Pre-negotiated Chapter 11 Plans

Pre-Negotiated Chapter 11 Bankruptcy Plans

by Jamie L. Harris

If a company has insufficient time or ability to complete a fully prepackaged Chapter 11 bankruptcy case, an alternative is a pre-negotiated plan which is quite similar to a prepackaged plan.

A pre-negotiated plan, like a prepackaged plan, involves prepetition negotiations between the debtor and key creditors regarding the terms of a restructuring.   A pre-negotiated plan is a restructuring in which the debtor and impaired creditors agree upon the terms of a plan and contractually bind themselves to such terms through a lockup or plan support agreement without yet having engaged in the voting process set forth in Section 1126 of the Bankruptcy Code.

Lockup or plan support agreements provide that creditors agree to support the debtor’s plan during the Chapter 11 case, provided the plan contains certain provisions agreed upon in advance by the parties.  After the lockup or plan support agreement is executed, the company files for Chapter 11 relief to implement the plan. The debtor will seek court approval of the disclosure statement, solicit votes on the plan and seek an order from the bankruptcy court confirming the plan.

In contrast, in a prepackaged plan, the debtor’s solicitation of votes has already been initiated or completed before the bankruptcy case is filed. A pre-negotiated plan like a prepackaged plan can help a debtor save significant time and expense in a Chapter 11 bankruptcy proceeding.

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