Receiving notice that a customer or client has filed for Chapter 11 bankruptcy often does not come as a surprise. But, creditors are quite often surprised by what that customer plans to do once they enter Chapter 11.
In general, debtors enter Chapter 11 (reorganization) with the intention of operating the business long enough to either maximize any liquidation value or with the goal of continuing operations past confirmation of their reorganization plan. Regardless of whether the plan for the business includes short-term or long-term continuance, a debtor entering Chapter 11 will have a need for immediate action from the bankruptcy court to continue day-to-day operations.
The difficulty for a debtor (and, frankly, for creditors), however, is that upon filing, the automatic stay is triggered and from that moment forward. This means the debtor may no longer make any payments for pre-petition debts. This creates obvious problems for a debtor that needs to pay its employees and literally “keep the lights on.” To get permission from the Court to handle these logistical problems, debtors file “first day” motions. First day motions are usually filed on the same day the bankruptcy is filed or shortly thereafter. Hearings occur on an expedited basis, usually within days after the filing. This creates an issue for creditors who will need to engage counsel quickly. Creditor's counsel, in turn, also then need to get up to speed quickly. Because of the complexity of many Chapter 11 cases and because of how quickly the first day motions are often taken up by the Court, it is important for bankruptcy creditors to reach out to counsel immediately when after receiving notice of a Chapter 11 filing.
The most common first day motions include (1) Motion to Use Cash Collateral; (2) Motion to Pay Pre-Petition Wages; (3) Motion for Order Authorizing Payment of Critical Vendors, and (4) Motion for Debtor-in-Possession Financing.
