An experienced Pittsburgh bankruptcy attorney understands that there are many moving parts to a commercial reorganization or business bankruptcy case. For a mid-size enterprise or a closely held company the decision of whether to file a bankruptcy case can carry with it weighty consequences. Those consequences can affect the fortunes of the business and extend to the very question of whether that business will even continue as a going concern.
Confirmation of a Plan of Reorganization
The bankruptcy attorneys at Robleto Law start with the finish in mind. The confirmation of a Chapter 11 Plan is typically a central goal in most business bankruptcy cases. Since we often represent small and medium sized business debtors, we take a direct and active approach to protecting ownership interests. We discuss the absolute priority rule and its effect on equity interest holders of the prospective debtor before we file the case. When prudent, we also approach major creditors of the debtor to gain their support for a plan. Often we find it prudent to file “prepackaged bankruptcy” cases with the proposed Chapter 11 Plan and Disclosure Statement filed on the day we file the bankruptcy case, already backed by the major constituencies. On other occasions, the most sensible course of action is to reach confirmation over the objection of certain classes of creditors through a process known as “cramdown.”
Debtor in Possession
The filing of a case under Chapter 11 creates a new entity known as the “Debtor in Possession.” A Debtor in Possession continues to operate its business in the ordinary course but with new banking and reporting requirements and certain limitations on its activities. It cannot sell property outside of the ordinary course of business without approval from the Bankruptcy Court. Likewise, a Debtor in Possession may not pay its professionals without the Bankruptcy Court approving the engagement of those professionals and authorizing their compensation.
Cash Collateral and Debtor in Possession Financing
Often a Debtor in Possession will have given a creditor a security interest in its assets. When a Debtor in Possession gives a security interests in its cash, deposit accounts and accounts receivable, it must determine how it will operate during its bankruptcy case. Frequently, Debtors in Possession will negotiate or litigate for the right to use cash collateral of a secured creditor. In other instances, Debtors in Possession will seek to obtain new credit facilities after filing their bankruptcy cases.
Fraudulent Transfer and Preference Litigation
Payments to creditors and insiders of a Debtor in Possession in the months leading up to the filing of a Chapter 11 Bankruptcy case can form the basis for causes of action against those parties. Seemingly innocent payments could be subject to clawback if they are made for less than reasonably equivalent value at a time when the Debtor was financially distressed. Another cause to clawback payments exists when a creditor receives payment on a pre-existing debt in the months before a bankruptcy case and that payment enables it to receive more than it would if the payment had not been made and the debtor had simply liquidated its assets. Both fraudulent transfer and preference cases are complex and fact-intensive.
In a complex Chapter 11 Bankruptcy case, there are extensive areas of litigation including successor liability, assumption or rejection of unexpired leases and executory contracts and disputed asset sales. The value of an experienced, creative and talented bankruptcy lawyer cannot be overstated when it comes to bankruptcy litigation.