- Category: Chief Judge Nugent
- Published on 16 October 2008
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Chaper 11 Guidelines
GUIDELINES FOR CHAPTER 11 CASES ASSIGNED
TO BANKRUPTCY JUDGE ROBERT E. NUGENT1
The following are the Chapter 11 case guidelines for cases assigned to Judge Nugent. The
purpose and intent of these guidelines is to encourage the prompt and timely completion of the
reorganization process, either via consensus among the parties and their counsel or by prompt balloting
and determination of all outstanding factual and legal issues at trial. These guidelines are supplemental
to, and by no means a replacement of, the applicable Federal Rules of Bankruptcy Procedure, Federal
Rules of Civil Procedure, or the Local Bankruptcy Rules of this District. By these guidelines, the Court
hopes to discourage protracted reorganization processes (except to the extent necessitated by the size
or complexity of a particular case). The Court also hopes to encourage proactive docket control and
judicial control of these cases to insure that they proceed on an orderly basis. Finally, the Court hopes
to encourage the expectations of all its constituents, whether counsel, clients, or other parties in interest,
that cases will run smoothly and on a cooperative basis. The Court also hopes to encourage counsel to
report to the Court regarding areas in which unresolvable disagreements have surfaced so that the
Court may resolve those issues.
FILING A CASE.
To the extent possible, counsel are encouraged to make a complete initial Chapter 11 filing.
The Court understands that in larger cases, “face-sheet” filings including only the matrix, the petition,
and the list of twenty largest creditors, may be necessary. The more complete the initial filing is,
however, the more readily able the Court and parties will be to grasp the subject matter and scope of
the case itself.
EMPLOYMENT OF PROFESSIONALS.
Court Approval. Both counsel seeking employment by debtors-in-possession as well
as other professionals to be hired by any party in a Chapter 11 case, must be appointed
by the Court’s order pursuant to 11 U.S.C. §327.2 The Court reminds counsel to
carefully review the applicable law and rules (including professional conduct guidelines
regarding the ability to represent a debtor, disinterestedness, and related topics) and to
1 Judge Nugent acknowledges the Judges of the United States Bankruptcy Court for the
District of Delaware, whose Local Rule 4001-2 is adopted as a part of these guidelines. The Court
further acknowledges the Honorable John T. Flannagan, United States Bankruptcy Judge for the
District of Kansas, whose guidelines to some extent inspired these.
2 All subsequent statutory references are to the United States Bankruptcy Code, 11 U.S.C. §
101 et. seq., unless otherwise noted.
submit these applications with the petition.
Local Bankr. Rule 2014.1. Counsel are reminded that they must comply with the
provisions of L.B.R. 2014.1 which require, inter alia, separate disclosures for each
individual attorney who will appear before the Court in the conduct of the case, the
required elements of the accompanying affidavit of declaration, as well as the
requirement that all such applications be noticed to the Chapter 11 docket and served
on a variety of parties. It is this Court’s habit to enter orders approving employment on
an interim “first day” basis, however, with the caveat that such relief is interim only and
that counsel may subsequently be disqualified and denied compensation if qualification
or conflict issues arise. The entry of such interim orders is entirely within the Court’s
Disclosure of Connections. In this connection, counsel should also carefully
consider the content of their disclosure declarations prior to signing and filing
same. If counsel has previously represented any party in the case, it is
important that the representation be disclosed. Similarly, if counsel has
previously represented some person or some entity affiliated in some respect
with the debtor or the estate, that connection must also be disclosed.
Understand that while disclosure of the connections does not necessarily mean
that counsel will be disqualified from representation, failure to disclose such
connections may well result in disqualification and denial of compensation. This
is ultimately a bad result not only for counsel, but also for the client and the
other parties in the case. The Court encourages counsel to apply for
appointment prior to rendering any services to the debtor or to the estate to the
extent such prior application is possible.
