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Chapter 11 Reorganization

Filing for Chapter 11 protection allows a company to continue operating free from lawsuits and financial claims from others that predate the filing, while the company reorganizes to meet the claims of those debtors and creditors who provide capital and goods to allow the company to grow after the reorganization. Under a Chapter 11 proceeding, a company typically continues to provide employees with salaries and benefits and is able to do business with suppliers and customers in the normal course. This process allows a company to continue generating funds in support of ongoing operations, and to reorganize their finances and operations in a manner that allows them to satisfy the demands of secured and unsecured creditors.

As part of the Chapter 11 process, the U.S. Trustee will appoint one or more committees that represent the interests of creditors and in certain situations the stockholders. The committees are appointed to work with the company in the development of a plan of reorganization to meet the obligations of debt holders in a reasonable period of time. Before the plan of reorganization can be approved it must be confirmed by the Court. Today, bankruptcy matters have become highly complex and litigious. What was originally hoped to be a fairly short time “in court” can develop into lengthy legal proceedings where money needed to reorganize and pay creditors is spent fighting legal challenges.

MainStream's seasoned veterans have significant experience in managing these complex matters involving distressed situations, restructurings and reorganizations. Our job is to help you define pre-filing strategies, manage the many demands of the process and allow management to stay focused on the financial and operational improvements necessary for the future of the organization. Our objective is to assist you in exiting the proceedings as quickly as possible with maximum control of the company's future.

Developing a Plan

One of the primary objectives of a company in bankruptcy is to develop a business plan and negotiate with its creditors to formulate a reorganization plan. The company has the exclusive right by law to propose such a plan of reorganization during the first 120 days of the Chapter 11 process. If the company is proceeding in good faith, the exclusive period may be, and usually is, extended by the Bankruptcy Court, up to a maximum period of 18 months. Once the Plan of Reorganization is formulated and documented, it will be filed with the Bankruptcy Court.

The Debtor will present a Disclosure Statement to the Court and creditors, along with the Plan of Reorganization. The Disclosure Statement contains complete financial information and also explains the company's proposed plan for paying its creditors. The Bankruptcy Court will determine whether the Disclosure Statement contains adequate information for the creditors to decide whether to vote to accept or reject the Plan of Reorganization. If the Disclosure Statement is approved by the Court, the company will then send it, along with the proposed Plan of Reorganization and a ballot, to all creditors and interest holders in the company. Those parties can then vote on the Reorganization Plan by an announced voting deadline.

If the required number of interested parties votes in favor of the plan, the company will then seek Bankruptcy Court approval, or confirmation, of its Plan of Reorganization. If the plan is confirmed by the Court, the claims of creditors will be satisfied as provided for in the plan. At this point, the company can emerge from Chapter 11 as a reorganized company and operate its business as described in its Plan of Reorganization.

MainStream's team of specialists will assist in the development of pre-filing strategies, as well as preparing the reorganization plan in concert with management. Generally we advise and/or participate in presentation of the plan to the Court and committees, and then serve as a voice of reason and represent the company from a business perspective in gaining confirmation of the reorganization plan.

Debtor in Possession

Companies that enter into Chapter 11 reorganization and continue operating are known as the debtor in possession, or “DIP”. In a Chapter 11 reorganization proceeding, pre-bankruptcy creditors are, for the most part, stayed from enforcement remedies and do not receive payment of principal or interest while the company seeks to rationalize its business and formulate a plan of reorganization to restructure its balance sheet.

The DIP typically finds itself in need of credit immediately after filing their Chapter 11 case. While most of its pre-bankruptcy liabilities are frozen, the company is likely to need cash immediately to cover payroll and the up-front costs to stabilize the business. Although post-bankruptcy credit extended by vendors is granted administrative expense priority over all pre-bankruptcy unsecured claims, it is not uncommon for vendors to place Chapter 11 debtors on C.O.D. or C.B.D. until the company stabilizes and DIP financing, also referred to as working capital financing, for the company's ongoing operations has been negotiated and is available.

DIP loans are typically asset-based, revolving working-capital facilities put into place at the outset of Chapter 11 to provide both immediate cash as well as ongoing working capital during the reorganization process. In general the most important element of DIP financing comes from helping the company restore vendor and customer confidence in the company's ability to maintain its liquidity.

MainStream is well known and highly regarded throughout the financial services marketplace that provides DIP financing. Our specialists are familiar with the process of negotiating these credit facilities and can make certain that you receive not only the funds required but also the best available terms.

Schedules and Reporting Procedures

The paperwork requirements associated with a bankruptcy filing can be daunting to the uninitiated. Working with members of a company's finance team, MainStream's seasoned specialists will quickly identify the information and documentation required to compile and complete the comprehensive bankruptcy Schedules and Statement of Affairs (SOFA). Our team also has knowledge and experience in the completion of the monthly operating reports (MOR) that are filed with the office of the U.S. Trustee.

Throughout the Chapter 11 reorganization process it is quite common to receive a plethora of requests for information from counsel to the debt holders, from the U.S .Trustee and from the official committees. MainStream can ease the stress of operating in bankruptcy by taking responsibility for the preparation and dissemination of all information requests and reports that many debtors find confusing.

Financial and Operating Guidance & Restructuring

MainStream serves in turnaround, crisis and interim management positions to guide companies as they work through unstable periods and major change like those associated with a Chapter 11 reorganization. Our seasoned professionals typically serve as CRO, CEO, CFO or COO and generally are retained by and report to the Board of Directors. We are involved in each stage of the process and work in a collaborative manner building consensus around proven strategies to neutralize the effects of the crisis. MainStream's hands-on approach combined with our track record in operational improvement and financial restructuring experience yields comprehensive performance improvement to middle market companies.

Our services include:

  • Problem identification and resolution strategies

  • Liquidity concerns

  • Debt restructuring

  • Disposition of non-core or under-performing assets

  • Operational restructuring

  • Cash management

  • Pricing Management

Chapter 11 Reorganization: Projects
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