Corporate Bankruptcy A to Z

The corporate bankruptcy process is explained by seasoned bankruptcy attorneys, consultants, judges and companies who have filed for bankruptcy. It begins with what is bankruptcy, to who should file, how to find the best attorney, what forms to file, what happens to the company after the filing, the plan to exit and how it all works.

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Corporate Bankruptcy A to Z

Bankruptcy Success - Short

May 22, 2026 • Neil Goldstein

0:00 | 26:00

Topics

Corporate bylaws — severe problems
Receivership to avoid bankruptcy
Best time to file restructuring plan
Payout period — 5 or 10 years?
Creditor voting process
Absolute Priority Rule
Plan confirmation

Guest: Marcus A. Helt — McDermott Will & Emery

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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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 11, where we will cover governance issues in distressed companies, resolving ownership disputes, the role of receivers, and how bankruptcy plans are developed, approved, and executed. 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 to 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 SolUA, 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_02 1:10

Marcus, welcome to the podcast and tell us something about you and your firm.

SPEAKER_01 1:19

I'm a partner at the law firm of McDermott, Will, and Emery.

SPEAKER_02 1:24

Marcus, can you discuss how important corporate bylaws are in a company and how they could lead to a detrimental situation and maybe even a bankruptcy?

SPEAKER_01 1:36

So corporate bylaws actually govern how the company is going to govern itself. And you see problems when there's a 50-50 split in the ownership structure. And the managers of the company, either through a board of managers when there's an LLC or a board of directors when there's a corporation, have equal votes, but there's no tie vote. There's no tie-breaking vote. So the company itself becomes paralyzed because you have one manager slash director that wants to go in one direction, and the other manager slash director wants to go in the other direction. But nobody has the tie breaking, nobody has the control, the majority position to actually dictate what in which direction the company should go. That becomes a problem when you want to make major decisions, such as a filing of a bankruptcy, or maybe a sale of the company, or maybe a window of the company. Receiverships become in play at that point because a receiver is someone who takes over management generally speaking. A receiver is someone who takes over management of the company and can dictate a path. I'm involved in a case right now where the company is solvent and the equity holders can't get along. And there was a concern by each equity holder's counsel that that disagreement will erode or destroy value. So they actually asked me if I would be the sort of tiebreak, the receiver that runs this company to some conclusion.

SPEAKER_02 3:18

So what would you recommend for a company in that situation? Is it always going for a receiver, or is there another plan the company could implement?

SPEAKER_01 3:31

The way I see it, there are three different possibilities. One is a receiver, one is a is a bankruptcy, but a less uh intrusive, less expensive way also is to just rework the governance provisions.

SPEAKER_02 3:48

Marcus, you get the last episode, the conclusion of a successful bankruptcy filing. The company has been operating successfully in bankruptcy and is ready to present a plan to the court. Well, operating in the exclusivity period, how does a company know if it's the right time to file their plan to the court for approval?

SPEAKER_01 4:13

You know, usually through communications with the creditor body, looking at the visibility that's given by the company's performance relative to the projections, what your cash position is, and when your exclusive period expires. Those together tell you how quickly and how much time you have left to propose your plan. Under the bankruptcy code, the debtor and only the debtor can file a Chapter 11 plan within the first 120 days of the case. Now, debtors can extend that period, and they can expend that period up to 18 months. Whether you can extend it or not is usually dictated by how much cash you have to run in the bankruptcy, because bankruptcies are expensive. Generally, you have councils representing the company, you have councils representing the secured lender, you have councils representing the unsecured creditors. All three of those constituent groups get paid out of the same corpus of cash.

SPEAKER_03 5:18

In addition to the council, for each of those constituents, there are oftentimes financial advisors for each one, all of whom also get paid out of that same corpus.

SPEAKER_02 5:32

What is in the plan?

