Part One of the Guide explains the step by step process of commencing a Chapter 11 case from client intake through preparing for and concluding the §341(a) meeting of creditors.

Part Two deals with the non-chronological aspects of Chapter 11 practice. It first discusses the rules applicable to three special kinds of debtors: small business debtors, single asset real estate debtors and individual debtors (engaged or not engaged in business). Motions and applications are explained in general, and particular motions and applications are identified and discussed. Part Two concludes with a brief discussion of adversary proceedings.

Part Three begins with a general description of what a plan is and what confirmation of a plan accomplishes. It continues with an explanation of the basics:

• what must, may or may not be a part of a plan, and

• what must be included in a disclosure statement.

Part Three goes on to teach how to formulate and draft the plan and disclosure statement. The processes for having the disclosure statement approved and the plan confirmed are set out, and how to prepare and file a final fee application is explained. Part Three concludes with a discussion of allowance of claims, what constitutes substantial plan consummation and the final decree.

The thesis of Part Four is that for the business reorganization process to work efficiently and economically, negotiation must take place every step of the way. The fundamentals of negotiating are set out and the topics of communication techniques, settlement psychology and dealing with emotions in Chapter 11 cases are explored. Part Four sets out the tools you need to negotiate optimum results for your client in Chapter 11 business bankruptcy cases – results not achievable by litigating.

To view the Table of Contents, click to download.

To preview Chapter 2, click to download.

To preview Chapter 18, click to download.

My Business Is Having a Financial Hiccup! Uh Oh!  What Do I Do?

If your business has encountered financial difficulties, you, Mr./Ms. CEO and CFO, must read Business CPR and Rx, Turnaround, Reorganization and Chapter 11 before talking to your lender, your creditors and even your attorney and accountant. And the sooner you prepare yourself by reading Business CPR and Rx, the better.

Business CPR and Rx; Turnaround, Reorganization and Chapter 11 describes, for the benefit of business CEOs and CFOs, how to manage a company that encounters financial difficulties. The book begins with the admonition to take positive action now, not later, including some important does and don’ts. Alternative ways of dealing with the business’s financial problems are discussed.

Subsequent chapters of Business CPR and Rx discuss Chapter 11 of the Bankruptcy Code, including:

The benefits and burdens of Chapter 11, Turning your business around (i.e., making it profitable) while operating it in Chapter 11 as a debtor in possession, The rights of debtors, creditors and lessors in Chapter 11, and Business reorganization via confirmation of a Chapter 11 plan.

Special rules are discussed that apply to “Small Business Debtors” (total debts are less than $2 million); “Single Asset Real Estate” (property which generates all the income of a debtor on which no substantial business is conducted other than operating the real property); and individual debtors. Yes, individuals not engaged in business are eligible to file a Chapter 11 case.

The thesis of the final chapters is that a Chapter 11 case is best conducted by collaborating with creditors to resolve disputes that may arise, especially the formulation of the reorganization plan, through negotiation and mediation.

The information in this book will equip you to listen and speak knowingly to your financial and legal advisors and make the decisions that will lead you out of your financial dilemma in a timely and economic manner.

Business schools don’t teach students how to deal with business insolvency. This book does just that.

To preview Chapter One of Business CPR and Rx, Click Here.

– Gregg F. Relyea

Distinguished Fellow, International Academy of Mediators

Author, The Savvy Negotiator

– Riley H. Walter

Walter & Wilhelm Law Group, Fresno

– Daniel L. Shapiro, Ph.D.

Director, Harvard International Negotiation Program

Co-author, Beyond Reason: Using Emotions as You Negotiate

– Daniel H. Slate

Buchalter, Nemer, Los Angeles

– Jeffrey C. Krause

Stutman, Treister & Glatt, Los Angeles

Traditionally, courts have required parties and counsel to attend settlement conferences, recognizing that there are insufficient resources to try all the cases. These settlement conferences, conducted usually by a judge other than the trial judge, work. It may reasonably be asked, however, just how pleased the parties and counsel are with the settlements. After all, the strongest settlement tool the settlement judge has is to opine on what will happen if the case goes to trial, telling each party to settle rather than risk either losing or getting less than desired. About the same level of happiness results from settlement conferences as from trials. In either case, it is pretty much an up or down result. There is no room for creative solutions, and there is no attention given to the emotional pressures that led to litigation in the first place.

