A prepackaged Chapter 11 bankruptcy, also known as a “pre-pack,” was developed for companies seeking a simplified yet complete restructuring from bankruptcy. The pre-pack offers a quick exit from bankruptcy in anywhere from three to 12 months.
As with any Chapter 11 proceeding, the debtor must work closely with creditors to negotiate and reach an agreement as to the treatment of their claims before going to court. A pre-pack bankruptcy is negotiated and voted on by creditors and shareholders before the company actually files for bankruptcy. The entire aim of a pre-pack bankruptcy, which itself must be voted on before the company files its petition for bankruptcy, is to shorten the turnaround time to emerge from bankruptcy.
Advantages to a Pre-pack
There are several important advantages to going the pre-pack route.
Save Time and Money
This is perhaps the biggest advantage for companies interested in this option. The expedited schedule not only means that a company can enter and exit from bankruptcy in a much shorter amount of time but also invariably leads to a significant reduction in fees and costs associated with monthly reports, attorneys, and creditor committees.
Pre-pack bankruptcies also reduce uncertainty, as creditors already know what to expect from the proposed reorganization. Further, there are no risks of competing reorganization plans.
Minimize Damage to Public Image
Traditional bankruptcies can be long, drawn-out and contentious, oftentimes turning into a public relations headache. Because a pre-pack involves negotiation with creditors and voting on a plan before Chapter 11 proceedings, less attention is drawn to the procedure and any potential damage to reputation is minimized.
Candidates for a Pre-pack
It’s important to recognize that not all companies wishing to seek protection from creditors via a Chapter 11 bankruptcy are good candidates for a pre-pack.
Distressed companies with a relatively small pool of creditors make the best candidates for a pre-pack. This is because those creditors will ideally be able to organize and negotiate a solution with the debtor rather quickly without the need to bring the case to court.
Some companies use bankruptcy as a tool to bring about different outcomes. For example, some companies announce intentions of Chapter 11 proceedings in order to attract buyers who might be interested in some or all of the company’s assets. Such debtor companies have no intention of reorganizing; instead, they simply use bankruptcy as a way to conduct a fire sale, in which a buyer acquires the debtor’s assets. The debtor company then turns around and uses the proceeds from the asset sales to pay creditor claims. Due to the uncertainty involved, this scenario would not make a good candidate for a pre-pack bankruptcy,
How to Make Filing for Pre-pack Faster
As previously discussed, the best candidates for pre-pack are those with a small group of creditors. These lenders and service providers most likely want the situation to be resolved as quickly as possible and are willing to work with each other and the debtor company to minimize the time, expenses and complexity associated with the bankruptcy.
Companies can take a few steps to make the process go much more smoothly. For one, they should assemble all the necessary documents and confirm that they are ready for review by the group of creditors. This includes ensuring that:
- The most up to date or recent version of a document is available (i.e., monthly statement, yearly audit)
- Mandatory information is included in the document (i.e., signatures, dates)
- The documents are in an accessible format (i.e., Word, Acrobat)
- Confidential information has been removed (i.e., bank account numbers)
Any issues with documentation can mean delays in the pre-pack bankruptcy process.
The Role of a VDR for Bankruptcy
Once the documents have been assembled, and to further streamline the process, a secure platform to present, share and review these key documents is launched. This platform, known as a virtual data room (VDR), is an enterprise-grade document hosting and security solution that supports the needs of companies and their external accountants, attorneys and advisors, who are engaged in critical and highly sensitive transactions.
Make Caplinked Your Pre-pack Partner
A VDR, such as Caplinked, can easily host thousands of pages of documents and can be accessed by dozens or even hundreds of people involved in a transaction or legal case.
Digital rights management capabilities provide encryption and complete control over how a document is used, edited, copied or even printed by each individual who has been granted authorization to the VDR. Caplinked’s FileProtect feature lets companies share documents while retaining the ability to deny access to anything, even after it’s downloaded.
In today’s anytime anywhere environment, documents will most likely be accessed via different devices and via multiple cloud platforms. Caplinked is aware of this nature of work and collaboration, even for sensitive environments, and provides cloud integrations with such platforms as Salesforce, Dropbox, Box, Google Drive and OneDrive.
For added security, companies should ensure that only the most necessary documents are uploaded into the VDR and that those documents have credentials (i.e., bank account numbers) removed from view.
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Jake Wengroff writes about technology and financial services. A former technology reporter for CBS Radio, Jake covers such topics as security, mobility, e-commerce, and IoT.