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Restructuring > Zolfo Cooper > Flashcards

Zolfo Cooper Flashcards

1
Q

FRBP

A

Federal Rules of Bankruptcy Procedure - govern process and procedure in United States Bankruptcy Court

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2
Q

Three primary compensation schemes for ZC

A

1) Retainer
2) Advance
3) Success (Contingent Fee)

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3
Q

CRO

A

Chief Restructuring Officer - a senior officer of a company given broad powers to renegotiate all aspects of a company’s finances to deal with an impending bankruptcy or to restructure a company following a bankruptcy filing.

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4
Q

Five services broadly offered by ZC

A

1- Restructuring Advisory (company side engagement)
2- Interim Management (CRO)
3- Transaction Advisory
4- Performance Improvement
5- Forensic and Litigation Consulting (mitigating risks from allegations of improprieties and/or potential litigation)

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5
Q

forbearance agreement

A
  • With a forbearance agreement, the lender agrees to reduce or suspend mortgage payments for a certain period of time and not to initiate a foreclosure during the forbearance period. In exchange, the borrower must resume the full payment at the end of the forbearance period, plus pay an additional amount to get current on the missed payments.
  • While a loan modification agreement is a permanent solution to unaffordable monthly payments, a forbearance agreement provides short-term relief for borrowers.
  • In forbearance agreement, unlike a repayment plan, the lender agrees in advance for you to miss or reduce your payments for a set period of time.
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6
Q

Fulcrum Security

A
  • the first layer of the capital structure to recover less than par value under a capital restructure and is therefore most likely to be converted into equity.
  • Traditionally, unsecured bonds were considered the fulcrum security while senior secured notes and bank debt were kept whole.
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7
Q

What 6 things does the 13 week cash flow model allow lenders and UCC committees to evaluate?

A

1) Business performance and collection efforts
2) Funding need / DIP size
3) Cash borrowed and repaid on facility
4) Time frame for possible cost-cutting efforts or deferment strategies
5) Time frame for negotiations
6) Administrative feasibility of bankruptcy case

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8
Q

The 6 primary items that need to be understood about a Company’s cash management system

A

1- concentrated or spread throughout organization?
2- who has authority to spend cash
3- how long between receipt of cash and availability to fund disbursements
4- how excess cash is captured and invested
5- how intercompany transfers of cash are handled
6- if there is restricted cash

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9
Q

The three primary categories in a 13 week cash flow model

A

(A) receipts (collecting receivables / asset sales /etc)
Less: (B) Operational disbursements (inventory purchases / vendor services / payroll / taxes / insurance)
Less: (C) Non Operational Disbursements (CapEx / Debt Service / Professional Fees)

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10
Q

What’s needed for the receipts portion of a 13 week cash flow? Where do you get it?

A

The Accounts Receivable register

From sales staff and/or management

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11
Q

What’s needed for the inventory purchases portion of a 13 week cash flow? Where do you get it?

A

The Procurement Schedule

From the Procurement department

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12
Q

What’s needed for the vendor services portion of a 13 week cash flow? Where do you get it?

A

The Accounts Payable Register

From the Payable department or the person with the check book or wiring authority

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13
Q

What’s needed for the payroll portion of a 13 week cash flow? Where do you get it?

A

1) headcount schedule
2) historical payroll numbers (making sure to account for differences in payment timing for hourly and salaried employees)
- From Human Resources

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14
Q

What’s needed for the payroll portion of a 13 week cash flow? Where do you get it?

A

1) Maintenance CapEx report
2) Growth CapEx breakdown
- From Management

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15
Q

What’s a variance report within a 13 week cash flow? What typically causes these variances?

A

A worksheet that details the actual receipts/ disbursements relative to the company’s budgeted receipts /disbursements, and the $ value and % difference with accompanying notes
-variances often caused by accounting systems which aren’t set up to group actual receipts and disbursements as modeled in the 13 week cash flow

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16
Q

What is Mass Tort?

A
  • a civil action involving numerous plaintiffs against one or a few corporate defendants in state or federal court.
  • typically brought when consumers are injured on a large scale by defective drugs or products. since Drugs and product defects can cause a wide range of problems for different individuals, so all cases rarely fit into a single class (which would be a class action lawsuit)
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17
Q

What 4 reasons typically give rise to a company seeking protection under chapter 11? Why would the company pursue ch 11 under these scenarios?