SPEAKER_01 5:35

Well, the plan is a comprehensive and detailed agreement between the debtor and all of its creditors and stockholders. It provides a number of things, but generally it talks about how pre-petition claims are going to be treated. Are they going to be discharged or not? How those claims are going to get paid. Are they going to get paid through a conversion of debt to equity? Are they going to receive a pot of cash? Are they going to receive a payment stream? It talks about changes to governance going forward. Some plans are what we call liquidating plans. So those are just sales. Some plans are restructuring plans. And some plans are a combination of both.

SPEAKER_02 6:21

Is there a specific period the plan must cover?

SPEAKER_01 6:26

The plan addresses how the pre-bankruptcy debts are paid and how and when the bankruptcy debts are paid. So usually when you file bankruptcy, you or not usually, when you file bankruptcy, you have a line in the sand. All the debts that were incurred prior to the moment that you received a case number, those are called pre-bankcy debts. Plan addresses how those are paid. All the debts that are incurred post-filing bankruptcy are called administrative expenses. Those are generally paid as they come due during the bankruptcy case. But to the extent that there are some that are unpaid, when you get to the courthouse and ask the court to approve your plan, your plan has to address how those are going to be paid. And the bankruptcy code says unless a holder of an administrative expense agrees otherwise, those administrative expenses have to be paid just to exit bankruptcy. So the plan covers all debts that what we would call pre-the-plan going effective, which is when the plan becomes a legally binding document. Until it becomes effective, it's just a proposal that the debtor put forth on how to address all of its debts.

SPEAKER_02 7:47

Could the period be one year, five years, 10 years? Is there a standard or is it flexible based upon each individual bankruptcy plan?

SPEAKER_01 7:59

The period is flexible. Lobbyists have gotten to Congress and imposed certain deadlines to make bankruptcy cases move more quickly. One reason for that is the cost of the bankruptcy. The longer it goes, generally the more expensive it is. The more expensive it is, the less residual value remains for the stakeholders. So I think the the general perception is that you'd like to get your bankruptcy plan proposed and approved as fast as possible. Most plans don't get really proposed until the end of the first uh exclusivity period, and sometimes those are extended.

SPEAKER_02 8:53

Who usually prepares the plan?

SPEAKER_01 8:56

Well, during the first 120 days, unless that period is extended, it's only the debtor. And the debtor's council gets with the debtor's financial advisors. So usually the debtor's council prepares, at least the way we do it, we go into bankruptcy with our plan. We then have an executive summary prepared, then we go to the financial advisor and say, okay, we need the financial projections that support what we think can be accomplished here. Now, it's not as linear as that because when we're developing our exit strategy, we've already worked with the financial advisor to understand is what our concept of how we're going to restructure this company, is it actually doable using the current uh financial performance and the projected financial performance that we think is attainable.

SPEAKER_02 9:49

What happens to the plan after it's submitted?

SPEAKER_01 9:53

Once it's submitted, then the company has to file with it what is called a disclosure statement. A disclosure statement is akin to an investment prospectus. And the goal of the disclosure statement and the rule requires the disclosure statement to provide or contain information that is adequate so that a reasonable investor can look at the disclosure statement and decide whether the investor wants to accept, which means approve, or reject, which means to vote down the proposed plan. Once that disclosure statement is filed, then the court has to review it and independently determine does it contain the information that's deemed adequate? Oftentimes, constituent groups will oppose the approval of the disclosure statement because those constituent groups want have certain agendas and want language put in those documents. And once the disclosure statement is approved, then the company, the proponent, which is usually the debtor, sends the disclosure statement and the plan out to all creditors who are entitled to vote. Only those creditors whose claim, whose pre-petition debt is being, quote, impaired, which means altered under the plan, get to vote.

SPEAKER_02 11:16

So the creditors and interested parties get to see the plan. Correct. What do they do with it?

SPEAKER_01 11:24

They read it and decide how it how it, the plan, impacts their legal rights. And if it impacts their legal rights in a way that's acceptable to them, then they vote in favor of it. If it impacts their rights in a way that's unacceptable to them, they vote to reject it. And then they also typically file an objection to the plan.