Nunc Pro Tunc Orders. Counsel should expect that “nunc pro tunc” retroactive
appointments will be only very rarely approved and only upon a showing of
extraordinary or exigent circumstances. Do not rely on the occasional availability of this
“FIRST DAY” ORDERS AND CONCERNS
Emergency Hearings. Often, debtors require the entry of “first day” orders providing
for the use of cash collateral pursuant to 11 U.S.C. §363, the obtaining of post-petition
credit under §364, the payment of pre-petition vendors pursuant to the “doctrine of
necessity”, and other related matters. It is the Court’s experience that these are matters
which have usually been discussed extensively among counsel for the debtor, lenders
and other constituencies prior to the filing of the case. To the extent possible, counsel
should advise the Clerk’s office when they believe agreements have been reached
concerning the entry of these orders and the likely filing of the Chapter 11 case and the
motions seeking entry of these orders. The Court will grant prompt emergency hearing
settings; the Court prefers, however, to have an opportunity to review the pleadings and
support documents prior to those hearings, preferably twenty-four hours in advance.
Counsel are reminded to comply with all of the requirements of the noticing rules,( See
Fed. R. Bankr. P. 2002, 4001 and 9014) with respect to any financing motions or
other first day order.
Content of First Day Orders; Disclosure. The content of such orders should be
governed by the following which is a verbatim quotation of D. Del. L.B.R. 4001-2
currently in use in the District of Delaware.
Rule 4001-2 Cash Collateral and Financing Orders
Motions. Except as provided herein and elsewhere in these Rules, all cash
collateral and financing requests under 11 U.S.C. §§ 363 and 364 shall be
heard by motion filed pursuant to Fed. R. Bankr. P. 2002, 4001 and 9014
Provisions to be Highlighted. All Financing Motions must (1) recite
whether the proposed form of order and/or underlying cash collateral
stipulation or loan agreement contains any provision of the type
indicated below, (2) identify the location of any such provision in the
proposed form of order, cash collateral stipulation and/or loan
agreement, and (3) the justification for the inclusion of such provision:
Provisions that grant cross-collateralization protection (other
than replacement liens or other adequate protection) to the
prepetition secured creditors (i.e., clauses that secure
prepetition debt by post-petition assets in which the secured
creditor would not otherwise have a security interest by virtue
of its prepetition security agreement or applicable law).
Provisions or findings of fact that bind the estate or all parties in
interest with respect to the validity, perfection or amount of the
secured creditor’s prepetition lien or debt or the waiver of
claims against the secured creditor without first giving partiesin-
interest at least 75 days from the entry of the order and the
creditors’ committee, if formed, at least 60 days from the date
of its formation to investigate such matters.
Provisions that seek to waive, without notice, whatever rights
the estate may have under 11 U.S.C. § 506(c).
Provisions that grant immediately to the prepetition secured
creditor liens on the debtor’s claims and causes of action arising
under 11 U.S.C. §§ 544, 545, 547, 548, and 549.
Provisions that deem prepetition secured debt to be post-
petition debt or that use post-petition loans from a prepetition
secured creditor to pay part or all of that secured creditor’s
prepetition debt, other than as provided in 11 U.S.C. § 552(b).
Provisions that provide disparate treatment for the professionals
retained by a creditors’ committee from that provided for the
professionals retained by the debtor with respect to a
professional fee carveout.
Provisions that prime any secured lien, without the consent of
All Financing Motions shall also provide a summary of the essential
terms of the proposed use of cash collateral and/or financing (e.g. the
maximum borrowing available on a final basis, the interim borrowing
limit, borrowing conditions, interest rate, maturity, events of default, use
of funds limitations, and protections afforded under 11 U.S.C. §§ 363
Interim Relief. When Financing Motions are filed with the Court on or shortly
after the date of the entry of the order for relief, the Court may grant interim
relief pending review by the interested parties of the proposed debtor-inpossession
financing arrangements. Such interim relief is intended to avoid
immediate and irreparable harm to the estate pending a final hearing. In the
absence of extraordinary circumstances, the Court shall not approve interim
financing orders that include any provisions previously identified in subsection
(a)(i)(A) through (a)(i)(F) of this Rule.