A

1) serious liquidity problems (where the Company needs a “reset” to operate its business and reorganize its capital structure)
2) strategic determination to utilize benefits of statutory provisions of Ch 11 (can implement restructuring through a prepackaged or per-negotiated reorganization plan)
3) serious going -concern or stand-alone operational issued (chapter 11 can be process for business combination or divestiture purposes)
4) an external event such as mass tort/fraud/ environmental problems (Ch 11 lets company immediately seek protection from its creditors)

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18
Q

What are the 4 primary benefits of an out-of-court restructuring?

A
  • lower professional fees
  • lower administrative burden
  • less reporting requirements
  • typically more “satisfied” creditors
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19
Q

What happens in an out-of-court restructuring?

A

A refinancing of the balance sheet, possibly with new capital (debt/equity/converts) or an exchange offer (debt for debt ; debt to equity)

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20
Q

What are the 5 primary limitations of an out-of-court restructuring?

A
  • typically requires 100% consent among creditors
  • shareholder vote may be required
  • continue to satisfy contractual obligations (lease, employment contracts)
  • maintain legacy liabilities
  • need sufficient time and liquidity (it may be too late)
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21
Q

What are the 4 primary financing and M&A related benefits of declaring bankruptcy?

A
  • automatic stay
  • may be able to obtain DIP financing
  • may be able to sell assets free and clear of liens
  • court approved financing or M&A activity shields parties from potential litigation
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22
Q

What are the 4 primary contact/liability related benefits of declaring bankruptcy?

A
  • reject unfavorable executory contracts (leases / employment contracts / labor contracts / etc)
  • terminate underfunded pension plan
  • mitigate environmental liabilities
  • shield parties from potential litigation
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23
Q

pre-petition liability vs post-petition liability

A
  • A company has to petition the Court for bankruptcy protection. Once this is done, liabilities fall into two categories:
    1) prepetition - liabilities that arise prior to a company filing of bankruptcy and are likely to only get a fraction of their original value. These liabilities are subject to compromise
    2) postpetition - liabilities that arise after a company files bankruptcy and are likely be paid in full - assuming the company exits bankruptcy protection in good shape
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24
Q

What is an automatic stay? When is it effective? What is it’s purpose?

A
  • an automatic injunction that halts actions by creditors, with certain exceptions, to collect debts/ foreclose on assets/ hound the company/ take any actions without bankruptcy court approval for a debtor who has declared bankruptcy
  • Under section 362 of the United States Bankruptcy Code, the stay begins at the moment the bankruptcy petition is filed
  • Purpose - to give the Company breathing room to reorganize
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25
Q

What is an executory contract?

A

a contract between a debtor and another party under which both sides still have important performance remaining under which, if either side stopped performing the contract, it would be an actual breach of contract.

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26
Q

The 3 important ways are are treated differently from general unsecured claims in a bankruptcy

A
  1. ) a debtor (or a bankruptcy trustee) gets to decide whether to “Assume” (agree to perform) or “Reject” (refuse to perform) its obligations under an executory contract.
    2) while the debtor is thinking about what to do, the other party has to keep on performing as if no bankruptcy had been filed
    3) if the debtor assumes the executory contract, the debtor has to pay (“cure”) in full any payment or other defaults and show that it can actually perform in the future too
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27
Q

If the debtor wants to assume and assign an executory contract to someone else (commonly a buyer of its assets) at a minimum the debtor has to….

A

cure any defaults and the buyer has to show that it can actually perform under the contract in the future

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28
Q

What are the 4 primary advantages to the debtor in an Automatic Stay?

A

1) Can delay (or maybe avoid) payment of prepetition liabilities
2) Secured creditors cannot foreclose on collateral
3) Creditors cannot place new liens on assets
4) Can delay litigation suits against Director’s and Officer’s which can eliminate distractions of key people

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29
Q

D&O’s

A
  • “Directors & Officers”
  • usually used to refer to a liability insurance policy payable to the directors and officers of a company as indemnification (reimbursement) for losses or advancement of defense costs in the event an insured suffers such a loss as a result of a legal action brought for alleged wrongful acts in their capacity as directors and officers
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30
Q

What happens in an “out of court” restructuring?

A

The Company and the creditors agree to a plan of reorganization WITHOUT any bankruptcy filing

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31
Q

What happens in a “pre-packaged” restructuring?

A
  • The Company and its creditors agree to a plan of reorganization PRIOR TO bankruptcy filing
  • the plan is negotiated and solicited prior to filing
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32
Q

What happens in a “pre-negotiated” restructuring?

