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How to prepare for a Chapter 11 bankruptcy filing

Corporate Restructuring 101

clarity

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For a company facing a Chapter 11 filing, the primary objectives are reasonably clear: utilize the bankruptcy process to reorganize or sell assets – and emerge as quickly and successfully as possible.

However, and rightly so, most companies do not possess the in-house expertise and resources required to navigate the often-complex regulatory and legal intricacies of a Chapter 11 restructuring. So, in addition to legal, financial and other advisors, a claims and noticing agent is often required and retained. Once considered primarily for clerical tasks, a full-service claims agent today advises on and manages critical elements of their clients’ restructuring cases, most often in these areas essential to bankruptcy preparedness:

1. Strategic Communications

2. Pre-Filing and Post-Filing Consultation

3. Solicitation

4. Noticing and Claims Management

5. Virtual Data Rooms

Failure to properly prepare and execute in these areas can result in additional cost, unnecessary reputational damage, irrecoverable losses, crippled vendor and customer relationships, and loss of talent which may be further exacerbated by substantial, unanticipated expenses.

Time is of the essence when preparing for a Chapter 11. As such, this article will provide an outline of the critical functions your claims agent should be qualified to undertake to lessen the burden on internal resources and prepare a company to move into bankruptcy

How to prepare for a Chapter 11 bankruptcy filing

– seamlessly, without any interruption to the underlying business.

1. Strategic communicationsHow well a company manages communications when entering bankruptcy can substantially affect its ability to reorganize successfully. If done well, the public will have a clear understanding of the reasons for filing and the company’s plan for exiting, limiting the negative impact on performance, customer orders and vendor issues.

Therefore, developing and implementing a strong, scalable communications plan and media strategy to manage employee, customer, vendor and investor perceptions is critical. It is essential during uncertain times to instill confidence, promote stability, and protect and reinforce your brand, reputation and human capital – while ensuring regulatory compliance and consistency with legal strategy.

However, the need to communicate clearly and consistently to a variety of stakeholders, on top of the demands of maintaining day-to-day operations, can strain resources and performance and distract from organizational goals, which is why many companies rely on claims agents that provide specific crisis communications expertise.

There are multiple complexities involved in creating and launching an effective communications plan. Here are some topline cautions/suggestions:

Stay current – think beyond the press release

• Manage and anticipate constituent expectations with a range of communications media, such as:

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• Dedicated, interactive restructuring website (responsive format, so easily viewed on mobile devices) with helpful FAQ, latest updates, etc.

• Contact center outreach/hotlines

• Ongoing social media updates and developments

Select a primary spokesperson to represent the organization as the single point of contact for all inquiries

• The seniority of the spokesperson should reflect the gravity of the event.

• They should be accessible throughout the restructuring process and comfortable in a fast-moving, sometimes hostile environment.

• All communications (press releases/statements) should go through one channel – you do not want the media going to other sources for information that could dilute or contradict your message.

• Importantly, in some situations, making leadership or others available for interviews is not beneficial and the press release should stand on its own, acting as the voice of the company.

Be proactive and open, respond quickly, and take responsibility when necessary

• In today’s electronic age, it is safe to assume that all relevant information can be independently verified and nothing can ultimately be concealed.

• Suspicion regarding the health of your company, once it arises, is difficult to mitigate and can spread by association to investors and suppliers.

• The longer the wait, the more reputational and financial damage can be done. You don’t want someone telling your story before you do.

Talk with your employees first – and review all communications

• Your employees should never learn about any issues related to the restructuring from customers, colleagues or the press.

• Write each communication as if it will be viewed externally and consider the perspective of all constituents – shareholders, suppliers, employees, customers, etc.

• Your general counsel’s office and/or outside counsel should review all internal

depth

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and external communications during the restructuring process.

Lean on your crisis communications experts

• Communications professionals know how to navigate these events, hone in on key issues, and work with your team to mitigate concern and speculation.

2. Pre-filing and post-filing consultationThe consulting function encompasses a wide range of critical functions before and after filing, including:

Pre-filing

• Management guidance, along with efficient and accurate collection of all court-required information from debtor’s headquarters, business units and subsidiaries.

• Tracking, organizing and indexing of all case-related information and documents.

• Compilation of collected data into work product, as needed, for required filings and necessary reporting.

• Creation of a creditor’s matrix and first-day motion exhibits in conjunction with the debtor’s financial and legal advisors.

• Designing and implementing a restructuring webpage to act as a conduit of information to creditors, customers and other interested parties.

• Activate a custom-recorded contact call center support line with agents trained and prepared to address key constituents’ questions immediately upon filing.

Post-filing

• Collected information leveraged, as needed, to support financial advisors and the internal team with Schedules of Assets and Liabilities, Statements of Financial Affairs preparation and other data requests.

• Establish service plans to ensure all constituents receive required notice of the restructuring process.

• Implement claims reconciliation processes and prepare omnibus objection exhibits.

• Calculate distribution amounts, establish cost effective banking arrangements and process and mail checks to creditors. Solicit and collect required taxing information, as well as handle required tax reporting.

In an accelerated, pre-packaged case, success can hinge on the ability of the debtor and its

confidence

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advisors to collect and prepare all the correct data prior to or immediately after filing.

