Define Prepackaged Bankruptcy

Prepackaged bankruptcies can be a productive alternative to Chapter 11.

Prepackaged bankruptcy is an alternative to Chapter 11 bankruptcy available to corporations in financial crisis. Chapter 11 bankruptcy allows financial reorganization and creditor repayment, while allowing a business to continue operating. Prepackaged bankruptcy is similar, but is done in advance of filing to save time and money.

How It Works

Any and all terms must be determined, presented to creditors and shareholders and approved in advance of bankruptcy filing. Both full creditors and impaired creditors, those receiving a portion of debt, must approve.

Creditor and Shareholder Rights

Each creditor and shareholder entitled to vote on the bankruptcy must receive the proposed liquidation and repayment proposal. They must have time to research, understand and consider the proposal.

Advantages

The same rights, remedies and protections that apply to a regular Chapter 11 also apply to a prepackaged bankruptcy. Prepackaged bankruptcies typically are more expeditious and cost less than a standard Chapter 11 filing. A regular Chapter 11 may take years, while a prepackaged bankruptcy can be completed in a matter of months. Companies can save court costs and attorneys fees while continuing productivity.

References

• Securities and Exchange Commission: Corporate Bankruptcy
• American Bankruptcy Institute: Chapter 11
• Turnaround Management Association: Prepacks on the Rise in Chapter 11 Bankruptcies by Douglas M. Foley and James E. Van Horn