In my May 26th post, I raised several questions that unsecured creditors in any Chapter 11 case should know the answers to and take action where appropriate.
At least 5 Chapter 11 cases (Nirvana Inverrary Lofts, Inc., Inverrary Resort Hotel Condominium Assoc., Inc., Alrames S.A. de C.V. Corp., HDRepair.com Corp., and Kattour, Inc.) have been filed in South Florida in the last 2 days.
A Ferris Bueller quote is applicable here – Life [like bankruptcy cases] moves pretty fast. If you don’t stop and look around once in a while, you could miss it [i.e. important bankruptcy events and deadlines].
So let’s hurry up and address my first question – Is my claim (or are my rights) affected by any “first-day motions”?
When a Chapter 11 is filed, there are a number of motions which are ordinarily filed by a debtor on the first day of the case, hence the name “first-day motions”.
In the Southern District of Florida, these motions may include the following: Motions for Authority for the Payment of Prepetition Wages, Motion for Payment of Critical Vendors, Motion to Use Cash Collateral, Motions for Approval of Postpetition Financing, Motions for Authority to Pay Prepetition Claims.
As the titles to these motions suggest, they almost always seek to provide certain creditors priority treatment they might not otherwise be entitled to under the Bankruptcy Code’s general priority scheme for claims. These motions are often granted if the debtor can establish that the payment of certain claims is critical to the debtor’s ongoing operations and the going concern value of the business.
Cash collateral and postpetition financing motions, if approved, can have an enormous impact on payment to unsecured creditors because they commonly provide for priming, replacement liens, debt service requirements and sometimes, carve-outs for payment of certain claims.
Unsecured creditors should review these motions carefully and determine whether the relief sought could have an impact on their rights or make payment on their claim less likely. If the motion benefits you, great! However, if it negatively affects your claim or your rights, and there are grounds to object, act quickly…otherwise, you may find that you missed your opportunity.
Heather L. Ries is an attorney with the Financial Restructuring and Bankruptcy Department of the law firm of Fox Rothschild LLP. Heather focuses her practice in matters related to bankruptcy, creditors’ rights, commercial workout and foreclosure disputes, and commercial litigation. You can contact Heather at 561-804-4419 or firstname.lastname@example.org.