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Chapter 11 Reorganization

Lakelaw represents people and small to middle-market companies in chapter 11 bankruptcy reorganizations. Chapter 11 allows a debtor to reorganize its debts. In order to successfully reorganize in chapter 11, we have to motivate the banks and other secured creditors to consent to a plan. We also have to provide for unsecured creditors. It is very important in chapter 11 bankruptcy to persuade banks and secured creditors to consent to a plan of reorganization. Not every creditor needs to agree. But within each classification of creditors, we strive to obtain consent. In order for a class of creditors to consent to a plan, we need to gather the votes of a majority in number of the creditors in the class representing at least 2/3 in amount of the claims.

Banks and other secured creditors frequently try to bully debtors and force them into liquidation. Chapter 11 can give you or your company time to reorganize. Of course, you’ll need skill and even a little good fortune to be successful in chapter 11. You’ll need to find new sources of capital. You’ll need to figure out what went wrong with your business in the past and fix it. You’ll need solid accounting and tax advice. You’ll need to get your secured and unsecured creditors to want to go along with you in the future.

Success in Chapter 11 is just as much an art as a science. We collaborate with you in order to achieve success. We need your business savvy and we add our experience in turn-around situations. We’ve helped many companies continue in business even though they experienced temporary set-backs. We can help you succeed in chapter 11 reorganization.

Case Studies

Turnaround for electronic equipment manufacturer

Our client specialized in making highly sophisticated electronic equipment. The founder was brilliant, but was easily distracted. He found it hard to focus on the details of his business. As a result, he was unable to control its costs and was facing financial ruin. Moreover, his personal life was in a shambles and his wife was threatening to divorce him. Here’s what our Chicago bankruptcy attorneys did:

  • Hired turnaround consultant to do a complete analysis of the business strengths and weaknesses within 30 days
  • Hired chief operating officer with strong financial background from an accounting firm we knew who got costs and procedures under control
  • Lined up a bank line of credit in order to support a chapter 11 reorganization effort
  • Filed a chapter 11 reorganization case in order to prevent foreclosure and lawsuits from putting company out of business
  • Negotiated settlement of unsecured claims with creditors’ committee whereby creditors received close to 60% on their claims over 3 years from future profits.

After confirmation of its plan of reorganization, the company was highly successful. One of the company’s largest competitors bought the company at a very handsome price.

Turnaround for broaching equipment manufacturer

Our client manufactured specialized broaching equipment. It had been successful for more than 50 years. Its bank, however, was in trouble and had to shrink its loan portfolio. So the bank refused to renew its loan even though our client was not in default. We filed a chapter 11 case. We lined up the unsecured creditors who were fully supportive of the debtor and its business. Some of the debtor’s employees were willing to pitch in new capital in order to secure success of the reorganized business. When the bank finally realized that we would be able to confirm a plan of reorganization over their objection, it consented to a plan of reorganization allowing this company to survive after more than 50 years of successful business.

Frequently Asked Questions – Chapter 11 for Individuals and Small Businesses

Is chapter 11 expensive?

Unfortunately, chapter 11 can be very expensive. Debtors must pay their own legal fees, the fees of any creditors’ committee counsel, the fees of insolvency accountants as well as quarterly fees to the United States Trustee.

How much does chapter 11 cost?

It’s impossible to say. Each case is different. All fees must be approved by the court, so this is helps to keep the fees reasonable.

How do Lakelaw’s fees compare to other firms?

Lakelaw’s fees are lower than those of most of the “Big Firms”.

How does Lakelaw’s experience compare to other firms?

David Leibowitz and Jonathan Brand are among the leading bankruptcy lawyers in the Northern District of Illinois. While not required in order to practice in Illinois, both Mr. Leibowitz and Mr. Brand are board certified as Business Bankruptcy Attorneys by the American Board of Certification. And while Board Certification isn’t recognized as a requirement to practice in Illinois, the Bankruptcy Code does recognize certification as a factor to be considered in professional excellence. Mr. Leibowitz has been in practice for 40 years and Mr. Brand for about 10 years.

What is a chapter 11 plan?

A chapter 11 plan is a legal document which is presented to the court. It divides your debt into a series of classes – some secured and some unsecured. It explains how you propose to pay the debt after reorganization.

What is a disclosure statement?

A disclosure statement is a part of your plan. It provides financial and other information to your creditors sufficient for them to make an informed decision about whether to vote for your plan.

Must the Bankruptcy Court approve my plan?

The form of your bankruptcy plan and disclosure statement must be approved before it is put to your creditors for a vote.

Must all creditors accept the plan?

Your plan must be accepted by at least one class of creditors. It is better for the plan to be approved by all classes of creditors. It is possible but much more difficult to confirm – obtain approval – with respect to a plan which has not achieved consent by all classes. A plan is accepted by a class when it is receives the votes of a majority in number and 2/3 in amount of the creditors who are voting on the plan.

How does my company operate in Chapter 11?

Your company is considered a “Debtor in Possession” in chapter 11. You have to maintain a new bank account. You have to make monthly reports to the United States Trustee. You can operate in the ordinary course of business as normal. However, any transaction out of the ordinary course of business and in particular any sort of borrowing is subject to prior court approval. In particular, you can’t use “cash collateral” like rents from your real estate or proceeds of accounts receivable that has been given as security to a bank for a loan without prior approval. You have to give the lender “adequate protection” to assure that the lender’s position doesn’t get worse because you are using cash collateral.

What is “Cram Down”?

Cram down is the confirmation of a plan over the objection of a class of creditors that refuses to vote for the plan. This is possible but difficult. Ask us whether this applies to your case.

What is the “Absolute Priority Rule” in Chapter 11?

This rule states that you don’t get to keep any equity in your business unless you pay all creditors in full.

Can I pay less than 100% to my creditors and still keep equity?

Yes. There are two ways you can do this. First, creditors could agree. They may do so if they will get more under your plan than they would in liquidation. This takes savvy negotiation. We’ve done this before and we might be able to do this for you. The other way is to add “new value” to your plan. For example, you as an individual may contribute new capital to your company in order to fund a plan. If no other person or entity would fund as much to your plan as you did, the court might confirm a plan which pays creditors less than 100% on the dollar. This is called the “new value exception to the absolute priority rule.”

Is chapter 11 really that complicated?

Chapter 11 is complex. At Lakelaw, we take pride in taking the mumbo-jumbo out of chapter 11 and explaining it to you in business-like terms that you can understand.

Why should I select Lakelaw to be my bankruptcy attorney in chapter 11?

We think that there are several compelling reasons to select Lakelaw’s business bankruptcy attorneys for your chapter 11 case:

  • They have successfully represented many debtors in obtaining confirmed plans of reorganization
  • They are respected by the courts and by opposing counsel
  • They will represent you with care, kindness, courtesy, respect, professionalism and dedication
  • They will represent you for a fair fee
  • They have exceptional experience
  • They have achieved professional recognition
  • They know how to communicate with you clearly and effectively

When thinking of filing a chapter 11 case to reorganize your business, think carefully and make a wise decision. Your actions today will have a lasting impact on you and your business. Lakelaw stands ready to help you through this challenging process.