very large piece of the case. In one cautionary example, an organization bought a company that had just emerged from bankruptcy without knowing the company had never notified a customer with a pending lawsuit. The multi-million-dollar judgment in that case stayed in force, and the new parent had to file bankruptcy again. That’s how important that matrix is.
Other Hearings Throughout a Case
There can be other hearings throughout a case. That’s what a hearing is: a chance to ask the court for a favor. While you are in bankruptcy, you can’t pay pre-petition debt without a court order. So you have to watch the bank account carefully and keep track of pre-petition versus post-petition debt. You still have to stay current on post-petition obligations, including quarterly US Trustee fees and post-petition taxes. Some old debts may still need paying to avoid irreparable harm. To keep the lights on, to continue your business and pay suppliers you depend on to stay in business, you need to be approved. Counsel will often file motions asking the court to authorize payments such as trust-fund taxes, insurance, utilities, employees and critical vendors, and you have to show that they benefit the company and its creditors.
A committee of three to seven unsecured creditors is appointed to represent creditors when a business has many of them. The committee retains its own lawyer, and sometimes a financial advisor in more complicated matters. Their official seat at the table means they will send you information requests. Turn those requests around as fast as you can. Just make your best effort to meet their information needs. Combinations of creditors or groups of vendors can align in support of or against you as the case progresses. And you don’t want creditors to hold up your case because they don’t trust you, so you don’t want to burn any bridges with them either. Reach out, stay on schedule and address their concerns.
There’s also an enormous amount of paperwork to file, and the requirements are not always easy to understand. But the paper work is important. Statements and Schedules, detailing assets, liabilities, contracts and recent financial activity, must be filed within 14 days of the petition date unless an extension is approved. Monthly Operating Reports, including income statements, balance sheets and cash activity, are due by the 21st day after the close of the prior month. Weekly cash flow reports may be required if a creditor with a lien on cash has agreed to let you use it. To keep all of this straight, it is a good idea to continue to maintain your books and records, with an accounting process that codes each invoice as pre-petition or post-petition.
Plan of Reorganization
Everything builds toward the plan of reorganization, essentially a contract between the company and its creditors. This is the company’s big moment to propose a new future. The debtor has to say how the company will repay debts and under what terms. This plan will be voted on, but only after the court approves the disclosure statement and the voting ballots. The disclosure statement lays out the information that creditors need to decide whether to accept the plan or not. It explains what the plan does, what has been accomplished, and what the next steps are. At first the company has the exclusive right for 120 days to propose a plan, and the court can extend that if sufficient progress is shown.
A good bankruptcy lawyer, and a financial advisor or chief restructuring officer, is worth their weight in gold. We are not a law firm; when bankruptcy is the right call, we refer owners to a vetted independent attorney.
So in summary, yes, expect to be going to a few meetings in a chapter 11. There is an old saying that the more time you spend preparing for bankruptcy, the less time you spend in it. If you have your homework done, so that you have a basic understanding of all the numbers, you also show the judge and your creditors that you are serious. Focus on what you need to do, and not what got you here. Talk to your attorney and financial advisor and attend your creditors’ meeting. Expectation management is key. It’ll help you reduce your own stress levels. Every case is different, however, so your mileage may vary. If you are still weighing whether you need to be in court at all, a first consultation with us is free and confidential.
