Editor’s Note: While we at The Bankruptcy Cave always enjoy writing about new cases or legal developments, we really love using our posts as an opportunity to pass along tips, easily forgotten rules, and things that make the client think you are a rock star (and avoid a client’s distrust in your ability to captain the Chapter 11 ship). (For prior A++ Forms and Resources on taking depositions, see here; on preparing for a deposition, see here; and on preparing for and handling the no-show deposition, see here.) Here is our latest, focusing on the petition package, filing the case, and first days. Coming in a few weeks is a post on preparing the list of creditors, and the tips and traps of giving proper notice to creditors and avoiding foibles (or worse, accusations) relating to notice of the case and the 20 largest creditors.
As a Chapter 11 debtor’s attorney, the prospect of serving as debtor’s counsel is an exciting – and increasingly rare – opportunity. The preparation for filing a Chapter 11 case involves negotiating complex cash collateral and financing issues and drafting numerous first-day motions. But as important as those strategic issues are, don’t forget to give due attention to the seemingly simpler issues, which can turn into time-consuming hurdles as the filing date quickly approaches. The list below contains a few suggestions for filing-related items to work on well in advance, in hopes of minimizing time spent correcting procedural snafus or worse, jeopardizing the effectiveness of the petition itself.
- Preparation of the Petition Packages: It’s tempting to think of the petition as the simplest of documents to prepare for the Chapter 11 filing, and it probably is. Still, the short petition is not the only document required for filing, and the information required in the larger petition package might take some extra searching. For example, in the new petition forms, you’ll need to identify your client’s four-digit North American Industry Classification System (“NAICS”) code. If your client has not used a NAICS code before, they will need to identify the code that best describes their business. The client will also need to provide, pursuant to Fed. R. Bankr. P. 1007, a list of all holders of equity security interests in each debtor, which may require research by the client. Other items required in the petition packages are the list of the top 20 creditors (tips on the preparation of that coming in our next post) and the board resolutions authorizing the filing, which might be subject to last-minute changes as the filing date crystallizes.
- Corporate Authorization: Make sure you actually read the articles of incorporation, by-laws, LLC agreement, and any other organic documents for each and every putative debtor to determine what procedures you must follow to obtain authorization for the filing. (And make sure you have the most recent copies of each – amendments to these documents tend to be forgotten or hard to find, especially by a floundering debtor.) Things on which you must focus:
- Is an actual meeting of the board (or other governing body) needed? Can that be waived?
- Are a certain number of days’ notice required for any meeting or any consent? And can that notice be waived?
- What are the quorum rules?
- Are any directors (or other governing parties) going to be on vacation, or indisposed on or around your projected filing time? If so, what can you do now to work around that?
Think hard about these issues a few weeks before any potential filing – looking into this a few days before filing is not a suggested practice.
- Order of Filing Multiple Petitions: Venue must be proper for the initial debtor under 28 U.S.C. § 1408(1). For all subsequent debtors, you can rely on the “affiliate” venue rules of 28 U.S.C. § 1408(2). But even for the subsequent debtors, make sure they are filed in the correct order – don’t make the second case be one for a “cousin” of the initial debtor that, while it may be in the same corporate family, does not qualify as an “affiliate” under the Bankruptcy Code’s definition.
- Alerting the Court: In some jurisdictions, like Delaware, the local rules require at least two days’ notice to the court of an imminent Chapter 11 filing. If the rules are silent, consider discreetly alerting the court clerk of the impending case, especially if the district in which you’re filing is does not frequently see Chapter 11 cases. A conversation with the clerk will provide an opportunity to ask for the court’s preferences on certain mechanics of docketing the petition and first-day motions. For example, certain first-day motions, like motions to use cash collateral or motions to provide adequate assurance to utilities, might have their own ECF event, whereas others are generic motions. The clerk might also have advice on how to link multiple debtor cases together so that they receive the same judge assignment.
- Filing Fees: This one is really important, and easily forgotten until it is too late.
- If you have multiple debtors, consider whether the payment of the filing fee will be an issue. The filing fee is currently $1,717 for each debtor; if you’re using a single credit card, it could take fewer than ten debtors to hit a credit card limit.
- Likewise, make sure you ask the debtor a few weeks in advance for an additional deposit to cover the filing fees. Just before filing, the prospective debtor may have little or no access to cash – the day before filing is not a good day to call the client and say “I need $17,000 wired to me immediately for the filing fees for the ten affiliated debtors.” And if you don’t get paid for this in advance, you eat it, since your firm can’t be retained as a disinterred professional, if your firm is a creditor by virtue of having advanced the filing fees.
- Don’t Get Off on the Wrong Foot with the U.S. Trustee: You should also provide drafts of the petition and first-day motions to the Office of the United States Trustee with as much notice as possible, which will be difficult because those motions are usually undergoing continuous revision in the days leading up to the filing. Providing notice to the U.S. Trustee right when you file is not ideal – give the U.S. Trustee a day or two’s notice, to engender goodwill and avoid a flustered U.S. Trustee.
- Identifying Local Precedents: As with any motion, in preparing first-day motions, you will cite to precedents authorizing relief similar to the relief sought in your motion. However, first-day operational motions are not often the subject of appellate decisions, and a more effective source of authority is previous local debtor cases. Searching for those orders on PACER is time-consuming and requires historical knowledge of cases filed in your district, so be prepared to spend more time than usual on this element of the drafting. And plan ahead, even months or years ahead – if you are in a jurisdiction that rarely sees complex Chapter 11s, when one is filed, go ahead and set up a special Outlook folder to contain key pleadings that you may use in the future, as precedent or forms. Spending 20 minutes now, when you see some handy precedent from a local Chapter 11 – can save dozens of hours in the future.
- Expected Additional Filings: Jurisdictions can vary in the particular pleadings the court expects to see filed with the petition. For example, some courts require employment applications immediately. Other jurisdictions require a motion for expedited relief for any motion to be heard in the initial days of the case. Apart from the motions you’ll file immediately based on your client’s urgent financial and operational needs, be sure to find out whether additional pleadings are expected, and what the local rules require for an immediate first day hearing.