Wednesday, December 14, 2011

Downtown Jacksonville Here We Come!

It is official.  The Law Offices of Jason A. Burgess, LLC's Jacksonville office is relocating to downtown Jacksonville.  The new address will be 118 West Adams Street, Suite 900, Jacksonville, Florida 32202.  The move will be effective as of January 1, 2012. 

Thursday, November 17, 2011

Preparation


Preparation

                Like many things in life preparation is key.  When dealing with a Chapter 11 reorganization nothing is different.  Be ready before the first meeting with an attorney and continue to prepare all the way through filing.
Step One:  Documentation
                It is very important for you to gather all documents that would not only help you get a grasp on your financial situation but that would also help your potential attorney.  The below items are a good place to start gathering.  The list applies to the smallest business or individual to the largest businesses.
1.       Copies of any and all bills that are owed
2.       Copies of any and all loan documents
3.       Copies of any and all notes and mortgages on all property
4.       Copies of any contract or lease you are a party to
5.       Copies of any lawsuit or court paper
6.       A detailed list of personal property and its estimated value (include inventory)
7.       A detailed list of all real property owned
8.       A profit and loss for the past two years
9.       A balance sheet
10.   Any other financials
11.   Tax returns for the previous two years
Unique to Personal (Individual) Chapter 11 Cases
12.   A credit report (free at www.annualcreditreport.com)
13.   6 Months Paystubs
Step Two:  Communication
                Communication is just as important as documentation when it comes to preparing to file or even contemplating filing.  You need to be very specific on what you would like to accomplish in a filing.  Sometimes what you want and what is realistic do not match up and if you communicate it clearly the attorney should be able to let you know what can and cannot happen (or what usually happens). 
                Also make sure to ask questions, that is why the attorney is there.  It is very important that you speak with a qualified Chapter 11 bankruptcy attorney.  Chapter 11 bankruptcy is not like Chapter 7 or Chapter 13 so be careful to make sure Chapter 11 is something the attorney is comfortable with and has done in the past.
                Once you have fully communicated what you wish to accomplish and asked all of your questions you should be ready to make a decision on whether or not Chapter 11 reorganization makes sense.  Should you chose to move forward the next step is getting the papers ready and filing the Chapter 11.

The Law Office of Jason A. Burgess, LLC’s Guide to a Successful Chapter 11 Reorganization

Over the next few articles I will go through what it takes for a successful Chapter 11 reorganization.  Below is the preview of what is to come:



I.                    Preparation
a.      Documentation
b.      Communication
II.                  The Filing
a.      Review
b.      Ask
III.                First Day Motions
a.      Cash Collateral Issues
b.      Officers Pay
c.       Employee Wages
d.      Utilities
IV.                The First 40 Days
a.      Bank Accounts
b.      Documentation
c.       The “IDI”
d.      The 341
e.      Monthly Operating Reports
V.                  Other Things to Know
a.      Trustee Fees
b.      Motions for Relief from Stay
c.       Post Petition Credit
d.      Other Professionals
VI.                Getting Out of Bankruptcy
a.      Disclosure Statement
b.      Chapter 11 Plan of Reorganization
                                                              i.      1129(a) Confirmation
                                                            ii.      1129(b) Confirmation
1.      Absolute Priority Rule
2.      Personal Absolute Priority Rule
VII.              Post Confirmation
a.      Payments
b.      Final Decree
c.       Discharge
d.      Life After Discharge/Closure

Tuesday, November 1, 2011

District Court in Tampa Weighs in on Individual Absolute Priority Rule.

The District Court for the Middle District of Florida Tampa Division has ruled on the absolute priority rule and its application to individual chapter 11 cases.  The Honorable Judge Susan C. Bucklew wrote in SPCP Gourp, LLC v. James John Biggins 2011 U.S. Dist. LEXIS 107728 that the absolute priority rule did not apply in individual chapter 11 cases.  The Judge stated the language is clear that the absolute priority rule was to be removed during the amendments to the code.  The Judge did put in a footnote regarding In re Gelin stating that Gelin had different facts from the case before her.  However that does not take away from the ruling that the APR does not apply to individual chapter 11 cases.  This is the first district court case in Florida to deal with the issue.  While it may not be binding in your particular district it sure is heavily persuasive.  Finally a counter for the much discussed In re Gelin (and at a higher level court)!

