A Case for Fewer First Day Motions

September 18, 2020

Authored by: Timothy Bow

Chapter 11 petitions usually are accompanied by a panoply of first day motions.  A newly-minted chapter 11 debtor needs to be able to—among other things—pay its employees and continue employee benefits in the ordinary course of business, pay certain prepetition claims, satisfy its obligations to taxing authorities, and maintain its insurance and surety bond programs.  Chapter 11 cases often are also accompanied by motions seeking various forms of procedural relief, including joint administration of multi-debtor cases, relief related to consolidation of the debtors’ creditor matrix and noticing, and a motion seeking additional time within which to file schedules and statements.

Despite the usually large number of first day motions, these motions generally are divided into two buckets:  motions seeking to pay things and motions seeking procedural relief.  It may be then that many of these first day motions are simply extra paper—a small portion of each motion recites a few relevant details related to the relief it is requesting and the remaining bulk of the motion recites (and indeed nearly repeats across every motion) the basis for relief, some boiler plate background language, and the relevant procedural bells and whistles (for instance, seeking waivers of bankruptcy rules 6003 or 6004).

A better approach may be to file two primary first day motions (excluding financing or cash collateral motions, tax attribute motions, retention applications, and certain other case-specific first day relief—each of which are specific enough to warrant a separate motion), each seeking relief related to one of these two buckets but covering all of the traditional first day relief requested by chapter 11 debtors.  The first of these two motions would be the procedures motion.  Here, the debtors would seek authority to jointly administer their cases, file a consolidated list of creditors, approve notice procedures, and request additional time to file schedules and statements.  This motion would also allow the debtors to continue operating their cash management system and establish the relevant procedures for the debtors’ utilities to receive adequate assurance of future payment.  The second motion would focus on ensuring the debtor could make the necessary payments to continue operating its business in the ordinary course of business, subject to the necessary requirements of chapter 11.  This motion would authorize payment of prepetition wages and benefits, taxes, insurance, surety bonds, and trade claimants.

While we lawyers are creatures of habit and may feel somewhat uneasy taking this unusual approach to first day motions, it is not without precedent.  For example, in In re Global A&T Electronics, Ltd., et al., Case No. 17-23931 (Bankr. S.D.N.Y. Dec. 17, 2017), a prepackaged case filed in the Bankruptcy Court for the Southern District of New York, the debtors filed the usual procedural first day motions but also filed the Debtors’ Motion for Entry of an Order Authorizing the Debtors to Continue Their Prepetition Business Operations, Policies, and Practices and Pay Related Claims In The Ordinary Course of Business on a Postpetition Basis [Docket No. 8] (Link here). This motion combined a number of the traditional motions and sought authority to pay claims related to the debtors’ insurance policies, wages and benefits, taxes and fees, other services, and utilities.  Interestingly, despite this consolidation, the debtors filed a separate motion to continue operating their cash management system.  Even though this was a prepackaged chapter 11 case where claims were unimpaired, the same type of motion could easily be modified for use in a prearranged or traditional chapter 11 case as well.

This consolidated approach makes sense for a number of reasons.  First, it likely would save the debtors costs in the form of attorneys’ fees not spent preparing and reviewing a larger slate of first day motions.  After debtors’ counsel drafts first day motions, these each of these motions endure considerable scrutiny by the debtors’ major stakeholders, the United States Trustee, and ultimately, where formed, the official committee of unsecured creditors.  Second, it likely would ease administrative burdens on the court, the Office of the United States Trustee, and other parties in interest who would be able to reference a single motion to determine what, where, when, and why money is being paid out of the estate.  Finally, with the increasing popularity of pre-arranged chapter 11 cases and lightning fast prepacks (sometimes confirmed within the span of just one day), the first day motions should be regarded as simply a procedural check box to ensure a company’s ordinary course operations and status quo are maintained notwithstanding the chapter 11 filing in order to effectuate a deal.