A.  Where We Left Off

As noted in Part III, movants seeking approval of structured dismissal motions typically must prove that the proposed dismissal is in the best interest of the creditors. To do so, movants will usually have to prove that the dismissal provides better treatment than would a liquidation. To that end, most structured dismissals contain what are commonly referred to as “bells and whistles” that sweeten the deal for creditors. Unfortunately, many of the bells and whistles commonly included in structured dismissal motions draw the ire of the United States Trustee. This section will identify some of the most common bells and whistles, while the next installment of this series will identify and address the U.S. Trustee objections.

B.  Bells and Whistles – Dismissals with Benefits

Generally speaking, most structured dismissals contain a number of provisions that affect parties’ rights following the entry of the order dismissing the bankruptcy case. Those “bells and whistles,” are often subject to scrutiny from the U.S. Trustee as will be discussed in the next installment of this series. Typically, structured dismissals include one or more of the following bells and whistles: (1) releases of liability; (2) mechanisms for the administration of claims; (3) gifts to classes of creditors; and (4) provisions for the retention of Bankruptcy Court jurisdiction following dismissal.

(1) Releases of Liability

Many structured dismissals contain provisions that release parties from potential liability, such as non-consensual third-party releases. Other structured dismissals may simply release all causes of action or disputes arising out of the structured dismissal motion and corresponding order. Others may be more expansive, and waive all claims against third parties. For example, with creditor approval, a debtor may seek authority to waive and release all causes of action for preferential transfers and fraudulent conveyances. In many smaller cases, that waiver may incentivize creditors into agreeing to a dismissal simply to avoid the administrative costs of capturing and redistributing a tiny amount of funds amongst the creditors; a practice referred to by some as “rearranging the deck chairs on the Titanic.”

(2) Claims Administration

Structured dismissal motions may also contain provisions affecting the administration of claims against the debtor’s estate. Generally speaking, post-dismissal claims administration can be one of the most difficult bells & whistles to implement, though frequently the most important. Claims administration provisions are typically focused on expediting and minimizing the costs of the claims administration process. For example, certain provisions may fix and allow scheduled claims, or may propose a pro-rata payment of all claims allowed following a post-dismissal claim objection process. The difficulty is often getting parties to agree on how to implement the post-dismissal claim resolution process, and the court to agree to hear disputes following dismissal. In some cases, parties may agree to hire a claims administration agent to resolve disputes and administer funds to claimants. In other cases, parties have agreed to controversial provisions that require objecting claimants to incur all costs and professional fees associated with the resolution of claim objections.

(3)  Gifts

One of the most common bells & whistles found in structured dismissal cases is a gift distribution to a class of creditors. Gift is, perhaps, a favorable term used to describe consideration for acceptance of the proposed dismissal. In any event, debtors and secured creditors who have otherwise resolved the major issues of a case may agree to carve out funds to distribute to unsecured creditors who would otherwise receive nothing in a liquidation. As discussed in the third installment of this series, courts must weigh whether dismissal or liquidation is in the best interest of the creditors. A gift distribution may prove far more favorable than a take-nothing liquidation.

(4)  Retention of Jurisdiction

Structured dismissal orders also frequently contain a provision pursuant to which the bankruptcy court retains jurisdiction over post-dismissal issues. Those issues often include the distribution of retaining funds, the claims administration process, and disputes arising from the structured dismissal order. Many dismissals also include bells & whistles that ensure all pre-existing bankruptcy orders survive dismissal. As a result, the progress made in the case is not unwound. By keeping the court involved and progressing forward with minimal intervention,  structured dismissals can provide for the orderly administration of remaining assets and a setting to resolve remaining issues.

C.  Survey of Structured Dismissal “Bells and Whistles”

It appears, from our investigation, that the great majority of structured dismissal cases are unpublished. In fact, the number of published cases discussing structured dismissals can probably be counted on one hand. Nevertheless, our own investigation and review of structured dismissal orders reveals a broad geographical scope of successful structured dismissals, as well as a variety of provisions typically approved in structured dismissal orders.[1] A representative sample of those cases is as follows

STRUCTURED DISMISSALS PART IV