Chapter 11 Reorganization
Chapter 11 Reorganization for Small Businesses
Small business reorganization under chapter 11 is very difficult and can be very expensive. Despite the odds, Lakelaw has successfully helped small businesses reorganize under chapter 11. There are two keys to success – speed and skill. The longer proceedings drag out, the more they cost. The debtor has to pay not only for its own fees but also for fees of the bank’s attorneys and even the creditor’s committee’s professionals.
Lakelaw has been successful in reorganizing small businesses in chapter 11 because it retains good professional relationships with banks and banks’ counsel. When we file chapter 11 for small businesses, we have a plan in mind. We find out who is friendly with the debtor and we align their business and economic interests with the debtor. In this way, we have an outstanding chance of persuading the bank that it ought to go along with the debtor’s reorganization plan as opposed to forcing a liquidation.
We think like business people. We don’t expect our clients to think like lawyers. And we don’t expect the banks to think that way either. We find economic solutions to economic problems and then we find the way to implement them in the legal structure of chapter 11.
When you are thinking of chapter 11 for your business, look for straight talk, not legal mumbo-jumbo.
Frequently Asked Questions – Small Business Chapter 11 Bankruptcy
What is Small Business Chapter 11 Bankruptcy?
You are a small business if you are engaged in business and have less than $2.34 million in debts.
What are the benefits of Small Business Chapter 11 Bankruptcy?
It is less expensive. It is faster. There is no creditor’s committee.
What are the drawbacks of Small Business Chapter 11 Bankruptcy?
There is no time to waste. You have to file balance sheets, statements of operations, cash-flow statements and tax returns. You have to keep up with all reporting requirements. You have to file your plan very quickly. There is close oversight by the United States Trustee.
Is there any upside for the debtor?
Yes, you have the sole right to file a plan for the first 6 months. You can extend this for a period up to 300 days in total. But you have to show the court that you can get a plan which can be confirmed on file.
What is a Plan and Disclosure Statement?
We will help you organize a Plan which states how you are going to treat your creditors. We’ll negotiate that plan so enough creditors go along. And we’ll help you prepare a Disclosure Statement so that the creditors who need to vote on the plan will have adequate information with which to decide whether to vote for the plan. Usually, the Bankruptcy Court will hold a combined hearing on the adequacy of the Plan and the Disclosure Statement in a Small Business Chapter 11 case so that the entire document can be sent out to all creditors in one mailing.
What does it take to confirm a Plan?
Creditors who are affected or “impaired” by the plan must approve it on a class by class basis. A class approves of a plan if a majority in number and 2/3 in amount who vote approve. A class which does not approve can be coerced to go along with the plan or be “crammed down” if it receives the “indubitable equivalent” of its claims under the plan. We try to get your creditors to approve of the Plan since contested confirmation hearings are very expensive and time consuming.
Case Study – Ty Miles, Inc.
The Bank was under pressure from the FDIC. So it called our client’s line of credit without any prior warning. This family business had been operating successfully for 50 years and is a leader in its field. Steve, the president of the company, had no choice but to announce immediate layoffs since the line of credit needed for day to day operations. A week of shutting its doors, employees – that had been with the company for 20+ years – just started to show up and agreed to work for free until the company recovered.
Steve then reached out to Lakelaw for help. We had faith in Ty Miles, so Lakelaw filed a chapter 11 small business case – even though the case was extremely small by bankruptcy court standards.
The bank’s reaction was to seek dismissal. Lakelaw fought the bank tooth and nail while reaching agreements with trade creditors. Finally, the court gave the company a chance to prove itself, Lakelaw was able to reach an arrangement with the bank. Lakelaw knew that the bank was in trouble and could be taken over by the FDIC. So it insisted that the Plan be agreed upon by the Bank’s board of directors so that it could not be attacked by the FDIC after a bank takeover. As a result, Lakelaw reorganized the Debtor through a confirmed chapter 11 plan. Today the company exists, is profitable, and continuing its 50+ years of operations. Lakelaw’s care and attention to the possibility of an FDIC takeover was a good thing – the bank was eventually taken over by the FDIC. It was taken over by Wintrust Banks. But our client, Ty Miles, still remains in business and is thriving now providing excellent products and services thanks to Lakelaw.