Using Prepackaged Plans to Speed Through Bankruptcy Courts

August 17, 2020 | Podcasts

Not all bankruptcy plans need to be drawn-out or costly affairs. Jackson Walker attorney Veronica Polnick explains how a bankruptcy prepack plan speeds up the time it takes to emerge from bankruptcy proceedings. One such example is Jackson Walker’s representation of Mood Media Corp. and its 17 affiliates in filing a prepackaged reorganization plan and emerging from bankruptcy in just over 30 hours—a record for the Southern District of Texas.

Greg Lambert: Hi, everyone. I’m Greg Lambert, it’s August 17th, and this is Jackson Walker Fast Takes.
On previous Jackson Walker Fast Takes, we’ve discussed the complexity of bankruptcy and restructuring for both the creditor and the debtors, but not all bankruptcy plans need to be long-drawn-out or costly affairs. I asked Jackson Walker bankruptcy attorney Veronica Polnick to explain how a bankruptcy prepack plan works and to discuss a recent prepack plan that went from filed to completed in less than 24 hours. Veronica, thanks for taking the time out of your busy schedule to talk with me.

Veronica Polnick: No problem, Greg. Thanks for having me.

Greg Lambert: Can you start off just by giving us an overview of what a bankruptcy prepack plan is?

Veronica Polnick: Sure. A prepack plan is short for a prepackaged plan, and that generally means that prior to the filing of the bankruptcy case, the key terms of the plan are negotiated with certain stakeholders and there is believed to be enough support from those stakeholders to confirm the plan once the case is filed. So, essentially, they have the big picture, sort of, buttoned up before they ever even filed the case.

Greg Lambert: Are there different types of prepacked plans that are out there?

Veronica Polnick: Yeah, there are. There’s two main types: One is called a Straddle prepack and the other is a Fully Solicited prepack.
A Straddle prepack would be where the solicitation of the plan – meaning mailing out the plan, the notices, the ballots, things like that – that has started prepetition, but it has not been completed. A lot of times, they will start that solicitation or launch the solicitation, and then they will file the case within a day or so after they start that solicitation process. So, those cases can range in length from a month or so to a few months depending on what their solicitation schedule and their confirmation schedule looks like. But they have gotten past the hurdle of proposing a plan and getting it solicited prepetition.
And then the other type of prepack is a Fully Solicited prepack, which is more rare. A Straddle is more common. A Fully Solicited prepack is essentially where the entire solicitation process is complete before the case has ever even filed. So, the plan has been solicited, votes have come back, the voting deadline has passed, they know how many votes they have in support of the plan. They know that it’s enough to confirm the plan, then they file the case. And the case from that point goes very fast usually because they have everything buttoned up prior to filing.

Greg Lambert: What some of the advantages to, I would say, to both the debtor and to the creditors of having these prepack plans?

Veronica Polnick: For the debtor, you’ve got a few benefits. There’s lower administrative expenses because you’re in and out so quickly. There is still, you know, a significant amount on the front end prior to filing where you’re negotiating these terms, but you’re not in bankruptcy for very long. So, the cost of the bankruptcy itself is lower, you’ve got less time under court supervision. So, the business is able to be in and out without having sort of anyone watch over for a longer period of time. And there’s also less disruption to the business itself, because a lot of the first day relief that you would typically ask for in a non-prepack case isn’t as important, especially in a fully solicited prepack case. So, those are the benefits for the debtor.
For a creditor, trade creditors, so your unsecured creditors, your folks providing goods and services, sort of at the bottom line. Usually that rides through to those folks are usually going to get paid in full. So, that’s a benefit for them. There’s also usually not a proof of claim process, so creditors don’t need to worry about a bar date in a lot of these cases. And their claims and resolution of any dispute regarding their claim is handled sort of in the normal course like it would be if there had been no bankruptcy. There are exceptions to that. But usually, there’s not a proof of claim process, which means less of a burden on the creditors. And then if there’s a prepack, it’s usually you’re talking about faster emerging from bankruptcy, which also means faster payments. So that’s also good for creditors.

Greg Lambert: You’ve recently worked on a prepacked plan that broke a speed record for the Southern District of Texas. Can you discuss that filing and just how quickly the company was able to emerge from bankruptcy?

Veronica Polnick: Yeah, we did. We worked on a case called Mood Media. We were co-counsel—Jackson Walker was co-counsel in that case—with a great team from Kirkland & Ellis. That was a fully solicited prepack. So, first day hearings were also the confirmation hearing. What we had was a case that went from filing to confirmation in under 24 hours. From the time we filed the first petition to the time the confirmation order was entered was 23 hours and 21 minutes. So, we made it in just under one day for confirmation. And then there was another six hours and 52 minutes from when the plan was confirmed to when the plan became effective. The company officially emerged from bankruptcy. So, I think we had a total of just over 30 hours in the bankruptcy case overall. And by our calculations at least, and we could be wrong, but we think it’s the second fastest in the country on record. We know that there is a faster case out of the Southern District of New York, we think that that’s Fullbeauty with Judge Drain, and that went from filing to confirmation in 19 hours. So, we’re a little bit behind that, but it is the fastest in the Southern District of Texas that we’re aware of.

Greg Lambert: Well, maybe on the next go around, we can beat that other record.

Veronica Polnick: That’s the goal. That’s our goal.

Greg Lambert: Veronica, thanks for taking the time to talk with us about the bankruptcy prepack plans. I appreciate it.

Veronica Polnick: Sure. Thanks Greg.

Greg Lambert: Thanks again to Veronica Polnick for joining me.

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The music is by Eve Searls.

This podcast is made available by Jackson Walker for informational purposes only, does not constitute legal advice, and is not a substitute for legal advice from qualified counsel. Your use of this podcast does not create an attorney-client relationship between you and Jackson Walker. The facts and results of each case will vary, and no particular result can be guaranteed.

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