Final Orders. A final order shall be entered only after notice and a hearing
pursuant to Fed. R. Bankr. P. 4001. (Balance of Delaware rule omitted).
DEBTOR DUTIES AND RESPONSIBILITIES
Advising Debtor Management. Debtor’s counsel is responsible for insuring that
debtor’s management understands the degree and extent of its duties and
responsibilities, both to the creditors, and to the Court. In listing these duties, a good
place to start is §1107 which requires a debtor-in-possession to perform all of the
functions and duties of a trustee serving in a Chapter 11 case except those provided in
§ 1106(a)(2), (3), (4). Section 1106(a)(1) provides that a trustee will perform the
duties of trustee as specified in § 704(2), (5), (7), (8) and (9). Fed R. Bankr. P. 2015
requires a trustee or debtor-in-possession to make reports of the debtor’s financial
status as well as to provide the Office of the United States Trustee with a statement of
disbursements made during each calendar quarter and a statement that the fees required
by 28 U.S.C. § 1930(a)(6) have been paid. The Court believes that it is vital for
counsel to debtors-in-possession to advise debtor’s management of the nature and
extent of its fiduciary duties to the Court and to the creditor body.
Timely Current Reporting. The Court especially emphasizes that debtors maintain
current monthly reporting obligations and also upon the debtor’s timely filing of each
and every tax return, whether the same was due and not filed prior to the
commencement of the case or becomes due after the commencement of the case.
CHAPTER 11 STATUS CONFERENCES
Timing. The Court will convene an initial Chapter 11 status conference within 60 days
of the commencement of the case. Generally, this status conference will be conducted
after the first meeting of the creditors in order to afford the Office of the United States
Trustee an opportunity to designate an unsecured creditors committee.
Agenda. At the first status conference, the following activities will take place:
Introduction of Court to the debtor and to the case;
Discussion of any remaining outstanding “first wave” matters;
General status of reorganization and anticipated timing of plan;
Historical overview of debtor, principals, and financial relationships;
Outstanding financing issues;
Anticipated issues such as adversaries to be filed, valuation concerns, claim
disputes, discovery matters and pending state court litigation;
Status of retention of professionals;
Anticipated time for:
Claims bar date.
Appearances. Debtor management may, but need not, appear at these conferences.
At the conferences, all counsel should be prepared to discuss any unresolved motions
or other pending contested matters and how such matters might be resolved. Counsel
should bring their calendars to these conferences.
CLAIMS PROCESSING AND MANAGEMENT
Allowance. Voting and confirmation requirements under the Bankruptcy Code speak
to “allowed” claims. Therefore, claims should be determined and allowed before voting
or a valuation of whether a plan can be confirmed. This technically complies with the
Code, and gives the Court and all interested parties the information necessary to
adequately evaluate the plan. This Court requires that a claims bar date order be
entered early in a reorganization case so that objections to claims can be dealt with
before the case comes to the disclosure and confirmation stage.
Claims Objections. Counsel are reminded that, pursuant to §502(a), a proof of claim is
deemed allowed unless it is objected to. Under Fed. R. Bankr. P. 3001(f), a claim is
presumptively valid and correct in amount.
Fed.R.Bankr. P. 3007. Objections to claims are covered by Fed.R. Bankr. P.
3007 pursuant to which the claimant is entitled to 30 days notice of hearing if a
claim is objected to. The objector has the burden of going forward on the
issues of the validity and the amount of the claim. If the objector overcomes the
prima facia effect given a claim by §502(a), the burden shifts to the claimant to
prove its validity and amount by a preponderance of the evidence. Parties
objecting to claims are discouraged from “negative noticing” of claims
objections. In other words, because neither the Code nor the Rules provides
for requiring the claimant to respond to the objection, objectors should appear
and bear their burden of going forward on the issues of the validity in the
amount of the claim.