A
  • The debtor negotiates with creditors prior to bankruptcy but solicits creditor approval AFTER filing
  • dissenting creditors may delay confirmation or block the plan
33
Q

What happens in a “free-fall” restructuring?

A
  • The debtor has no agreement with its creditors before filing and negotiates with creditors while in Chapter 11
  • the plan is filed during pendency of the case
34
Q

pendency

A

the state or time of being pending, undecided, or undetermined, as of a bankruptcy plan not yet confirmed

35
Q

What are the 4 stages of a typical Chapter 11 free fall case?

A

1) Bankruptcy prep and filing / first day orders
2) Due diligence and negotiation of terms of reorganization
3) Confirmation of plan of reorganization and emergence
4) Post emerge date and wind down related work

36
Q

How do “Monthly Fee Apps” work?

A
  • the professional services firm files the app by the 20th day of the following month
  • if no objections, the adviser can be paid by the 35th day
  • the adviser will receive 80% of fees and 100% of expenses
37
Q

What are 1st Day Motions and Declaration? What are 3 common examples?

A
  • A key filing of Ch 11
  • Requests by the debtor/company to pay certain creditors so that the company can continue to operate (i.e. interim relief before seeking a final order).
  • ex: motion to continue to pay employee salaries.
  • ex: motion to pay certain key suppliers first during Chapter 11 bankruptcy
  • ex: motion to pay healthcare providers first during the Chapter 11 bankruptcy (correlates to retaining employees during bankruptcy)
38
Q

What’s the timeline for the rejection or assumption of leases and executory contracts during Ch 11?

A

120 days from filing with a 90 day extension if needed

39
Q

SOAL

A

-“Statement of Assets and Liabilities”
-As of the time of filing, provides information on:
ASSETS: real property (schedule A), personal property (schedule B)
LIABILITIES: secured debt (schedule D), unsecured priority debt (schedule E), unsecured contracts with vendors (schedule F), and certain contracts (schedule G)

40
Q

SOFA

A
  • “Statement of Financial Affairs”
  • a series of questions which seek to understand the company’s operations, payments, processes, & unincurred liabilities at the time of filing for chapter 11.
41
Q

When are SOFAs and SOALs typically provided?

A

30-45 days after the filing

42
Q

Bar Date

A

The date by which creditors need to file a claim about who and what they are owed and for how much by which company

43
Q

What right does the debtor have in filing a proposed Plan of Reorganization?

A

Debtor has a 120 day exclusive right from the date the petition was filed plus approved extensions
No other constituency has this right, meaning that the Company controls its exist strategy at the onset of the case

44
Q

What is the official court Web site used to access federal bankruptcy courts?

A

Pacer.gov

45
Q

What is the role of a “Disclosure Statement”?

A
  • Document prepared by a plan proponent that provides information necessary for a creditor to vote on the proposed plan or reorganization.
  • will provide a history of the Debtor(s) including the causes of the bankruptcy, what the reorganized Debtor will look like (including management and board of directors), an analysis of creditor recoveries, an analysis of the income tax consequences (both to the Debtor(s) and the creditors
46
Q

What voting threshold must be met for a Plan of Reorganization to be approved?

A

-approval by 50% in number AND 2/3 in amount by each voting class of creditor

47
Q

What is a “confirmation hearing”?

A

-a court conducted hearing to determine whether or not confirm a Plan of Reorganization

48
Q

What two criteria does a Plan of Reorganization need to meet in order to be confirmed?

A

1) meets “Best Interests Test” - requires that creditors receive at least as much under a proposed plan as they would if the debtor’s case were converted to a Chapter 7 liquidation
2) Deemed to be “feasible” - debtor must prove to the court that it can satisfy administrative claims in full and will be able to raise sufficient revenues over the plan term to cover its expenses, including payments to creditors

49
Q

Adequate Protection Payment

A
  • payment made to ensure a secured creditor is not harmed by use of the secured creditor’s collateral
  • Also applies to the lessor of leased assets.
50
Q

Administrative Expenses

A

Actual and necessary costs to preserve the bankruptcy estate
Includes cost to operate the business during the bankruptcy process. Professional fees of the Debtors and any Official Committees are also administrative expenses.

