The Executive Guide to Corporate Bankruptcy - Second Edition The Executive Guide to Corporate Bankruptcy
Second Edition

By Thomas J. Salerno, Jordan A. Kroop and Craig D, Hansen
2010/04 - Hardcover

Publisher Comments

Banking & Finance
Banking & Insolvency

This title is part of the Bankruptcy Primer and
Smart Management list.

Of Interest:

Bankruptcy & Distressed Restructurings: Analytical Issues and Investment Opportunities

Bankruptcy Investing: How to Profit from Distressed Companies

Corporate Recovery: Managing Companies in Distress

Corporate Turnaround: How Managers Turn Losers Into Winners!

Distressed Securities: Analyzing and Evaluating Market Potential and Investment Risk

Logic and Limits of Bankruptcy Law

Taking Charge: Management Guide to Troubled Companies and Turnarounds

The PRC Enterprise Bankruptcy Law: The People's Work in Progress

The Turnaround Manager's Handbook

Why Companies Fail: Strategies for Detecting, Avoiding, and Profiting from Bankruptcy

This resource-intensive guide provides the business professional, including the troubled company executive, credit manager, workout professional and investor in distressed debt or equity, with a guided tour through the intricacies of the bankruptcy process in a concise and readily understood manner.

The authors—all seasoned professionals— walk the reader through the stages of a Chapter 11 proceeding while addressing the business realities and dynamics affecting the diverse and often competing constituents involved in the restructuring process.

To assist the reader in navigating through this new world, the book’s forty page Glossary contains a detailed explanation of the terminology used in bankruptcy proceedings. The reader will readily become conversant with the vocabulary, rules, and sometimes arcane language of this unique process. Extensive endnotes accompany each chapter of this relatively compact book. In addition, the authors provide a real-life glimpse of the types of documents and pleadings commonly filed during the reorganization process through a series of Appendices containing sample documents.

These documents are drawn from actual Chapter 11 cases and include explanatory material about what the documents are intended to accomplish. This book will be of interest to corporate executives, boards of directors, investors, creditors, bankruptcy professionals, and anyone contemplating entry into the business restructuring arena. As the authors say in the opening chapters: “Read on . . . the game is indeed afoot.”

“Making the complex and arcane understandable is a rare gift. For lay people facing a bankruptcy proceeding or living through one, this book is a godsend. Salerno, Kroop, and Hansen make both the logical and even the illogical aspects of the Chapter 11 process understandable. They provide a clear road map outlining what is likely to happen and outline the alternatives that exist to alter or ameliorate the outcome. Much has happened in the bankruptcy world since the first edition of the Executive Guide to Corporate Bankruptcy was published in 2001. This book captures those changes well and this new edition does a great job of tidying up the basics even further. This is definitely the book I would recommend to a non-bankruptcy practitioner unexpectedly caught up in the bankruptcy world and looking for a clear explanation of what is happening.”

—Anthony H.N. Schnelling (1947-2009), Managing Director Bridge Associates, LLC

“This book may be the most important reading material for a vast population of corporate America today, unfortunate as that may be. Certainly it is required reading for any member of executive management in a highly leveraged company in today’s troubled environment. The goal of the authors is to simply but accurately explain the bankruptcy process through an organized, informal, anecdote-laden approach. They hit substantially all the issues in corporate bankruptcy, from the basics of the automatic stay to the complex nuances of cramdown strategies. Messrs Salerno, Hansen, and Kroop deftly establish the context for the Chapter 11 process, as well as related actions and strategies. They also provide a detailed index that readily directs the reader to individual topics. All in all, this is a comprehensive and relatively easy-to-read treatment of an extremely complex and increasingly important subject. It is a valuable reference guide for executives and others who are faced with potential bankruptcy issues from their customers, suppliers, or their own companies in the years ahead.”

