The Life and Times of a Commercial Chapter 11 Debtor

• Author: Asa S . Hami, Claire K. Wu
• Pages: 41-46

Published in Litigation, Volume 47, Number 4, Summer 2021. © 2021 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not

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The Life and Times of a Commercial

Chapter 11 Debtor

ASA S. HAMI AND CLAIRE K. WU

Asa S. Hami is with SulmeyerKupetz, Los Angeles. Claire K. Wu is with Pillsbury Winthrop Shaw Pittman LLP, Los Angeles.

Aggressive creditor pressing foreclosure? Contentious litigation

draining financial resources? Simply suffering from a crippling

liquidity crisis? Your business client may need to consider bank-

ruptcy. Chapter 11 proceedings can overwhelm lawyers who don’t

regularly practice in the area. What should you know?

There are three stages in every Chapter 11 debtor’s life: the

pre-petition period; the post-petition period, after filing the case

but before a plan is confirmed; and the post-confirmation period.

The pre-petition stage comes, of course, before the post-petition

stage, but the progress of a Chapter 11 case is not necessarily

linear. Events within each stage may occur at different times

and in a different order depending on the type of business, the

issues facing the particular business, and the conduct of other

parties in the case.

Before Filing

Before filing, the debtor company should identify key parties.

Some are important pre-petition; others come into existence

only later. Key parties for a hypothetical retail debtor would in-

clude secured creditors, critical trade vendors, the U.S. Trustee,

the official committee of unsecured creditors, and others like

landlords, contract parties, and aggressive creditors.

Secured creditors hold liens against the debtor’s assets. In a re-

tail case, that might be a bank that provided secured financing or

a line of credit used by the company to fund operations. Debtor’s

counsel should meet with secured creditors before filing the

bankruptcy. Doing so enables the debtor to, among other things,

receive the creditor’s consent for continued use of revenues on

which a secured creditor has a lien. To the extent the company

needs additional financing from those lenders after filing, the pro-

cess will be much smoother if things are arranged pre-bankruptcy.

Critical trade vendors are those from which the company

needs continued receipt of goods or services to continue op-

erating. When in Chapter 11, a company cannot pay any pre-

bankruptcy claim without court authority, so it’s important to

identify which of a company’s vendors are critical before filing.

That will facilitate an uninterrupted payment process that in-

centivizes vendors to continue working with the debtor while

it is in bankruptcy.

The United States Trustee is an arm of the Department of

Justice charged with oversight of the bankruptcy system. It is, in

essence, the watchdog in the case. The U.S. Trustee is generally

active at the start of a case but may later take a less active role,

especially when a case has active creditor participation.

The committee of unsecured creditors becomes relevant only

post-petition. Appointed by the Trustee, the committee generally

consists of 3 to 7 of the largest general unsecured creditors in the

case, and up to 11 in the biggest cases. The committee represents

the interests of all general unsecured creditors and has standing