Thursday, October 20, 2011

New Bankruptcy Fees and Costs Begin November 1, 2011

Petition Filing Fees* U.S. Dollars only
Chapter 7 *** $306.00
Chapter 7 - to reopen $260.00
Chapter 9 *** $1046.00
Chapter 9 - to reopen $1000.00
Chapter 11 *** $1046.00
Chapter 11 - to reopen $1000.00
Chapter 12 *** $246.00
Chapter 12 - to reopen $200.00
Chapter 13 *** $281.00
Chapter 13 - to reopen $235.00
Chapter 15 (known as foreign proceeding (§304) prior to October 17, 2005) *** $1046.00
Chapter 15 - to reopen $1000.00
   
Adversary and Motion Filing Fees  
Adversary Proceeding *** $293.00
Motion to Lift Stay *** $176.00
Motion to Compel Abandonment of Property $176.00
Motion to Withdraw Reference $176.00
Motion to Convert Chapter 13 to Chapter 7 $25.00
Motion to Convert Chapter 11 to Chapter 7 $15.00
Motion to Convert Chapter 12 to Chapter 7 $60.00
Motion to Convert Chapter 12 to Chapter 13 $35.00
Motion to Convert Chapter 7 to Chapter 11 $755.00
Motion to Convert Chapter 12 to Chapter 11 $800.00
Motion to Convert Chapter 13 to a Chapter 11 $765.00
   
Splitting Case**  
Chapter 7 *** $306.00
Chapter 11 *** $1046.00
Chapter 12 *** $246.00
Chapter 13 *** $281.00
   
Appeal Filing Fees  
Docketing of Appeal or Cross Appeal *** $293.00
Notice of Appeal $5.00
Direct Appeal from Bankruptcy Court decision to Court of Appeals *** $157.00

Monday, August 22, 2011

Cash Collateral (Explained)

     When we file a chapter 11 case, one of the first questions our clients ask is whether they can use the cash they have in the bank and the cash they get when collecting their accounts receivable.
Usually, the client has a bank or other creditor which holds a lien on substantially all of their assets.  Property like inventory, machinery and equipment and the like is called “hard collateral”.  Such items can be used and sold in the ordinary course of business in chapter 11.
     Liquid assets, like cash, bank accounts, and accounts receivable, however, are a different matter.  These are called “cash collateral”.  And cash collateral may not be used over the objection of a secured party without a court order.  This order is called the “cash collateral order”.  Typically, in order to use cash collateral, the debtor must assure the creditor that the value of the collateral will not decline during the course of bankruptcy.  This is called “adequate protection”.  And in addition, if the creditor is fully secured, the creditor is entitled to interest for the use of collateral during bankruptcy.  The creditor is also entitled to attorneys fees to the extent provided by contract.
     Use of cash collateral in chapter 11 is typically conditioned upon following an agreed upon budget.  Any excess cash can be swept into an account for the benefit of the creditor to the extent necessary to provide the creditor with adequate protection.  The creditor can be given a replacement lien in post-petition accounts receivable to provide additional adequate protection for loss of pre-petition accounts receivable.
If there is debtor in possession financing, cash collateral issues can become more complicated.  But that is a topic for another entry at another time.
     In the meantime, if you are a business debtor in chapter 11, don’t even think about using cash collateral without consent of the bank or a cash collateral order approved and entered by the Bankruptcy Court.

For more information go to chapter11jax.com or call (904) 521-9868.

Tuesday, June 14, 2011

Guarantor Releases and Injunctions


A very common question I get from businesses contemplating bankruptcy is whether or not the personal guarantees can be dealt with through the Chapter 11 reorganization process.  Obviously the owners are concerned that we get a great deal for the business but the difference ultimately falls back on them because of the guarantees.  There really is no easy answer regarding the guarantees but I will attempt to at least touch on the subject.
There are two distinct ways to protect guarantors.  Injunctions or Releases.  Injunctions permanently enjoin creditors from bringing an action against the guarantor.  Releases relieve the guarantor from liability.  Let me start off by saying that if the creditor agreed to release the guarantor then there is no issue at all.  Courts routinely allow guarantors to be released when the creditor agrees.  (This is rare however that they agree!)  Typically if you are going to get a release it has to be done through the plan process and approved by the court.  Courts routinely look at the following when deciding whether or not to allow a release:
1.  Are there “unusual circumstances” present?
2.  Is the release fair and necessary?
3.  Do the debtor and the guarantor share an identity of interest that would negatively affect the debtor?
4.  Has the guarantor contributed substantial assets to the debtor’s reorganization?
5.  Is the release essential to the reorganization?
6.  Have the affected creditors voted to accept the plan with the release language?
7.  Does the plan offer to pay all, or most of the claims that are negatively affected?
8.  Does the plan have a mechanism for non-agreeable parties to recover in full?
9.  Is the release supported by adequate consideration?
The court looks and weighs all of the above factors.  It appears that numbers 2 through 5 are looked at closest but the court takes this case by case and there really is no hard line rule regarding releases.  A lot of times the guarantee clauses can be alleviated by the owner filing for personal bankruptcy protection and other times the creditors just decide not to pursue the guarantee clauses.  If you would like to discuss your specific situation please feel free to call me at (904) 521-9868 or (386) 868-2650.  If you just want more information on bankruptcy go to http://chapter11jax.com.