At the same time, collection and preparation, when accuracy and completeness are critical, can be an enormous drain on your company’s time and resources. An experienced consulting team not only can free your personnel to focus on their normal responsibilities, but also help you speed up the restructuring process and generate substantial cost-saving efficiencies.

The importance of the contact center, which should be up to speed and ready to go when bankruptcy is filed, cannot be overemphasized. Handled poorly, the filing may kick off with a torrent of angry, frustrated vendors and customers and resulting negative publicity. Therefore, a claims agent’s website services and contact center experience, training, capabilities and capacity should be thoroughly vetted.

3. Solicitation A critical step in reorganization is the solicitation of votes from creditors in favor of, or in opposition to, the proposed plan. This may seem simple, but there are strict legal and regulatory requirements with which every action in a solicitation must comply. Complexity may increase significantly

when public securities are involved, or when transactions incorporate a rights offering, exchange offer, treatment election or other special feature. It is clearly important that the ballot agent possess considerable experience in these requirements, at each stage of the solicitation process.

Planning

• Documents and procedures for all aspects of the proposed solicitation are reviewed for content and compliance. Procedures are modified and streamlined as needed for maximum effectiveness, efficiency and cost.

Execution

• All creditor constituents – including the Depository Trust Company (DTC) or international depositories – are analyzed and responsibilities and processes are evaluated. Disclosure and voting materials are developed, printed and distributed to appropriate voting classes – and all claims and public securities are documented and handled.

Tabulation and verification

• Returned ballots and other instructions are tabulated, all tabulation results are certified and real-time reports provided to all required parties.

process

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Distribution

• The process is completed by facilitating all distribution aspects to public securities holders and other creditors – including obtaining registration details for private registers or facilitating distributions of public securities to non-securities claims.

4. Noticing and claims managementThe capabilities and experience of claims agents may vary widely and should be carefully vetted – especially because noticing requirements and the management of the claims process can be complex. The claims agent you choose to handle claims management should have an established track record, deep internal experience and provide comprehensive services, including noticing and a web-based claims portal.

Noticing

Critical metrics in evaluating a noticing service include:

• Responsiveness and capacity: How fast can they develop, print and distribute printed communications? What is their in-house capacity? Can you customize materials, such as claims forms? Can they offer lower-cost solutions?

• Quality: How is their print/assembly quality? What is their quality control process?

• Distribution: How do they facilitate timely distribution – and ensure data integrity and accuracy? Do they have extended service deadlines?

• Follow up: How do they follow up with recipients?

• Cost: How do they compare?

Claims web portal

Claims management support should include a secure, dedicated web portal with a range of capabilities that drive efficiency and satisfaction, such as:

• The ability for claimants to securely file proofs of claim online. This can significantly speed up the claims process and reduce costs, as well as increase claimant satisfaction and the efficiency of gathering claims data.

• Real-time, continuously updated claim status, including payments, address changes, duplicates and amended/transferred claims.

• Monitoring of Schedule of Liability and Claims Register variances, enabling prompt resolution of discrepancies.

efficiency

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agility

5. Virtual Data Room (VDR)A virtual data room is a web-based, centralized electronic repository created prior to filing, to make case-related information available confidentially and in real time to multiple authorized users.

This is the central location where all the documents and other information collected for case filing are uploaded and stored. With a VDR, all case-related information can be quickly and securely accessed by your outside advisors in the critical days leading up to filing. A full-service claims agent typically provides the VDR, as well as ongoing site management.

Within the VDR, the information each party can search for, view, retrieve, add to or share must be strictly defined and access limited to that content.One of the critical tasks in setting up a VDR is to ensure that the permissions are set correctly and each group’s data requirements are strictly adhered to. Buyers of strategic assets, who may also be competitors, for example, must obviously not be able to inadvertently access information beyond what they are authorized to see. And the security system must track and report exactly when specific information is accessed and by whom.

In summary, your virtual data room should provide convenient access, current technology, strict security, 24/7 support, real-time reporting – and document review, indexing and multilingual translation, as needed.

ConclusionA company filing for bankruptcy, in consultation with its legal and financial advisors, will usually have a clear idea of the legal, operational and financial path it wishes to take for a successful restructuring. However, if it falls short on the administrative aspects of the process, it still risks significant delay and expense, potentially jeopardizing the intended outcome.

More companies today are seeking to dramatically accelerate the bankruptcy process with pre-packaged or pre-negotiated cases, which further emphasizes the potential value of a full-service claims agent. Whether you decide to pursue that approach with a single claims agent or multiple vendors – or take on those administrative responsibilities internally, we hope the information in this paper has been helpful.

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Epiq, a global leader in the legal services industry, takes on large-scale, increasingly complex tasks for corporate counsel, law firms, and business professionals with efficiency, clarity, and confidence. Clients rely on Epiq to streamline the administration of business operations, class action and mass tort, court reporting, eDiscovery, regulatory, compliance, restructuring, and bankruptcy matters. Epiq subject-matter experts and technologies create efficiency through expertise and deliver confidence to high-performing clients around the world. Learn more at www.epiqglobal.com.

To learn more about addressing your organization’s needs before, during and after a corporate restructuring, contact Deirdre McGuinness.

Deirdre McGuinness+1 347-229-3461dmcguinness@epiqglobal.com

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