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Q: What are the main things parties involved in a chapter 11 bankruptcy and restructuring proceeding should keep in mind?

A: A chapter 11 bankruptcy is a unique legal proceeding involving both bankruptcy and restructuring. While it is an adversarial proceeding, it is not like ordinary litigation. I always remind my clients that you have to remain flexible. A party who is your sworn enemy on one issue may be your biggest ally on another. If you fall into the trap of viewing other parties as strictly friendly or adverse, you lose out on the opportunity to forge useful alliances and make deals that can greatly enhance your position. A skilled bankruptcy lawyer has to be able to read the situation and determine whether to fight or make a deal. He or she also has to be able to understand the other parties’ positions, so he or she can find ways to broker deals that make sense for all sides of a dispute.

Q: What is the most important thing a company contemplating a chapter 11 filing should know about the process?

A: You must adequately plan your chapter 11 filing to be sure that you will have sufficient cash to survive the process. A chapter 11 debtor cannot successfully operate if it does not have enough cash to operate during a chapter 11 proceeding.

Q: What is the most common mistake companies filing chapter 11 make?

A: Waiting too long to consult a bankruptcy lawyer. No one wants to believe they will have to put their company into chapter 11, and this often results in waiting too long to consult someone knowledgeable on corporate restructuring. If you take the time to plan the bankruptcy process, you can often make the filing far less disruptive to your business and increase the chances of success. This usually means hiring a bankruptcy lawyer while there is still a chance that a bankruptcy filing may not be necessary. If you wait, however, until you have exhausted all of your other options before starting the planning process, there is often already too much damage done to the business to have a real chance of successfully reorganizing in chapter 11.

Q: How has representing both creditors and debtors enhanced your understanding of the legal aspects of bankruptcy?

A: By representing both creditors and debtors in bankruptcy proceedings, I have gained a balanced perspective and an ability to understand opposing parties’ points of view. If you understand what your adversary is looking to gain in a particular situation, you are often able to make a deal that is beneficial to both parties and save both sides substantial time and expense in the process.

Q: Why would a creditor want to serve on a committee in a chapter 11?

A: Official committees are formed in chapter 11 cases in order to give parties in interest, who otherwise might not be able to participate, a voice in the process. Unsecured creditors, in particular, often do not have enough individually at stake to make it cost-effective for them to hire their own counsel. The cost of having your lawyer track the case and participate in all of the hearings would quickly eclipse the total amount owed. Official committees of unsecured creditors are made up of 3 or more unsecured creditors who are charged with representing the interests of all unsecured creditors. The official committee is allowed under the Bankruptcy Code to hire attorneys and other professionals to assist them in carrying out these duties. In order to allow the committee to function, the Bankruptcy Code provides for the committee’s professionals to be paid by the chapter 11 debtor. If you are a creditor of a bankrupt company, participating on the official committee of unsecured creditors allows you to participate in the case and have a voice in the ultimate result without incurring substantial legal fees. Okin Adams has a long history of representing creditors’ committees in some of the largest cases in Texas. Given our size, however, we also able to represent committees in small cases that often will not support the fees of larger firms.

Q: How is the purchase of distressed assets different from the purchase of assets in a non-distressed situation?

A: Purchasing distressed assets is often an excellent opportunity to get substantial value for your money. When purchasing assets from a company in financial trouble, however, you have to be sure you protect yourself from claims of the troubled company’s creditors. This is often best done by purchasing the assets out of a bankruptcy. When you buy assets out of a bankruptcy, the Bankruptcy Court must approve the sale. The end result for the buyer is that you get a court order approving the sale and transferring the purchased assets free and clear of the claims of the seller’s creditors. Getting this court order is often worth any additional cost that may be associated with participating in the bankruptcy process. For a troubled company looking to sell assets, using the chapter 11 process to sell the assets can buy you additional time to complete the sale and may provide an opportunity to get a better price than you might be able to get without the protective order of the Bankruptcy Court.