51
Q

Allowed Claim

A

Obligation of the Estate (may be either pre or post petition) that has been approved by the Court

52
Q

Chapter 11

A

Section of the Bankruptcy Code used for reorganization (and sometimes liquidation)

53
Q

Chapter 7

A

Section of the Bankruptcy Code that deals with liquidations

54
Q

Claim

A
  • Obligation of Debtor asserted by a creditor.
  • Note: just because a claim has been asserted, it may not be a valid obligation. In order to receive a distribution, a claim must become an Allowed Claim.
55
Q

Co-Debtor

A

One of a group of affiliated Debtors

56
Q

Confirmed Plan

A
  • Plan of Reorganization that has been approved by the Bankruptcy Court.
  • Note: a confirmed plan almost always goes “effective” but occasionally there is a condition to effectiveness that cannot be met
57
Q

Contract Assumption

A

Process by which the Debtor obtains Bankruptcy Court approval to continue to receive the benefits and incur the obligations under a pre petition contract

58
Q

Contract Rejection

A

Process by which the Debtor obtains Bankruptcy Court approval to terminate pre petition contracts

59
Q

Debtor-in-Possession

A
  • usually shortened to just Debtor
  • Entity that has submitted to the jurisdiction of a Bankruptcy Court for purposes of reorganization or liquidation.
  • The debtor-in-possession operates the business during the bankruptcy, unless the Court decides to appoint a trustee
60
Q

Discharged Liability

A

Liability of the Debtor for which the Reorganized Debtor has not obligation

61
Q

What is addressed in a “Disclosure Statement Hearing”?

A

creditors can object to only the sufficiency of the information provided in the Statement

62
Q

Fully-Secured Claim

A

Secured claim with collateral with value at least equal to the amount of the claim

63
Q

Impaired Claim

A

Claim for which recovery is likely to be less than full

64
Q

Liabilities Subject to Compromise

A

obligations of the debtor which are unlikely to be fully satisfied

65
Q

Liquidation

A

Disposal of all assets, distribution of the proceeds and dissolution of the entity

66
Q

Petition

A
  • Document filed with the Court to initiate the bankruptcy process.
  • Petitions can be voluntary (filed by the Company) or involuntary (filed by a group of the Company’s creditors.
  • Petitions are entity-by-entity; there is no such thing as a consolidated petition
67
Q

Petition Date

A
  • Date that the petition is filed with the Court.
  • Note: in a bankruptcy involving a parent and multiple subsidiaries, not all entities may be filed on the same date, so there may be multiple petition dates
68
Q

Plan Currency

A

Form of distribution to allowed claims –could be cash, notes, equity or specific assets

69
Q

Plan of Reorganization

A

How the bankruptcy is proposed to be resolved. Covers what the ongoing entity will look like (assets, capital structure, etc) and how value is distributed to stakeholders (estimated value and currency)

70
Q

Recovery Percentage

A

Estimated percentage recovery for each class of allowed claims

71
Q

Rejection

A

process to gain approval from Court to terminate leases and contracts

72
Q

Rejection damages

A
  • Claim of counterparty arising from Debtor’s rejection of a lease of contract.
  • Note: lease rejection damages are capped.
73
Q

Reorganized Debtor

A

Debtor that has completed the Bankruptcy process and has emerged as on operating entity

74
Q

Section 363 Sale

A
  • Sale of assets pursuant to section 363 of the bankruptcy code.
  • All non-ordinary course sales require Court approval. -The Court may approve a di minimus sale process where small sales do not need Court approval
75
Q

Secured Claim

A

Claim with collateral

76
Q

Undersecured Claim

A

Secured claim for which the value of the collateral is less than the amount of the claim

77
Q

UCC

A
  • Unsecured Creditors’ Committee
  • Group of creditors of the Debtor appointed by the U.S. Trustee to represent the interests of the unsecured creditors in the bankruptcy process
78
Q

341 Meeting

+when does it happen?

A
  • a meeting of creditors that the bankruptcy filer must attend in which the Trustee seeks to ensure that the debtor fairly and honestly represented business assets, income and debts in the case.
  • The Trustee can ask the Debtor questions, under oath, about the business’s finances and property
  • takes place about 20 to 40 days after filing a bankruptcy petition
  • called a 341 meeting after the bankruptcy code section where it’s found
79
Q

The Bankruptcy Trustee

+responsibilites

A

An individual appointed by the court to administer/ oversee the case

  • responsible for checking the accuracy of your petition and schedules, verifying your identity, and, if money is available to pay creditors, dispersing payments.
  • the trustee’s job is to find money to pay creditors, not to protect debtors interests

Restructuring (4 decks)

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