Reporting & Restructuring - Short

Topics

• Court oversight — the U.S. Trustee
• What to submit to the Trustee
• Creditors' Committee
• When to start restructuring plan

Guest: Joe Marshall — Marshall Law

This is an abridged version of the original episode. Feel free to go back and listen to the full version in our show feed.

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Transcript

SPEAKER_00 0:01

You are listening to Corporate Bankruptcy A to Z, a podcast that gives you the ins and outs of corporate bankruptcy. This is an abbreviated release of episode 10, where we will cover contracts and court oversight, the role of the U.S. trustee, required reporting, the formation of creditor committees, and how decisions are challenged throughout the case. If you are new to the show or want to hear the full conversation about this topic and more, we invite you to check out our full bankruptcy series down below in the show feed. There you will find an unedited version of each episode where we dig deeper and answer more questions. Corporate Bankruptcy A-Z is hosted by Neil Goldstein, a chief restructuring officer with over 30 years experience. He is joined by co-host and legal expert Steve Raven of CellUI, a bankruptcy attorney with over 40 years in the field. If you are dealing with a situation now and need guidance, you can reach out to them directly. Call Neil at 940-808-9451 and Steve at 973-286-6713.

SPEAKER_01 1:10

For this episode, we have a special guest, Joe Marshall. What is the role of the U.S. Trustees Office in a corporate case? And when do they get involved, Joe?

SPEAKER_02 1:22

Well, the U.S. Trustees Office gets involved from day one. I mean, the the first thing that I I think they really do is look at the filing itself and determine, you know, did the company file in the correct venue and and does it qualify for chapter 11? And they oversee some of the filing reportings that's done by the company throughout the case, the monthly operating reports. Um and they'll look at the schedules and statements, the initial disclosures by the company.

SPEAKER_01 1:52

Joe, you said that reports are filed. What reports are filed and how often are they filed?

SPEAKER_02 2:00

It's a listing of all the assets and the claims and the contracts and and some of the prior history, uh recent history of the financial performance of the company, among other things, owners and owners' interest transactions. Those are filed within the first couple of weeks of the case. Sometimes extensions are granted, but that that's a one-time filing at the outset to fully disclose to creditors what's going on with the company. The more regular reporting are the monthly operating reports that show the revenue and the expenses that the company incurs on a monthly basis.

SPEAKER_01 2:36

Well, let's turn to the creditors committee now. What is a creditors committee and when is it formed?

SPEAKER_02 2:43

Well, so the creditors committee is comprised of unsecured creditors. If you can imagine an unsecured creditor, particularly in a large case, really has very little leverage. Unless they're a major vendor of the company, they may have a claim that's just swamped by the lender's claim. And they may just may not have the leverage and they may not want to spend the money individually to hire lawyers and financial consultants throughout the case to protect just their individual interests. So the so the bankruptcy cases and the and the code contemplate a committee to be formed, and typically, on average, you know, five to seven unsecured creditors are appointed, can be sometimes less, sometimes more, that form the committee, and that committee is a con is a very important constituent in the case. They they then have leverage as they're representing all unsecured creditors. And if you join the committee as a member, you're not on that committee for your particular interest, you're representing all of the unsecured creditors, and they hire attorneys, they can hire financial consultants, and all that's paid by the estate. Uh but it's an it's an important, important constituency, and it's usually formed at the initiation of the case, as quickly as possible. Are they formed in all cases? They're not formed in all cases. I would say in most larger cases, uh they are.

SPEAKER_01 4:22

What rights does the committee have? Can it appeal to the court for certain rulings? Does it have any rights against the estate?

SPEAKER_02 4:34

That's a great question. They they appear in almost every proceeding, every hearing. They can file objections, they can contest what the company is doing, they can challenge the bank on what it's attempting to do in the case, they can review and challenge the liens of the bank, they can look at prepetitioned transactions that were entered into between the company, the bank, and other parties. Interestingly, in a cash collateral dispute, one of the issues that comes up is the committee may want to have certain money set aside or in the budget that they can use their attorneys and financial consultants to go review the validity of the liens of the bank.

SPEAKER_01 5:16

It sounds like the creditors committee can negotiate, if not in rule of law, at least to create a disturbance, causing the secured lender maybe to negotiate something for them that they ordinarily wouldn't have.

SPEAKER_02 5:32

They absolutely can. They can do it throughout the case. And we've also seen it, and and in fact, I represented a committee years ago that in a case where we were able to challenge the debtor's plan and file a competing plan and had the competing plan confirmed over the debtor's plan. The judge considered both at the same time. And so the committee can absolutely impact the the outcome of the case.

SPEAKER_01 6:00

Joe, you said the estate pays the expenses for the committee, but the expenses really are paid by the debtor. The creditors committee can engage attorneys, accountants, consultants. So it could get kind of costly, correct?

SPEAKER_02 6:19

Yes, it can get very costly. In a large case, all of that is borne by say the estate, it's the company, it's it's the bankruptcy estate, but they the company pays it, and it's gotta be in the budget, and sometimes affects the feasibility of a case. Absolutely.

SPEAKER_01 6:39

When should a company start working on its restructuring plan and when is it filed?

SPEAKER_02 6:46

So a company really should begin its efforts to put together the restructuring plan before the case is even filed, ideally. Chapter 11 is not something you want to go into unprepared or at the last minute. There are emergency chapter 11s filed on based on a lot of unexpected reasons. But if it's a planned chapter 11, you're at least having an idea of how your your different paths are going to look coming out of Chapter 11. And so you've already, if nothing else, you've started to outline in your mind and with the company's officers what a plan would look like for this company.

SPEAKER_00 7:25

Do you have a question about bankruptcy? Why not ask the experts? Emails for Neil and Steve can be found in the show notes below. And remember, the first call is always free. Call Neil at 940-808-9451 and Steve at 973-286-6713. You can also find more resources on our website. Go to corporate bankruptcyagens.com or elementary business.com. You can also find links to those in the show notes down below. Corporate Bankruptcy Agency Podcast and YouTube channel are produced by me, Sir ITEXMET. Be sure you subscribe and share the episode, and we will see you next time.