—Jeffrey I. Werbalowsky, Co-Chief Executive Officer, Houlihan Lokey

“This is the best book for executives and non-bankruptcy lawyers that I have ever read on the practical realities of corporate bankruptcies. The book is also very entertaining, which is not surprising considering that Salerno, Kroop, and Hansen are certifiably insane. This book is so good that I wish I had written it and I'm going to make all of our new associates read it so they won't have to ask me any questions. It's that good.”

—Robin E. Phelan, Partner, Haynes and Boone, LLP

“I manage an investment partnership based in San Diego, Ca. I just finished studying The Executive Guide to Corporate Bankruptcy and wanted to thank you for writing this book and let you know that it is by far the best that I have found on the subject written for the non-lawyer. You did a great job of breaking down the most critical aspects of the bankruptcy process and writing it in such a way that people like me won’t fall asleep!”

—Jeremy Deal, Managing Partner, J. Deal Partnership

Review by Douglas Bacon

The newly revised edition of The Executive Guide To Corporate Bankruptcy is perfectly timed. As the global economy continues to deteriorate, more and more companies are sinking into insolvency with executives at their helm who need a crash course in bankruptcy realities. This excellent book will quickly get both the seasoned executive and the uninitiated lawyer up to speed on the bankruptcy process.

Salerno, Kroop and Hansen understand that the reorganization process can be intimidating, puzzling, and generally unpleasant. They penetrate the opaque gloom that some lawyers tend to perpetuate. Each chapter of this book addresses a different aspect of the reorganization process, beginning with an overview of the origins and purpose of US bankruptcy laws and ending with a debunking of common myths about reorganization. In between, they discuss each chapter of the bankruptcy code; discussing the gamut from liquidations through Chapter 11 sales and full-blown reorganizations. The authors’ ability to distill the bankruptcy code’s complex language into comprehensible and manageable blocks of information makes the book extremely readable.

The Executive Guide is full of pragmatic advice. After laying out the essential elements and key players in the restructuring process, the authors get down to the nitty gritty of navigating a distressed company through reorganization. They realistically assess the challenges that an executive should expect to face in Chapter 11. They discuss how to assuage and balance the concerns of employees and key vendors, address the inevitable creditor dissatisfaction with executive compensation, deal with members of their professional team and work effectively as an executive whose actions will be constantly scrutinized and second-guessed. The authors also provide the cautionary note that “executives preparing to embark on a reorganization are usually too preoccupied with business emergencies to think about the personal toll that the process will exact.”

One common flaw in books that try to be accessible while dealing with technical topics is that they fall short in providing the reader with a substantive understanding of the subject matter. The Executive Guide to Corporate Bankruptcy avoids this pitfall. The book’s fourth and fifth chapters provide in-depth analysis of the strategic decisions and steps that should be taken during the restructuring process. The authors explain the importance that venue can have a case, the intricacies of first day motions and how to prepare for confirmation. There is a detailed discussion of the sale of assets during the course of a Chapter 11 restructuring and the importance of making sure that major constituencies are a part of the decision-making process. They also walk the reader through the specifics of a plan of a reorganization, explaining the dynamics of the negotiation process, especially how to understand and appreciate the needs of your constituents and how to get a plan confirmed.

The icing on the cake for this book is the excellent appendix. The final section of the book includes a user-friendly glossary of commonly used bankruptcy terms and a reorganization timeline. It also includes sample documents such as debtor-in-possession (DIP) financing agreements, operating reports, first day motions and orders, management severance agreements, and more. The summary of management incentive stock plans implemented in recent restructuring transactions is particularly informative.

This is a terrific book. While geared to the non-lawyer executive, it will also be a useful resource for any lawyer who wants to gain practical familiarity with the bankruptcy process. This should be a best seller in today’s environment, though it may need to be delivered to most executives in a brown paper wrapper.

Thomas J. Salerno is a partner in, and co-chair of, the International Reorganization Practice Group of the international law firm of Squire, Sanders & Dempsey L.L.P.

