CHAPTER 9 - § 9.14 • CHAPTER 11 ISSUES

• Jurisdiction: Colorado

§ 9.14 • CHAPTER 11 ISSUES

§ 9.14.1—First Day Orders

In most chapter 11 cases, two time periods are critical from a creditor's point of view: the early days of the case and the period of time leading up to confirmation. At the start of the case, there are several pleadings of great significance to secured creditors. These are among the so-called "first day motions" because they are typically filed with the bankruptcy petition.

Cash Collateral Motions

In most instances, a debtor's assets will be fully encumbered and all cash will be subject to the secured creditor's lien. In order for a debtor to use this cash collateral, it must either obtain permission from the lender or obtain court approval. Usually, the debtor will have been in negotiations with its secured creditor prior to filing bankruptcy and may have reached an agreement pursuant to which the debtor may use the cash it is generating from its operations and provide the lender with a lien on post-petition receivables. If the debtor does not reach an agreement with its lender, at a contested hearing, the debtor will have to show that the lender is "adequately protected" in order to use the cash collateral.

Debtor-in-Possession Lending Motions

Another common first day motion is the so-called DIP lending motion. In this motion, the debtor-in-possession (DIP) seeks permission to borrow funds post-petition. Generally, a post-petition lender obtains a "super-priority" administrative claim or a security interest on any unencumbered property of the debtor. 11 U.S.C. § 364(c)(1) and (2). If the debtor cannot obtain credit otherwise, the court may authorize a security interest on the debtor's assets that is "senior or equal" to an existing pre-petition security interest, i.e., a "priming" lien. A "priming" lien is an extraordinary remedy and, in order to obtain one, the court must find that the existing liens are "adequately protected."

Requests that the court approve the use of cash collateral and DIP loans often are presented to the court on an expedited basis. A preliminary hearing is usually held within the first 48 to 72 hours of the filing of the petition, at which time the court will enter an interim order approving the use of cash collateral and DIP lending. Bankruptcy Rule 4001 provides that at such a preliminary hearing, a court may authorize the use of cash collateral and DIP loans only to the extent necessary to avoid irreparable damage pending the final hearing, which can be held no earlier than 14 days after service of the motions. Fed. R. Bankr. P. 4001(b)(2) and (c)(2).

§ 9.14.2—Creditors' Committees

In a chapter 11 case, the United States Trustee will appoint one or more creditors' committees if a sufficient number of unsecured creditors are willing to...