Prepackaged Bankruptcy

What is a Prepackaged Bankruptcy?

The Problem: Chapter 11 Proceedings can be a strain on business
Although Chapter 11 is a last resort for businesses, it can be extremely effective in solving business problems. However, navigating through an extended Chapter 11 Business Bankruptcy reorganization can be expensive and invasive for a company. Management unfamiliar with how the process works can easily become overwhelmed by the intrusive nature of the process and the sheer number of advisors and attorneys involved. The length and costly nature of Chapter 11 reorganization can put significant strains on a company and its stakeholders. One option that may be available to address these challenges is to accelerate the in-court proceedings by filing a prepackaged bankruptcy.

A Prepackaged Bankruptcy can be the solution
In a prepackaged bankruptcy, or “pre-pack,” the plan of reorganization has been voted on and accepted by the classes of impaired creditors prior to the bankruptcy filing. (“Impaired” means that the creditors’ rights have been modified in some material way.)  By filing such a plan, a company can minimize the effect of the process on employee, vendor, and customer relationships.  Moreover, management has more certainty that the confirmation of the plan will be successful before being exposed to potential loss of control in an extended bankruptcy proceeding.

Creditors support prepackaged bankruptcies because, by definition, the creditor is receiving more under a plan in Chapter 11 that it would in a liquidation (11 U.S.C. § 1129(a)(7)).

Pre-packed bankruptcies tend to be shorter in duration than a traditional Chapter 11 bankruptcy filing and could spare the firm time and potential legal headaches (averages of 38 days rather than 306 days for non-prepackaged).

Because they are shorter in duration (at least the component of the reorganization in which the company is under Court oversight), there is less administrative costs, and fewer opportunities for distracting (and expensive) side battles to erupt.

*Culhane Meadows is ranked by U.S. News/Best Law Firms in Technology Law, Bankruptcy/Reorganization Law, and Information Technology Law. This website and the communications herein may be considered attorney advertising. Previous results are not a guarantee of future outcome. This website is for informational purposes only and does not constitute legal advice. The information herein is not intended to create an attorney-client or similar relationship. Until you establish such a relationship and receive an engagement letter, you have not hired a Culhane Meadows attorney nor become a client of the firm. Whether you are a new or existing client of the firm, Culhane Meadows must determine that there is no conflict of interest and that it is willing and otherwise able to accept the new engagement before representing you on a new matter. Only if and after Culhane Meadows has informed you it is willing and able to accept your new matter should you send the firm any information or documents that you consider private or confidential. Such information will not be treated as private, confidential or otherwise protected from disclosure until Culhane Meadows has communicated in writing that it is willing and able to accept your new matter and provide you with legal counsel. Whether you need legal services and which lawyer or law firm you select are important decisions that should not be based on this website alone.