Mr. Salerno graduated from Rutgers University (B.A., summa cum laude) and Notre Dame Law School (J.D., cum laude), where he served as an editor of the Notre Dame Law Review. Throughout the last nearly 30 years, Mr. Salerno has represented debtors, creditors' committees, lenders, and other parties in interest in complex Chapter 11 reorganizations involving public debt and equity securities throughout the U.S., as well as parties in insolvency proceedings in the Czech Republic, Switzerland, France, Germany, and the United Kingdom.

Craig D. Hansen is a partner in the Bankruptcy & Restructuring Group of Squire, Sanders & Dempsey L.L.P. and is a nationally recognized restructuring lawyer, having played prominent roles in some of the nation's largest and most complex restructurings in recent years.

He is best known for representing debtors, although Mr. Hansen also has an active practice representing hedge funds and private equity funds, creditors' committees, and strategic and financial investors in a wide variety of industry and market sectors.

Jordan A. Kroop is a partner in the Bankruptcy & Restructuring Group of Squire, Sanders & Dempsey L.L.P., resident in the Phoenix office. Mr. Kroop is a graduate, magna cum laude, of Brown University and the University of Virginia School of Law.

Mr. Kroop represents publicly-traded and privately-held corporate debtors and significant creditors, including secured lenders, official creditor committees, commercial lessors, and financial institutions in some of the largest Chapter 11 cases in the nation.

