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Bankruptcy Lawyer Salt Lake City Utah

Bankruptcy Lawyer Salt Lake City Utah

If a business that owes you money has filed a Chapter 11 bankruptcy in Utah, contact an experienced Salt Lake City Utah bankruptcy lawyer. Chapter 11 bankruptcy can be used by partnerships, limited liability companies and corporations. At Ascent Law, we can help with all chapters of bankruptcy from a 7, 11, 12 to a chapter 13 as well.

A majority of confirmed Chapter 11 plans of reorganization are not reorganizations at all; rather, they are liquidating plans that provide for the dismantling of a business entity. Such a plan could involve a third party’s acquiring the going concern business of the debtor and placing the remaining assets (often consisting largely of causes of action) in a trust or similar vehicle to be sold, pursued, or otherwise collected upon for the benefit of creditors, or it could place all of the assets in a liquidating trust to be sold by a liquidating trustee. In either case, creditors do not look to the going concern value of the business for a return on their claims, because there is no business. The distribution to claimants depends on maximizing the proceeds from asset sales and litigation and the proper administration of claims. Flexibility and reduced costs have led to a huge upsurge in liquidating plans implemented by liquidating trustees. Once you receive a notice that one of your debtors has filed a petition under Chapter 11 in Utah, you should immediately get in touch with an experienced Salt Lake City Utah bankruptcy lawyer. The attorney will explain to you your rights as a debtor and advise you on the steps you need to take to protect your interests.

The Road to a Chapter 11 Liquidating Plan

While in a pending Chapter 11, some companies liquidate in a “creeping” liquidation process; that is, the debtor-in-possession simply bleeds itself of most of its assets before a plan is confirmed. After the liquidating sales, what typically remains is cash subject to a plan that simply decides how to divide it up. These creeping Chapter 11 liquidations tend to be expensive because the professionals for the creditors’ committee, banks, debtor’s counsel, and the like continue to accrue fees.

In the typical post bankruptcy plan liquidating trust, only the liquidating trustee and the trustee’s own set of professionals are compensated. Usually, this approach reduces costs. For this reason, post confirmation liquidations are favored over pre-confirmation liquidations. In either situation, the company must proceed through the Chapter 11 plan process.

Exclusivity

In the early stages of a Chapter 11 case the preparation and approval of the reorganization plan is under the absolute control of the debtor. Initially, the Bankruptcy Code provides the debtor with an exclusivity period of several months, during which it and it alone can propose a plan of reorganization. At the end of the initial exclusivity period, any party in interest can file and seek to obtain approval of its plan. The debtor is typically in negotiations with its creditors during the exclusivity period.

Negotiating the Plan

Because the claims against an insolvent entity substantially exceed the value to distribute, negotiating a plan can be protracted and frustrating. This situation creates tensions between the various classes of creditors. Negotiations between the secured and unsecured groups are intense and frequently acrimonious. If secured creditors believe they will be paid in full in a liquidation, they may support a liquidating plan. If unsecured creditors believe their only hope of a meaningful recovery is the reorganization and restructuring of debt, they will oppose a liquidating plan. Debtor’s management may see a reorganization as job security or there may be no managers left to push a reorganization.

Most large businesses in Chapter 11 have various levels of outstanding unsecured indebtedness. Each level seeks the most advantageous treatment for its class. Alliances form and dissipate and reform among different groups. This balkanization can be tedious and torturous but eventually may reach a successful conclusion that no one really likes. As with a Chapter 7, the ultimate return to unsecured creditors depends on a fraction in which the numerator is equal to gross proceeds less the cost of liquidation, secured claims satisfied, and priority claims. The denominator of the fraction is equal to the total of unsecured claims participating in the liquidation proceeds. Ordinarily, all unsecured creditors participate equally in the proceeds of a liquidation. However, a liquidating plan could provide for multiple classes of creditors participating in the fixed fund, with the participation weighted depending upon the preconfirmation posture of each class. In other words, how much creditors actually receive can vary wildly.

Voting and Solicitation

Parties whose legal, equitable, and contractual rights are unaltered, do not need to vote in favor of a plan for it to be approved. Each class of impaired parties, that is, those whose legal rights are altered, must vote two-thirds in an amount of their claims and more than one-half in number of claims voting in favor of the plan, in order for that class to be classified as approving the plan.

Confirmation Hearing

After a favorable vote, the court holds a confirmation hearing. At this hearing, the court considers the tally of votes and hears evidence on a variety of issues: (i) that the plan has been proposed in good faith; (ii) that the claims have been classified properly; (iii) that the plan is feasible; (iv) that its acceptance has not been procured by any means prohibited by law; and (v) that certain other technical requirements have been met, as specified in the Bankruptcy Code. The prime area of concern is frequently whether or not the plan is in the best interests of creditors. This best-interest test requires that each impaired creditor receive a larger distribution under the plan than the creditor would receive in a Chapter 7 liquidation.

Cram Down

Even if a class of claims does not accept the plan, the law permits the plan to be approved over the vote of the dissenting class. An override is accomplished through what is commonly called the “cram down.” To overrule the dissenting class, the plan must be found not to discriminate unfairly and must be found to be fair and equitable with respect to impaired non-accepting classes. By not discriminating, the law generally means only that the holders of claims or interests with similar legal rights cannot be treated differently. To be fair and equitable as to a class of dissenting secured creditors, the secured creditors must receive the indubitable value equivalent to their claims or retain their liens and receive deferred cash payments of a value equal to their interest in the estate’s interest in the property.

For a plan to be judged fair and equitable as to a class of dissenting unsecured creditors, the plan must provide either that the unsecured creditors receive property of a value equal to the allowed amount of the claim or that the holder of any claim or interest junior to the dissenting class will not receive or retain any property on account of the junior claim. In other words, the classes below the dissenting unsecured class must receive nothing if the dissenting class is to be crammed down. This requirement is called the absolute priority rule.