SPEAKER_03 11:48

So what the creditors get, Neil, in addition to the disclosure statement and the plan, is a ballot. And it's a one-page document, which is uh what the creditor fills it out and files it with the court. And in essence, it's they are voting on whether to accept the plan or reject the plan. And then as part of the process where the court approves the plan, is in essence a tally of the votes, and there are certain uh levels of approval which must be attained in order for the approval to meet that particular criteria.

SPEAKER_02 12:36

Should the company fear publishing too much information that might give secrets away to competitors?

SPEAKER_01 12:44

It's always a concern. And that's why the standard under the bankruptcy code is just adequate. It doesn't say that you have to you have to provide everything. It just says you have to provide the lowest level of information such that a recipient of that information can make an informed decision.

SPEAKER_02 13:06

How long does the court usually take to review the submission of a plan?

SPEAKER_01 13:11

A general rule of thumb is 35 days after the disclosure statement is filed, the court will usually approve or not the disclosure statements. I would say that 90% of disclosure statements get approved, maybe even more. They might be modified because certain creditors may express certain opinions that it's probably easier for the proponent of the disclosure statement to just include a qualifying language that says Neil Goldstein asserts the following, and that resolves that objection. The debtor disagrees, but Neil asserts the following. And then usually it's another 35 days from when the disclosure statement is approved, then the plan is solicited, the vote happens, and then you go to a hearing, which is what we call a confirmation hearing. And at that hearing, the proponent of the plan has to establish through the evidence enough to satisfy generally 15 to 19 different elements under the statute.

SPEAKER_02 14:16

Do you find that most of the plans in your cases are confirmed?

SPEAKER_01 14:22

I think for the more experienced practitioners and the ones who who establish their exit strategy early in the case, those plans get approved. Steve?

SPEAKER_03 14:45

And they try to negotiate with each other to get to the point of alignment so that the uh process is a lot smoother and less adversarial uh to get the to get the job done.

SPEAKER_01 15:02

This goes back to the motive. If you have a party that has a pure creditor motive, then they are more likely to agree to a business deal that is probably not the best deal they could ultimately get, but it's much better than the worst deal. If you have a holder of a claim who has a non-creditor motive, it almost doesn't matter what you propose to them, they just want to destroy you.

SPEAKER_02 15:34

What is the procedure allowing creditors and interested parties to make comments and have discussions about the company's plan?

SPEAKER_01 15:46

One of the things about bankruptcy that is both a benefit and a burden is there's full transparency. And one element of that being a burden is competitors get a free look. Others view it as a burden because there are information, there's information that the company doesn't want to provide. And another reason for it being a burden is it's expensive. One of the benefits of full transparency is your decisions are fully vetted, and the court has the ability to make an informed decision. So creditors get a look at the debtor's financials very early on in the case, and they can monitor along and follow the company's evolution from a new debtor to a mature debtor to hopefully an exiting debtor.

SPEAKER_02 16:45

Do interested parties get to submit their own plan in opposition to the company's?

SPEAKER_01 16:51

No, as long as the debtor is in the what we call the exclusive periods. Once a debtor falls out of the exclusive periods, the interested parties, anybody can file a plan. Generally, what happens is a debtor in bankruptcy proposes to extend the exclusivity period, and the part there could be opponents to that, and those opponents then uh seek court intervention or permission to what we call terminate the exclusive period. And if they can show that the debtor has no hope and no prayer of proposing a plan that will ever get approved, then the court may terminate exclusivity and open the plan process up to any up to any interested party.

SPEAKER_02 17:39

So let's say there are competing plans. How does the court adjudicate which one is the best plan? Is it only on the amount of money that pays the creditors the most?

SPEAKER_01 17:54

The first step is the court has to see if the plan establishes or meets every one of the statutory elements under 1129. Once that happens, the court has to approve the best plan. In determining what's best, the court should give deference to what the stakeholders, how the stakeholders voted. But the court should also decide what is quantitatively the best plan and what is qualitatively the best plan. Because what might be the highest isn't necessarily always the best. And that's where the plan, where the confirmation hearing with multiple plans gets a little shaky because the the plan the court can only approve one plan. You can't approve two.