CHAPTER ONE: Introduction 1
The Historical Underpinnings Of Bankruptcy — A Very Brief Primer 2
The Genesis Of U.S. Bankruptcy Law 3
Working De?nition Of “Bankruptcy” And “Reorganization” 4
Why Are You Reading This Book? 4
Standard Lawyerly Cautionary Information 6
CHAPTER TWO: Chapter II: The Reorganization Process 7
The “Bankruptcy Code”:
  What Is A “Chapter 11 Bankruptcy”?
  What Is A “Chapter 7 Bankruptcy”? What Do People Mean
  When They Throw Around “Code Sections” In Conversation?
Who Is Eligible For Chapter 11 Reorganization? 9
What’s All This Talk About “Cross-Border Insolvencies?” 10
Getting The Process Started 10
What’s This “Insolvency” Thing? 11
The “Pecking Order”—
  Payment Priorities In Reorganization Cases
The “Secured Creditor" 12
The “Administrative And Priority Claimants” 12
The “General Unsecured Creditors” 12
The “The Equityholders: 13
The The "Off Balance Sheet Creditors” 13
The The “Reorganization Process” 13
“It’s A Mad, Mad, Mad, Mad World” —
  The Reorganization Process As Popular Entertainment
What Exactly Is The Reorganization
  Process Designed To Accomplish?
Allow For A Cooling Of Tempers 17
Allow The Debtor’s Business A Chance To Stabilize 17
Level The Playing Field 17
Allow For And Encourage Financial and Operational Introspection 17
Allow Alliances To Form 17
Allow A Consensus To Build 17
Assist With "Holdouts" 18
Centralize Disputes 18
Allow For Plan Formulation And Con?rmation 18
The Odds (How The Deck Is Stacked) 18
The Players And Their Roles 19
The DIP 20
The Secured Creditors 21
The Official Unsecured Creditors Committee 22
The Official Equityholders Committee 23
“Ad Hoc” Committees 23
Parties To “Executory Contracts And Unexpired Leases" 24
The Examiner 25
The Trustee 25
The U.S. Trustee 26
The Bankruptcy Court 26
The District Court And Appellate Courts 27
The “Interlopers” 28
The Professional Team 29
The “Proactive” versus “Reactive” Reorganization Cases —
  The Need For A Viable Exit Strategy
The Three Phases Of An Exit Strategy —
  “Identi?cation,” “Action Items,” And “Implementation”
The Ultimate In Proactive Bankruptcies:
  The “Prepackaged Bnkruptcy"
CHAPTER THREE: The New Realities 41
Making The Transitions—Attitudinal Adjustments 41
The Reorganization “Inverted Bell Curve” 42
The Elastic Concept Of Time In Chapter 11 Reorganizations 43
The Personal Toll 43
Prepare For The Inevitable Personal Attacks 43
New Stresses On Management 43
"Hand Holding" 43
“A Death In The Family” 44
Executive Compensation 44
Need To Be Accessible To Your Professional Team And Creditor Constituencies 44
Just Whom Does My Lawyer Represent Anyway? 45
Going To Court Early To Get The “Lay Of The Land” 46
“Show Me The Money!” 46
The “Sacrificial Lambs" 47
Life In A Fishbowl (Including The Ultimate Fishing Expedition— The “2004 Examination”) 47
Your New Business Partners — Everybody’s Got An Opinion 48
Keeping The World Informed 48
Working With Committees 48
The Company IS In Play — Live With It 49
The “Revlon Duty To Shop” 49
The “Predatory Constituents” 50
Protecting The Franchise:
  Confidentiality Agreements And “Chinese Walls"
So Explain Again Why I Decided To Make This Trip? 51
CHAPTER FOUR: Surviving To Plan Confirmation 52
The Venue Game 52
The “Order For Relief ” — Let The Games Begin! 55
The “Estate” — What Exactly Is It? 56
The Automatic Stay 57
Scope (The Good News) 57
Exceptions (The Bad News) 60
Relief From Stay And The Concept Of “Adequate Protection” 61
First Day Orders 65
The Beauty Of “Interim Orders” And “Negative Notice” 67
“Excuse Me, But Your Golden Parachute Has Some Rust On It” —
  Management Severance In Corporate Restructurings
Packages For Non-Senior Level People —
  Pre-BAPCPA and post BAPCPA
Preconfirmation Severance And Indemnity
  Arrangements For Senior Level Executives — Pre-BAPCPA
BAPCPA Changes To Post-Bankruptcy
  Severance/Retention Arrangements
Postconfirmation Severance And Indemnity
  Arrangements For Senior Level Executives
Bankruptcy Court Approval Of All Severance
  Arrangements Is Necessary
Financing The Preconfirmation Operations 77
Cash Collateral Use 78
DIP Financing 82
Stabilizing The Business Operations 86
Reestablishment Of Trade Terms And Credit 86
“Ordinary Course” Transactions 87
Reporting Requirements And Other Annoyances 87
Statements And Schedules 88
Interim Operating Reports 92
Dealing With Utility Companies 93
Dealing With The SEC 94
Dealing With D&O Lawsuits 95
Protecting The D&O Insurance Policy 95
