Chapter 13 Cash-Management Orders

• Jurisdiction: United States

Chapter 13 Cash-Management Orders

This chapter will provide examples of provisions commonly found in "first day" cash-management orders and explain their purpose and necessity. Some examples overlap, reflecting various drafting styles (i.e., less is more vs. more is more). The chapter will close with language and concepts to avoid in cash management orders.

A. Common Provisions

1. Use of Existing Bank Accounts

Sample:

The Debtors are authorized to continue to use the Cash-Management System and honor any pre-petition obligations related to the use thereof, and designate, maintain and continue to use the Bank Accounts identified on Exhibit A, in the names and with the account numbers existing immediately prior to the Petition Date and treat the Bank Accounts for all purposes as debtor-in-possession accounts.

Purpose:

The UST Guidelines ("Guidelines") require debtors to close all pre-petition bank accounts and open new debtor-in-pos-session accounts with new account numbers. One reason for this UST requirement is to provide a clear line of demarcation between pre-petition and post-petition claims and payments. When the debtor's cash-management system is complicated, however, closing all accounts and reopening new accounts can be extremely disruptive and burdensome to operations. A debtor requesting this relief should be prepared to maintain strict records of the receipts and disbursements from the accounts so that pre-petition and post-petition claims and payments can be distinguished.

2. Maintaining Existing Disbursement Methods

Sample:

The Debtors are authorized to deposit funds in and withdraw funds from the Bank Accounts by all usual means, including without limitation checks, drafts, wires, automated clearing house (ACH) transfers and other debits.

Purpose:

The applicable Guidelines may require debtors to make all post-petition disbursements of estate funds by check, with a notation of the reason for the disbursement. Loss of the ability to transact business by wire transfers, ACH payments, debits, setoff and other non-check methods may be quite burdensome to a debtor. Also, by using the words "all usual means," the debtor is relieved from making a notation on checks of the reason for the disbursement if that is not the debtor's custom.

3. Obligations to Pay Bank's Fees and Service Charges

Samples:

Debtors are authorized to pay any service fees or charges associated with the Bank Accounts.
Debtors are authorized to pay any ordinary-course pre-petition and post-petition bank fees incurred in connection with the Bank Accounts.
In the course of providing cash-management services to the Debtors, any Bank, without further order of this Court, is authorized to charge, and the Debtors are authorized to pay or honor, both pre-petition and post-petition service and other fees, costs, charges and expenses to which the Banks are entitled under the terms and in accordance with their contractual arrangements with the Debtors.
The Bank is authorized to charge back, offset, expense or deduct from the Bank Accounts the service charges incurred by the Bank on account of the Debtors' cash-management expenses, returned checks or other returned items, including, but not limited to, dishonored checks, wire transfers, drafts, ACH Transfers or other debits, regardless of whether such amounts were deposited pre-petition and regardless of whether the returned items relate to pre-petition or post-petition items, and that solely the normal service charges and fees (the "Service Charges") may be assessed and deducted in the ordinary course of business from funds held in the Bank Accounts, and the automatic-stay provisions of § 362 of the Bankruptcy Code are modified to allow the Bank to assess and collect such charges, but the automatic stay shall remain in full force and effect for all other purposes as to the Bank, including, but not limited to, any setoff rights (other than with respect to the Service Charges) that the Bank may possess.

Purpose:

As a business matter, the bank will require that all of its customary cash-management fees and charges be paid in the ordinary course, including those that arose pre-petition. The bank is entitled to be paid fees and charges under its account agreements, and the agreements usually provide that the bank has a right of setoff against the funds in the accounts for those claims. As the bank is a secured creditor by virtue of its possession of the funds and right of setoff, the provision does not afford the bank with more favorable treatment than that to which it would otherwise be entitled.

Additional Sample:

Any final payment made by any of the Banks prior to the Petition Date (including any ACH transfer that any of the Banks is or becomes obligated to settle) against any of the Bank Accounts, or any instrument issued by a Bank on behalf of any of the Debtors pursuant to a "midnight deadline" or otherwise, shall be deemed to be paid pre-petition, whether or not it is actually debited from a Bank Account prior to the Petition Date.

Purpose:

This provision establishes that obligations arising from ACH transfers pending as of the petition date are pre-petition, further preserving the bank's right of setoff to cover the payment of these transfers.

4. Governing Documents for Post-Bankruptcy Cash-Management Services

Samples:

Debtors are authorized to perform their obligations under the documents governing the Bank Accounts.
Existing deposit agreements between the Debtors and their existing Banks shall continue to govern the post-petition cash-management relationship between the Debtors and the Banks, and all of the provisions of such agreements, including, without limitation, the termination and fee provisions, shall remain in full force and effect.

Purpose:

Treasury-management services are technical in nature, and it benefits all parties to know what rules apply post-petition. The parties are already familiar with the existing treasury-management agreements, and their systems and processes have been designed to implement them. It is pragmatic for the parties to agree that the same set of documents will apply post-bankruptcy. The express reference to the termination provisions is important to both parties. The bank ensures that it has a path to exit the relationship, and the debtor retains the benefit of the notice provided in the agreements so that it can take appropriate action in the event that the bank terminates its services.

5. Check Stock and Business Forms

Samples:

The Debtors are authorized to continue to use their existing check stock and business correspondence forms, and are not required to (1) immediately obtain new check stock reflecting their status as debtors-in-possession, including listing the chapter 11 case numbers; (2) print "Debtor in Possession" on any of their existing check stock; or (3) mark existing check stock with the "Debtor in Possession" legend or case number until such stock is depleted, and any check stock or business-correspondence forms ordered after such date shall bear the legend "Debtor in Possession" and the case number for the lead case. With

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