Upon the filing of most Chapter 11 bankruptcy cases, a hearing will be held by the bankruptcy court to review and hear an array of motions filed by the debtor. These motions typically include approval to make post-petition financing arrangements and immediate payment on pre-petition debt as necessary. These motions also seek approval of the employment and payment of professionals including, but not limited to, attorneys, appraisers, and real estate brokers.
These motions are known as “first-day” motions since they are normally requested on the same day that the bankruptcy petition is filed. The first-day motions needed by particular debtors vary based on the circumstances of each individual case and typically require a complex legal analysis. First-day motions facilitate the relationships between the debtor and its employees, as well as the debtor and other parties such as vendors and suppliers involved in the affairs of the business. They may assist the debtor in managing its cash flow and procuring any necessary post-petition financing.
Thus, first-day motions typically include requests by the debtor to use cash collateral and/or obtain debtor-in-possession (DIP) financing, as well as requests to pay vendor and supplier claims, pre-petition wages and benefits, sales and other taxes, as well any customer or other third-party obligations. The bankruptcy court will grant these motions as long as evidence is presented that payment of the related claims is critical to maintaining the debtor’s continuing business operations and value as an ongoing entity.
The ensuing financing orders may significantly impact the priority scheme for recovery in the bankruptcy case. Some allowance may be necessary for lien priming and any other replacement liens. Lien priming is when a DIP lender is placed ahead or at the same level of a preexisting lien. They may also affect debt service requirements and allocations of proceeds upon sale or liquidation of collateral for certain classes of claims.
The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services, and advice for clients in all aspects of commercial compliance, business litigation, and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.