Consummation

After approval in a confirmation hearing, the plan is consummated by transferring the remaining assets to the liquidator, as described in the liquidating plan of reorganization. Ultimately, a report is made to the judge that the liquidation is complete and the pending legal issues have been wrapped up, at which point the case is closed.

Why Liquidate under a Chapter 11 Plan?

Liquidating under a plan confirmed in Chapter 11 has substantial, practical advantages. Speak to an experienced Salt Lake City Utah bankruptcy lawyer to know more about the advantages. Creditors have more control over the process and it is less expensive than Chapter 7. The pressure to sell assets prematurely is reduced, and the investment options for the sales and litigation proceeds, once they are received, are increased. Overall, a Chapter 11 liquidation provides greater flexibility.

More Creditor Control

Creditors are able to exert more control over their destiny. In Chapter 7, a creditors’ committee (if one exists at all) provides only an advisory function in the liquidation process. A liquidation conducted pursuant to a plan of reorganization is typically conducted in accordance with a structure negotiated and even formulated by creditors. The trustee supervising the liquidation under a plan of reorganization is usually selected by the creditors and is very likely subject to control and even replacement by creditors. By controlling the identity of the trustee and designing the function of the creditor overseers under the plan, creditor groups can ensure that liquidation under a Chapter 11 plan follows the course deemed appropriate by creditors. This may not be true of the totally independent fiduciary, the Chapter 7 trustee. Hire the services of an experienced Salt Lake City Utah bankruptcy lawyer to represent you in a Chapter 11 proceedings in Utah.

Less Pressure to Sell Assets Prematurely

Liquidation under a plan of reorganization reduces the pressure to sell assets prematurely. The creditors can usually take as much time as they desire. Liquidations under a plan of reorganization need only resemble a forced sale to the extent deemed appropriate by creditors. In Chapter 7, a trustee is likely to feel greater pressure to dispose of property quickly and thereby not necessarily obtain the best price possible. This problem is aggravated by the limited ability of the Chapter 7 trustee to maintain property and to conduct the business affairs of the debtors. By comparison, the trustee under the terms of a liquidating plan of reorganization is likely to have broader authority both to operate business segments pending their sale and to take actions deemed necessary to preserve and maintain property of the estate.

More Investment Options

A Chapter 7 trustee is severely limited in the way he or she may handle funds. A trustee under a plan of reorganization, on the other hand, is required to handle funds in whatever fashion the plan provides. This added flexibility may permit investments at better interest rates, to the ultimate benefit of creditors. By having greater freedom in the handling of funds, the onerous consequences of a long liquidation process may be to some extent ameliorated.

Reduced Cost

The expense in maintaining a Chapter 11 prior to confirmation with all the various creditors’ committees, professionals, and debtors-in-possession is enormous. This situation provides too much overhead on what may simply be a liquidation better accomplished by an independent trustee under creditor supervision. In a liquidating plan of reorganization, access to professionals is simpler and less expensive. The hiring of a professional usually does not require court approval, and normally the creditors, not the court, exercise control over the payment of the professionals. Liquidating under a plan is cheaper than under an operational Chapter 11 with liquidation occurring as the case goes on.

More Overall Flexibility

The primary reason why creditors often prefer a Chapter 11 liquidation is overall increased flexibility. Liquidating plans of reorganization provide the necessary leeway to mix the benefits and protections of the Bankruptcy Code with tailored contractual provisions governing the liquidation process in a way that favors the specific legitimate needs of creditors. Creditors usually articulate certain identifiable goals in the formulation of a liquidating plan of reorganization. The principal creditor objective in any liquidating plan is to obtain maximum distributions to creditors in the minimum amount of time (more precisely, to maximize the present value of the distributions).

The Estate Representative as Liquidator

The liquidating plan of reorganization creates a structure for the conduct of the liquidation. This plan is the seminal authority for the governance and management of the liquidation process. Usually, an estate representative of some sort is designated to act as the liquidator. This person acts in court and other wise (e.g., execution of transfer instruments) on behalf of the estate. Typically, the estate representative answers to a committee selected by the creditors.

Chapter 11 bankruptcy is complex. Speak to an experienced Salt Lake City Utah bankruptcy lawyer. The lawyer will advise you on what you need to do to protect your rights as a creditor in a Chapter 11 bankruptcy.

Salt Lake City Utah Bankruptcy Lawyer Free Consultation

When you need legal help with a bankruptcy in Salt Lake City Utah, please call Ascent Law for your free consultation at (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

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About the Author

People who want a lot of Bull go to a Butcher. People who want results navigating a complex legal field go to a Lawyer that they can trust. That’s where I come in. I am Michael Anderson, an Attorney in the Salt Lake area focusing on the needs of the Average Joe wanting a better life for him and his family. I’m the Lawyer you can trust. I grew up in Utah and love it here. I am a Father to three, a Husband to one, and an Entrepreneur. I understand the feelings of joy each of those roles bring, and I understand the feeling of disappointment, fear, and regret when things go wrong. I attended the University of Utah where I received a B.A. degree in 2010 and a J.D. in 2014. I have focused my practice in Wills, Trusts, Real Estate, and Business Law. I love the thrill of helping clients secure their future, leaving a real legacy to their children. Unfortunately when problems arise with families. I also practice Family Law, with a focus on keeping relationships between the soon to be Ex’s civil for the benefit of their children and allowing both to walk away quickly with their heads held high. Before you worry too much about losing everything that you have worked for, before you permit yourself to be bullied by your soon to be ex, before you shed one more tear in silence, call me. I’m the Lawyer you can trust.