USA Law and Practice Contributed by: Davis Lee Wright, Natalie D. Ramsey, Katherine M. Fix and Rachel Jaffe Mauceri, Robinson & Cole LLP
“restructuring support agreements” but the Chapter 11 plan may not be solicited until the Chapter 11 case files and the bankruptcy court approves the required solicitation documents. While generally not as fast as a pre-packaged Chapter 11, a pre-negotiated Chap - ter 11 may potentially move faster than a traditional Chapter 11 bankruptcy. A company may seek the protection of a “traditional” or “free fall” Chapter 11 for myriad reasons, including (among others) failed OCR negotiations, unfavourable business or litigation results, looming debt maturities or other financial exigencies, and/or when the financial or business pressures facing a company outpace the time available to address them. Traditional cases can take months and even years before the reorganisa - tion plan is confirmed and even longer for creditors to receive distributions. Automatic Stay A key protection of the Bankruptcy Code is the auto - matic stay, which, upon the filing of the petition, enjoins all creditor actions against the debtor or estate assets, wherever located (even internationally), includ - ing all litigation and collection efforts. The automatic stay provides a “breathing spell” intended to prevent a run on the debtor’s assets, and instead permits the debtor to stabilise its businesses, negotiate with creditors, and formulate a plan of reorganisation and post-petition business strategy. There are exceptions to the stay, and a creditor may petition the bankruptcy court for relief from the stay in certain circumstances. (See 11 USC Section 362 (d).) The Bankruptcy Code also permits a debtor, with the approval of a bankruptcy court, to: • obtain post-petition DIP financing to pay for con - tinuing operations and the costs of the bankruptcy case; • assume (reaffirm), assign or reject (breach) unex - pired non-residential leases and executory con - tracts; • continue to pay ongoing obligations in the ordi - nary course of business, and seek authority to pay certain pre-petition obligations to avoid post-bank - ruptcy disruptions;
• use, sell or lease debtor property outside the ordi - nary course of business, or by accepting or reject - ing certain types of contracts and leases; • negotiate with creditors to formulate terms for a reorganisation plan; • object to or litigate with creditors regarding the validity or amount of a creditor’s claim; • propose and solicit creditor acceptances of a reor - ganisation plan; and • seek confirmation of the reorganisation plan. Official Committee(s) Upon the filing of a Chapter 11 case, with sufficient interest, the UST will appoint an official committee of unsecured creditors that acts on behalf of the entire unsecured creditor constituency (see 1.3 Statu- tory Officers ). An official committee may retain legal and financial professionals to advise the committee regarding the debtor’s bankruptcy case and business decisions. Depending on the nature of a case, the UST may also constitute one or more other official commit - tees, such as a committee of tort claimants in a mass tort case, or more rarely (because equity holders are last to recover and often out of the money), an offi - cial committee of equity holders. An equity commit - tee may be appointed only if a reasonable possibility exists that equity is entitled to a recovery. Claim Valuation Following the filing a Chapter 11 case, the debtor must file Schedules of Assets and Liabilities and Statements of Financial Affairs providing a comprehensive finan - cial snapshot of the debtor. The debtor must identify its creditors by name, include the outstanding claim amount, and identify whether the claim is contingent, disputed or unliquidated. In a Chapter 11 case, creditors disagreeing with the listing in the schedules, or who are not listed, must file a proof of claim by the bankruptcy court-established claims bar date. In a Chapter 7 case where there are assets available for distribution, a creditor must file a proof of claim even if they agree with the sched - uled claim amount. The claim will be allowed unless a party-in-interest objects, which may lead to an evi - dentiary hearing (11 USC Section 502 (a)). The Bank - ruptcy Code also contemplates estimation of claims for plan voting purposes (11 USC Section 502 (c)), but
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