Mediation beats the other two alternatives hands down. Mediators are trained to spot emotional, blocking issues and get them out of the way before tackling the money issues. For example, in probate cases, long-term sibling conflicts tend to bubble up. I call it the Tommy Smothers syndrom: “Mom always liked you best.” Underneath these resentments there usually co-exist repressed feelings of mutual regard. The same is true in most business conflicts. In a mediation, relationships can be restored as a part of the settlement. That doesn’t happen in court

.

Mediators are also alert to the possibilities of finding solutions that satisfy both sides – solutions that would be unavailable in court. A good example is a patent infringement case where the stakes are high. Rather than betting the farm at trial, parties come to realize that a license agreement of some sort needs to be worked out.

My style of mediation is not to talk about money early in the mediation. The “let’s cut to the chase” approach usually creates a spread between demand and offer that is difficult to bridge. Instead, usually in caucuses, I probe the strengths and weaknesses and the underlying interests of each side until I sense where each side may be willing to settle. At that point I can begin urging the parties to settle within a reasonable range, knowing they are ready to do so.

In my experience as a mediator, I have been very impressed with the competence of counsel during the mediation sessions, especially with the recognition by counsel of the desirability of settling the case. I find it rare that a lawyer wants to run up the fees rather than settle.

And how about the clients? The wonder is that clients stop talking to each other when litigation begins. They are under the mistaken impression that it is improper for them to communicate, and in some cases, their lawyers tell them not to talk to each other. Yet clients who have businesses to run learn early on that litigation is not a profit-making venture. Given a choice, most clients would go for an early, fair settlement without the expense and risk of litigation. I am reminded of a law firm that was engaged in full time litigation for one client when, quite by happenstance, the presidents of the two litigants talked to each other, settling the case out from under the lawyers. The law firm collapsed.

The moral of that story is to remember that cases belong to the clients, not the lawyers, and not the courts. At trial, and at judicial settlement conferences, the client is not in control of the process, while in mediation, the client controls the entire process. When a case is settled in mediation, both sides and their lawyers are typically delighted. All sense of risk and anxiety is gone, supplanted by a feeling of satisfaction and relief. That doesn’t happen in either the settlement conference or trial.

Cases will continue to settle one way or another, as they always have. Yet, the trend today is toward more than delay reduction. Now the drive is to achieve satisfaction and to reduce the direct and indirect costs of trial by combat. Far and away the best way to do that is to hand the case back to the clients in a mediation.

Chapter 11 cases are invariably complex, multi-party cases. They all consist of a variety of mini – or not so mini – disputes. A few examples illustrate the point: cash collateral use disputes; lease and executory contract performance and assumption/rejection disputes; fraudulent transfer and preference recovery actions; automatic stay relief motions by all manner of parties; and reclamation claims. And that is all before the fracas over the debtor’s (or creditor’s) plan begins! It is not just the debtor versus the rest of the parties. The non-debtor parties do not speak with one voice. They are all represented by counsel, each of whom has his or her own agenda.

The closest analogy to a Chapter 11 case is a construction defect lawsuit where the sub-contractors jockey for leverage against each other and they, the owner, the general contractor and their insurance carriers duke it out. Few courts permit construction defect cases to go to trial and, when filed, are almost immediately sent to mediation. Experience has shown that mediation is especially effective in large, multi-party, complex cases.

Chapter 11 cases, like construction defect disputes, should be resolved through negotiation, including mediation. Bankruptcy courts, like civil state and federal trial courts, will increasingly demand that parties negotiate their differences.

Expect bankruptcy courts to adopt local rules that require early, mandatory negotiation in good faith before the filing of any motion or adversary proceeding, excepting emergency motions. This is not a radical change. Most courts have discovery rules that require counsel to meet and confer before filing a discovery motion. Why not extend that requirement to the filing of non-emergency motions and adversary proceedings in bankruptcy cases?

Even without such a rule, wise debtor’s counsel contacts counsel for all the major parties (official creditors’ committee, secured lenders, landlords, suppliers, etc.) not just after filing the petition but, even better, before doing so. No business debtor’s lawyer worth his or her salt files a petition without first having an exit plan in mind. That plan should be discussed with all counsel at the earliest opportunity. Just as important, debtor’s counsel needs to establish rapport with other counsel. Respectful relationships among counsel are key to collaborative success.