SPEAKER_02 18:39

Is any consideration given to the fact that the principals of the company that filed for bankruptcy have been there for years and the employees are, say, loyal to them?

SPEAKER_01 18:53

Yeah, I think so. I think that's a factor that's both a positive and a negative under the under the certain circumstances. Bankruptcy courts like to keep jobs. They like to give companies fresh starts and restructure debts. Where they will draw the line is if the quote restructuring is illusory and is effectively pie in the sky, such that the employees are just doing it for their own benefit.

SPEAKER_02 19:22

Steve, what advice do you give your clients when preparing a plan?

SPEAKER_03 19:29

What I explained to my clients is that the goal is to survive and be strong into the future. You have to over-disclose with respect to the disclosure statement. Do not under-disclose. And in fact, it's a uh requirement of a plan that it not be filed by a conversion to chapter seven. In other words, that the company will survive, and that's really the goal.

SPEAKER_01 20:07

One of the things that a client should look for is credibility as currency. And the reason to have credibility is you can you can do the best you can to predict what the court would do based on the law and based on your judgment that's been developed over many years. And so I think it's a always a safe proposal to say don't get greedy and propose the plan that is fairest to everyone.

SPEAKER_02 20:39

I'm on a case now where the attorney said to the principals that they have to contribute money to the company as part of the plan to maintain their ownership. Could you discuss that?

SPEAKER_01 20:54

There's a rule under the bankruptcy code called the absolute priority rule. And what that says is unless you're paying people 100 cents on the dollar, you can't retain your existing equity without putting in what the case law calls quote new value. So what that attorney was explaining to the to the company or to the principals of the company is if you want to retain your equity, you need to put in quote new value, such that there's a corollary or an exception to the absolute priority rule. And the opening bit is what the debtor is proposing.

SPEAKER_02 21:36

The company's plan is accepted. What happens next?

SPEAKER_01 21:42

Then the company has to go to the hearing and show the court that all of the elements under 1129 are satisfied, one of which is the vote element. As long as all of the other elements are satisfied, the court will approve the plan, which is under bankruptcy words, confirm the plan. And usually plans have conditions to going effective, which is the condition the conditions to that plan being a binding agreement. Once those conditions are satisfied or waived, then the plan, quote, goes effective. Once it goes defective, it's the operative document between the creditors and the debtor that decides or determines how claims are going to be paid.

SPEAKER_02 22:24

Uh Marcus, any parting words for our listeners?

SPEAKER_01 22:27

No, I I would all other than the one thing. I would, if you're contemplating bankruptcy, spend the time and the money on the front end to make sure that you hire professionals with whom you're most comfortable. So do background checks, do research, check credentials, but probably most importantly, get to know your professionals on a personal level the best you can to make sure you're comfortable that when the going gets tough, those professionals will be there for you.

SPEAKER_02 23:02

Steve, any closing thoughts on this episode?

SPEAKER_03 23:06

I was trying to explain to a client why he should not file bankruptcy. And what I said to him is this in my view, chapter eleven is like quicksand. Once you get in it, it is very difficult to get out, and cases can take twists and turns that you could not predict. It's more than just dollars and cents. There are unpredictable events which will occur that can really ruin your day in a bankruptcy. My other point is that I think of all the episodes we've done, and Marcus, this is a compliment to you. This is this one has been the most educational. I think from a typical listener's perspective. Marcus, you have a good way of explaining things, very uh concise and understandable. So, hats off.

SPEAKER_00 24:05

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 websites. Go to corporate bankruptcy a to Z.com or elementary business.com. You can also find links to those in the show notes down below. Corporate Bankruptcy A to Z podcast and YouTube channel are produced by me, Sir Isaac Smith. Be sure you subscribe and share the episode, and we will see you next time.