Securities Fraud Claims Injunctions 95
Dealing With The “Special Claims” 95
The EPA And Environmental Cleanup Claims 96
The PBGC and Underfunded Pension Plans 97
“PACA” — It’s Not Just For Breakfast Anymore 99
Personal Liability For Unpaid Withholding Taxes 99
Transfer Taxes 100
Reclamation Claims 100
Retiree Benefits And Collective Bargaining Agreements 101
Sale Of Assets 101
Sales “Free And Clear” 102
Credit Bids 102
Every Sale Is An Auction Sale 102
The “Strong Arm” Powers — Speak Softly But Carry A Big Stick 104
Preferences 104
Fraudulent Converyances 106
Avoidance of “Secret Liens” 107
The DIP As The “Hypothetical Bona Fide Purchaser" 108
Post-Bankruptcy Transactions 108
Dealing With Executory Contracts And Unexpired Leases 109
What Is an “Executory Contract”? 109
Assumption Or Rejection 111
The “Special” Contracts 113
Licenses Of Intellectual Property 113
Shopping Center Leases 114
Airport Landing Slots 114
Timeshare Agreements 115
Collective Bargaining Agreements 115
Retiree Benefits 115
Bankruptcy Court Jurisdiction
  (And Limitations On That Jurisdiction)
Jurisdiction Over Assets 116
“Core” Versus “Non-Core” Matters 117
State Entities And The Seminole Tribe Problem 118
CHAPTER FIVE: The Plan Of Reorganization 120
Defining “Success” In Chapter 11 121
Quantifying The Debts — The “Bar Date” Order 122
Step One: The Negotiation Process And Dynamics 123
The “Used Car” Theory Of Corporate
  Reorganization Negotiation
You’re Bound At The Wrists —
  Better Learn To Live With Each Other
Keeping Control — “Exclusivity” Rules! 125
Understanding And Appreciating What The
  Constituents Want And Need
Step Two: Drafting The Plan Of Reorganization 129
The Component Parts Of A Plan 130
Step Three: The Disclosure Statement 133
The Necessary Components Of A Disclosure Statement 134
Disclosure Statement Projections 135
Valuations — When Is Value Not Always Value? 135
The Disclosure Statement Approval Process 136
Step Four: The Solicitation Process 137
The Logistics 137
The “Solicitation Package” 138
Who Is Entitled To Vote 138
The Concept Of “Class Voting” 140
“Bad Faith” Votes — The Concept Of “Designation Of Ballots" 140
“A Card Laid Is A Card Played” —
  Changing Votes Once They’re Made
The Tabulation Process 141
Step Five: The Plan Confirmation Process 142
The Thirteen Requirements For Confirmation 142
A Word About Non-Voting Equity Securities 145
A Word About Preserving NOLs 146
Feasibility 146
“Cramdown” And The Absolute Priority Rule 147
The “Holy Grail" - Discharge 149
Exculpation and Releases 150
Step Six: “Going Effective” 153
The “The “Effective Date” 153
The Legal Effect Of A Confirmed Plan 154
“Channeling Injunctions" 154
Postconfirmation Activities 155
Plan Defaults 155
Plan Amendments And “Substantial Consummation” 155
Default Remedies 156
Serial Filings 157
The “Final Decree” 157
CHAPTER SIX: Arbitration: Ten Myths About Reorganization 158
Myth One: “You can sell assets out from under liens!” 158
Myth Two: “You can ‘cramdown’ a plan on all your creditors!” 159
Myth Three: “It’s business as usual during the case!" 159
Myth Four: “Customers will never deal
  with a company in bankruptcy!"
Myth Five: “The automatic stay protects you against all evils!" 160
Myth Six: “All your contracts are re-negotiable!” 160
Myth Seven: “I’m the DIP—it’s my business judgment,
  dammit, and I’m in control of the process!”
Myth Eight: “What’s good for the shareholders
  is good for the company!"
Myth Nine: “The discharge clears all the company’s debts!” 162
Myth Ten: “You’ll never borrow in this town again!" 162
End Notes 164
APPENDICES: Appendix: Description 218
A: Glossary of Commonly Used Bankruptcy Terms 218
B: Hypothetical Reorganization Timeline 258
C: Sample Press Release 263
D: Voluntary Petition 266
E: Sample “First Day Orders" 281
F: Sample Key Employee Retention Program 380
G: Sample Committee Control Motion 386
H: Sample Confidentiality Agreement 397
I: Sample Cash Collateral Agreement 401
J: Sample DIP Financing Agreement 421
K: Sample Operating Report 441
L: Sample Bar Date Order 454
M: Sample “Solicitation Package" 463
N: Sample Plan and Disclosure Statement —
  Debt-to-Equity Conversion
O: Sample Plan — Liquidation 601
P: Houlihan Lokey Termination Fee Study 639
Q: Summary of Management Stock Incentive Plans
  Implemented in Recent Restructuring
  Transactions (HLHZ Report)

home    |    about us     |     contact us    |     related sites