Why mediate?

Complex, multi-party disputes such as construction defect cases are routinely mediated. Few of these cases reach trial. The parallel between construction defect litigation and Chapter 11 bankruptcy cases is unmistakable. If mediation works in construction defect cases, it will work in Chapter 11 cases as well.

A good way to make sense of the Chapter 11 multi-party negotiation process is to bring in a neutral person who understands the subject matter, has good communication skills, and is adept in dealing with emotions and cognitive barriers to communication. That person is both a trained mediator and business bankruptcy expert.

Unlike most mediations which last no longer than one day, a business bankruptcy mediation will most likely involve numerous sessions over the course of the case. Some sessions will include representatives of all parties, while others may involve fewer than all parties. Indeed, many sessions will include only the mediator and a single party in what is known as a caucus.

Throughout the mediation process, many disputes will be negotiated and resolved (use of cash collateral being the most obvious). All are negotiated with the end game in mind – a reorganization plan, a §363(f) sale, or a liquidation plan.

Chapter 11 motions and adversary proceedings take considerable time to prepare and prosecute or defend. Litigation is costly, not only monetarily but also in terms of the client’s time spent away from productive pursuits, not to mention the emotional toll on the litigants. It is obvious that the costs incurred by the parties in a mediation, including the mediator’s fee, will be nominal compared to the typical costs of a litigated reorganization case.

Cost saving is not the only, or even the best, reason for opting for mediation. The best reason is the sense of satisfaction felt by the parties when a mediated agreement is achieved. One reason for that is the fact that the parties themselves, not just their lawyers, participate in the mediation, giving them a strong sense of control over the process and procedural fairness. Contrast that with litigation in which a party does not participate other than to testify in response to questions and is not given an opportunity to express himself or herself freely. The party’s attorney does all the work and talking and the judge rules up or down. In mediation, the parties rule, not the judge.

Mediation is effective. Mediation is cheaper than litigation. Mediation is speedy compared to litigation. Best of all, the parties like the mediation process a lot better than dispute resolution by combat.

Mediation is a much different kettle of fish. While the company’s lawyer has an important role in a mediation, the decision maker for the company – typically the CEO – is the key hands-on player. In trial, the lawyers run the show. In mediation, the CEO can and should be actively involved and in control throughout the process.

Mediation is a process quite unlike that of a trial.

First, from start to finish mediation is a voluntary process. No party can be compelled to participate in a mediation. Nor should any party to a mediation feel coerced or intimidated into settling. The opposite is true in litigation where parties are compelled to testify, produce documents, and admit or deny allegations. The resolution of a business dispute at trial is anything but voluntary. The judge and jury rule up or down.

Second, mediation is a confidential process. Nothing said, done or presented at the mediation can be used or disclosed later. Confidentiality encourages the parties to be candid and open. Parties can discuss the case with the mediator in caucus with confidence that what they say will not be disclosed to the other side without their permission.

Third, mediation is a learning process for both sides. At the mediation, each party, probably for the first time, will gain an insight into what the other side is thinking and feeling. Most important, both sides will focus on what their real interests are, as well as those on the other side.

Fourth, mediation is a negotiating process facilitated by a trained neutral – a mediator. Trained mediators have solid negotiating skills and they coach the parties to be good negotiators. Negotiating skills are not necessarily intuitive but they can be taught and learned. For a primer on how to negotiate, see Part Four of Chapter 11 From Start to Finish – A Comprehensive Guide to Handling Business Bankruptcy Cases.

Fifth, mediation is an analytical process for the mediator who, throughout the mediation, listens carefully and sympathetically to what each party says to figure out where the interests of the parties are likely to converge, thus resulting in a settlement. The mediator must identify the “blocking,” often emotional issues, and find ways to minimize them as impediments to settlement. The mediator, who is not a judge, will not spend any time deciding or opining on who is right or wrong. Instead, the mediator’s job is to listen to discern points of agreement and lead the parties to a mutually agreeable solution.

Preparation, Preparation and Preparation.

Preparation by both the CEO and legal counsel is the key to a successful negotiation. Then, be ready to negotiate collaboratively. Listen to the other side, and most importantly, to the mediator. Use the mediator to seek information from the other side and to sound out ideas that may lead to settlement. The process is a satisfying one, and the best part is that any resolution reached will be what you want to do – not what may be imposed on your company by a judge.