In the wake of a waning economy, we are already seeing signs that it may take a while to fully recover. In the meantime, many businesses are already finding it difficult to make ends meet as a result of losing out on much needed and much relied upon revenues in the wake of this decline. Indeed, any business in this predicament will be faced with many difficult obstacles to overcome in order to keep its doors open. One of the many options to be considered in overcoming those obstacles is whether the business is a good candidate for a Chapter 11 reorganization.

Mark Twain once said, "It usually takes more than three weeks to prepare an impromptu speech." While it is doubtful that Mr. Twain ever dreamed his quote would serve as an analogy for a Chapter 11 bankruptcy filing, it does so perfectly. Though it may often appear that a Chapter 11 filing is a last resort, last second, "impromptu" action, it is usually quite the opposite. Most Chapter 11 filings are often the result of a carefully designed plan which, if you ask any Chapter 11 practitioner, "usually takes more than three weeks to prepare!" Restated, a Chapter 11 debtor improves its chances of reorganizing if it has sufficient time to prepare for Chapter 11; which, often times it does not.

Take the example of a small closely held corporation with a hundred creditors, twenty-five employees, and one primary secured lender with a blanket lien on all assets of the company. One of the first things Chapter 11 counsel will do, after she conducts a conflicts check on all known creditors and employees, is conduct a corporate status check to make sure the corporation is in good standing and is in compliance with its Bylaws and applicable state law.

Additionally, Chapter 11 counsel will want to evaluate the strengths and weaknesses of the loan documents of the primary lender and to conduct a UCC search to determine who else may be claiming liens against the debtor's assets. Finally, and most importantly, Chapter 11 counsel will want to sit down with management to map out an overall game plan for reorganization and assess the debtor's business operations to confirm that it can withstand the significant cost of administering a Chapter 11 case before the case is ever filed. Indeed, many a Chapter 11 candidate will, for one reason or another, be properly weeded out at this stage.

Not only is there a significant amount of due diligence to be performed by debtor's counsel in assessing whether Chapter 11 is a viable alternative for a business, but there is an equal if not greater amount of work to be done to properly prepare the debtor for Chapter 11. As little as ten years ago, it was acceptable bankruptcy practice to throw a struggling business into bankruptcy to gain the benefits of the Automatic Stay, which prevents creditors from collecting on their debts, and then sort out the many bankruptcy issues after the case was pending. Last second, unplanned business reorganizations are now the very rare exception. This is because today, creditors and their attorneys are so much more sophisticated than in the past. Often, they will be waiting at the Bankruptcy Courthouse steps with a handful of motions designed to end the bankruptcy before it ever gets started.

In response, Chapter 11 counsel have been forced to develop a stable of so called "first day" motions which are primarily designed to keep the creditors at bay for, at least, the early days and weeks of the case, while protecting the debtor's existing business operations. Indeed, the Bankruptcy Courts are now anticipating that a Chapter 11 debtor will likely file several motions on the first day of a Chapter 11 case including, but not necessarily limited to:

• A motion requesting that the debtor has permission to use the lender's cash collateral to pay ordinary and necessary operating expenses of the business, which cash collateral the debtor is restricted from using without a court order or the lender's permission
  
  
• To the extent the use of cash collateral will not be sufficient to meet the debtor's cash requirements, a motion to approve a post-petition financing arrangement with a post-petition lender
  
  
• A motion to provide adequate assurance of payment to the debtor's utilities who, if not provided adequate protection in a timely fashion, can shut off utility service to the debtor
  
  
• Depending on the circumstances, a complaint and a motion for injunctive relief against creditors with third party guaranties against key non-debtor insiders who, if forced to contend with litigation on the guaranties, may lose their focus in assisting the debtor in its reorganization efforts
  
  
• Depending on the circumstances, a motion to pay unpaid pre-petition wages and related expenses of certain key employees who may otherwise be forced to leave debtor's employ to locate more stable employment if they cannot be paid
  
  
• Depending on the circumstances, a motion to pay certain critical vendors on their pre-petition claims in an effort to try and prevent such critical vendors from taking their business elsewhere
  
  
• A motion to approve compensation to any key insiders that intend to draw compensation from the debtor during the reorganization and who will likely leave the debtor if they are not compensated
  
  
• In some instances, a motion to continue to use the debtor's pre-petition bank accounts where setting up debtor-in-possession accounts for all accounts of the debtor could prove detrimental to the debtor's business operations
  
  
• In some instances, a motion to limit which creditors get notice of most pleadings filed by the debtor in an effort to reduce the cost of copying and serving pleadings on creditors who will likely take no position on the pleadings served
  
  
• In some instances, the employment applications of all the professionals who will be representing the debtor in order to secure Bankruptcy Court approval of both the employment and the terms of employment at the earliest opportunity
  
  
• In larger Chapter 11 cases, an application for the debtor to pay its professionals on a monthly basis, subject to quarterly review by the Bankruptcy Court, where waiting for quarterly payment (which is the usual practice) imposes a substantial hardship and risk on the professionals.
  

To properly evaluate whether Chapter 11 is going to help a business and to properly prepare for a Chapter 11 case takes time. Indeed, when considering the amount of work that goes into evaluating and planning a Chapter 11 bankruptcy filing, it probably makes good sense to contact competent Chapter 11 counsel at the very first hint that there may be trouble - even if it is to confirm that Chapter 11 is not needed or will not help. In any event, the chances of a successful reorganization can be increased significantly if Chapter 11 counsel is given enough time to help. Even Mark Twain's "more than three weeks" may not be sufficient, but it will be a good start.