Tuesday, June 7, 2011

Why Does Chapter 11 Cost So Much!

Lawyers who handle Chapter 11 Bankruptcy cases for small to medium size businesses usually address these questions in the initial conversation with potential clients.  "How much is a Chapter 11 case?"  "Why is it so expensive?"  "I just want to stop the foreclosure/lawsuit/collection, then we can dismiss." "Can't I pay a little over time?"  While these questions are very reasonable, the answers are often not what prospective clients like to hear.
Initially, unlike other types of cases, lawyers representing Chapter 11 debtors have several restrictions in getting paid:
  • After a case is filed, lawyers cannot get paid for fees or expenses without notice to the parties in the case, and Court approval.  This includes drawing on any initial retainer provided by the client.  Detailed fees and expenses are reviewed by the U.S. Trustee and Court prior to approval.
  • Lawyers typically must wait a minimum of 4 months to even request approval of fees, but more often, it is six months or more.  If the fees and expenses incurred during this time are more than the initial retainer held by the lawyer, the lawyer is at risk if the client does not have the funds to pay the additional amount.
  • If the case is converted to a Chapter 7 case, the expenses of the Chapter 7 have priority over Chapter 11 expenses.  More often than not, there are no funds available after the payment of Chapter 7 expenses and the Chapter 11 fees and expenses are not paid.
  • If a lender has a security interest in cash and accounts of the company, there may be no unencumbered funds for fees and expenses, and the lawyer must seek approval from the creditor.
These rules mean that lawyers representing Chapter 11 debtors must request an initial retainer that will provide some protection that they will be paid for their services.  Typically, lawyers will consider the nature of the business and the issues leading to the Chapter 11 filing, and request a retainer that will cover them for the first few months of the case.
Let's look at a small manufacturing or retail business that has been hit hard by the economy and is facing.  In the first few weeks of the Chapter 11 case:
  •  Detailed schedules must be completed, including historical financial information, all debts and creditor contact information, a list of all assets, and information about prior payments to creditors and insiders.
  • Documents must be gathered and provided to the United States Trustee, including bank account statements, a budget, tax returns, balance sheets, profit & loss statements,  and other documents.  A meeting is held with the U.S. Trustee within two to three weeks of filing.
  • The first meeting of creditors is scheduled about a month after filing.
  • If a secured creditor has a security interest in cash and accounts, a motion is filed and a hearing scheduled to get approval to use funds of the business.
  • Other emergency motions may be necessary, including the continuation of utility service, the payment of salaries, authority to maintain bank accounts, etc.
  • The first monthly reports are due, and the first U.S. Trustee fees will be billed.
The items listed above are required in every Chapter 11 case, whether it is a single asset real estate entity or a large manufacturing company.  Even if a company decides to seek dismissal of the case soon after filing, the Court and U.S. Trustee normally require that most or all of these requirements are satisfied as a condition of dismissal.
Hopefully this post answers the question of why experienced business bankruptcy lawyers request retainers that may seem large to owners and managers of companies already experiencing financial difficulties.  If the company has a chance of success, it is imperative that an experienced lawyer is retained even if the owners wish to get out of Chapter 11 as soon as possible.

Monday, June 6, 2011

Don’t Delay Filing (It may cost you more than you think!)


So many times I meet with businesses and individuals that are interested in Chapter 11 bankruptcy too late.  They have already tore through their resources until there is nothing left.  Not even enough to attempt a successful reorganization.  It is even more important for businesses that collect rent as their form of income.   

Florida Statutes and the state court can kill any reorganization attempt before it even starts.  Florida Statute 697.07 can take all of your rents and not allow you to use it to fund a Chapter 11 reorganization attempt.  Bankruptcy case law is not settled in the area of assignment of rents but one thing is for sure, if you wait around and let the state court adjudicate the issue then you will have no chance to reorganize.   

If your business relies on some form of rental income, filing Chapter 11 early may be the only way to save your business.  For more information please feel free to call (904) 521-9868 or (386) 868-2650.  If you just need more information regarding Chapter 11 bankruptcy go to http://chapter11jax.com  Again, please do not delay talking to a Chapter 11 bankruptcy attorney.  Delay may cost you more than you think!