by Jamie L. Harris
In addition to an out-of –court restructuring where a debtor restructures its debt outside of a bankruptcy proceeding, there are different routes to accomplish a restructuring through a Chapter 11 bankruptcy. A typical Chapter 11 bankruptcy case begins with the debtor filing a bankruptcy petition, certain required statements and schedules of assets and liabilities, and a series of motions requesting initial relief with the Bankruptcy Court. The debtor then begins negotiations with different creditor constituencies regarding a plan that will be submitted for creditor approval. In the typical Chapter 11 case, the debtor has a 120-day exclusive period (180 days if the debtor is a small business) to file a plan and a 60-day period to solicit votes and obtain confirmation of the plan (45 days in a small business case). A complex chapter 11 bankruptcy case typically may take more than a year to conclude.
In contrast, a prepackaged bankruptcy or a “prepack” involves a case where the debtor has negotiated a plan and solicited votes from creditors prior to filing for bankruptcy. In a prepack case, the debtor files its bankruptcy petition, the required statements and schedules of assets and liabilities, and a plan of reorganization and disclosure statement on the same day. The function of the bankruptcy case in a prepack is to implement the accepted plan. As a result, the filing of a prepack can significantly reduce the time and expense of a Chapter 11 bankruptcy. Typically, a prepackaged bankruptcy can be as brief as 30 to 75 days. Prepacks have increased in popularity in recent years although they are generally still considered rare. They have been around since the late 1980s and became even more popular in the late 2000s. Several high profile prepacks have been filed including the bankruptcies of MGM, Oneida Ltd., Davis Petroleum Corp., and Quizno’s.