Bankruptcy Chapter 11 Business Reorganization and Financial Restructuring

In a traditional stand-alone Chapter 11 restructuring — sometimes called a "free fall" case — the debtor often enters bankruptcy in response to a significant liquidity event but does not yet have restructuring arrangements in place with its major stakeholders. Over the course of the case, the debtor engages its various stakeholders and, using the tools of Chapter 11, restructures its operations and balance sheet.

In contrast, in a "prearranged" bankruptcy, the debtor enters Chapter 11 after negotiating the terms of a restructuring with its major stakeholders. Often, the debtor and certain stakeholders will have entered into a "lock-up" or "plan-support" agreement setting forth the salient terms of the restructuring. Once the debtor has obtained the support of its major stakeholders, it then will enter Chapter 11 and move fairly quickly to have the bankruptcy court approve the restructuring, as contained in the debtor's plan of reorganization.

A variant of the prearranged bankruptcy is the "prepackaged" bankruptcy, in which, before filing for bankruptcy, the debtor has negotiated, documented, and disclosed to creditors a plan of reorganization, and those creditors have voted in favor of the plan. Because much of the work has been completed ahead of the filing, a prepackaged Chapter 11 case can be completed in a much shorter time frame than a typical prearranged or traditional free-fall Chapter 11 case, thereby minimizing administrative costs and reducing much of the uncertainty of the bankruptcy process.