Hearings on Objections to Claims. Hearings on objections to claims should be
set on the next motion’s docket which falls outside the thirty (30) day notice
period mandated by Rule 3007. The Court recommends and prefers that all
claims objections in a case be set at one time and, be contained in one
objection. While the motions docket is typically not accommodating of
evidentiary proceedings, the Court will utilize this first setting on the objections
to determine preliminarily whether the objections have merit and whether the
claimant is disposed to proceed to defend the objection. If objections are
resolved prior to the time of the docket setting, the Court will employ this
setting to approve and enter such dispositions on the record.
Bar Date Orders. When requesting a bar date, please attach a proposed
version of the order (including a proposed bar period) to the motion for bar
date. In general, the Court will not approve a bar date of fewer than 60 days
after entry of the order. If the bar date process is being utilized to cut off claims
listed on the schedules listed as disputed, contingent or unliquidated, the bar
date notice should clearly state that the holders of claims scheduled as disputed,
contingent or unliquidated can lose their rights to distribution if they fail to file a
proof of claim. The bar date notice should further state that any holder of a
claim may inspect the schedules and statement of affairs filed by the debtor in
the office of the Clerk. The bar date order should also provide that
administrative expense applications for administrative expenses incurred to date
be filed by the bar date. Obviously, administrative expenses incurred after the
bar date may still be applied for prior to the approval of the disclosure
statement. Parties are encouraged, however, to timely file administrative
expense requests so that the debtor and the Court may know of the degree and
extent of the increasing administrative burden in the case.
PLANS AND DISCLOSURE STATEMENTS:
Timing. The Court encourages debtors to file plans within 120 days of commencement
of the case. While the Code does not specifically require filings on that time schedule,
the Code does afford debtors protection by granting them an exclusive period in which
to file plans and, if that exclusive period is met, a further exclusive period of 60 days in
which to confirm their plans. §1121. The Court is of the strong belief that the sooner
most debtors file their plans, the more likely their reorganizations are to succeed.3
Content; Projections; Claims. Disclosure statements should be couched in ordinary
English to the greatest extent possible. In addition, disclosure statements should contain
both historical and prospective cash flow information. The prospective cash flow
information should include a description of the assumptions employed in the generation
of the projections. The disclosure statements should also contain a liquidation analysis
3 Debtors electing “small business” treatment under § 1121(e) are bound by the shortened time
lines contained therein.
so that the Court and creditors may make a reasonable determination as to whether the
plan as proposed will meet the Chapter 7 liquidation test. The Court prefers that the
debtor provide three (3) years of historical cash flow information as well as a three (3)
year projection of same. The cash flow information should be presented on a monthly,
rather than simply on an annual basis. An annual cash flow summary is, however,
helpful to all concerned and should be included.
Allowed Claims Treatment. The disclosure statement should include a list of
the allowed claims by class, with the amount of each allowed claim. The
disclosure statement should further include a list of all disallowed claims by
claimant. The plan should include a definitional section and, in particular, the
term “effective date” should be specifically defined as should the extent of the
Court’s proposed reservation of jurisdiction.
The Court hopes that these guidelines will make the administration of Chapter 11 cases
assigned to it easier and more efficient for counsel, debtors, creditors, and the bankruptcy system.
Counsel filing Chapter 11 cases which are likely to be assigned to this Court should obtain a copy of
these guidelines from the Clerk’s office. In the event counsel have questions about the application of
these guidelines to particular factual scenarios, counsel are welcome to contact this Court’s courtroom
deputies in Wichita for clarification.
Dated this day of November, 2001.
ROBERT E. NUGENT, BANKRUPTCY JUDGE
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS