Belk Chapter 11 plan confirmed and effective within 24 hours of filing for bankruptcy – Insolvency / Bankruptcy / Restructuring

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Just after 5:00 p.m. Central time on February 23, 2021, Belk, Inc. and its affiliates filed Chapter 11 petitions in the U.S. South District Bankruptcy Court, along with a draft reorganization plan. “Prepackaged”. Before midnight, the US trustee opposed Belk’s plan, and by 8 a.m. the next day, the parties were in court to decide whether to confirm the plan. Two hours later, bankruptcy judge Marvin Isgur upheld the plan and it went into effect this afternoon, just 20 hours after filing Chapter 11 cases. Typically, Chapter 11 debtors take several months. , or more, to confirm a plan, and even prepackaged bankruptcy cases like Belk’s often take several weeks from filing to confirmation. As we discuss in this article, Belk’s rapid bankruptcy case is part of a growing trend for bankruptcy courts to uphold Chapter 11 plans soon after the case is filed when there is notice. sufficient and adhesion of creditors before filing.

Belk is, according to court documents, the largest private department store chain in the country, with 291 stores concentrated in the Southeastern United States and around 17,000 employees.1 Like so many other retailers, Belk was trying to adjust to changing consumer habits when the COVID-19 pandemic further hampered the outlook for physical retailers. For Belk, this meant additional pressure on his cash flow to cover existing debt and operating expenses, so he needed a long-term solution before the money ran out completely.

Much like the 24-hour Sungard bankruptcy we already talked about here, the success of Belk’s plan was the product of extensive planning and negotiation before the bankruptcy. Faced with impending financing needs, Belk negotiated with his equity sponsor, existing lenders and new lenders, and in January 2021 his efforts culminated in the signing of a Restructuring Support Agreement (“RSA” ) between Belk, its equity sponsor, and the holders of nearly 100% of Belk’s outstanding first and second lien term debt. Under the RSA, $ 225 million in new funding would be provided by the Belk stock promoter and others and a large portion of Belk’s term debt would be eliminated or converted to equity, resulting in a reduction net of Belk’s funded debt of approximately $ 450 million. During this time, Belk’s ABL facility would be reinstated or refinanced, unsecured creditors’ claims would be paid in full, and the promoter of Belk shares would retain majority control of the company. But there was a catch: RSA both demanded that Belk start his Chapter 11 case.
and that the court confirm its reorganization plan no later than February 24, 2021.

With the RSA in hand, Belk notified more than 90,000 potential creditors, using what Judge Isgur described as a “first-rate” effort to ensure all interested parties were aware of the impending bankruptcy filing. and financial restructuring. This pre-filing notice process was essential, because while the debtor did not need additional votes to obtain confirmation of the plan, constitutional due process requirements had to be met, so that creditors and other interested parties would be able to assert and protect all rights. before the bankruptcy court makes a final decision on the proposed plan.

A month after the execution of the RSA and additional support for the plan was secured, Belk filed his Chapter 11 petitions, his draft Chapter 11 plan, and a request to expedite confirmation of the plan. Within hours, the US trustee opposed the plan on the grounds that the expedited process deprived interested parties of due process, that third party releases under the plan were not truly consensual, that the provisions of exception went beyond what was permitted under the Fifth Circuit Law and that counterparties to enforceable leases and contracts had not had sufficient time to challenge the alleged assumption and assignment of their agreements by the regime.

Notwithstanding the objections of the US attorney, Judge Isgur upheld Belk’s reorganization plan on the morning of February 24. Separate “due process preservation order”2 Under this order, the parties had approximately one month to disengage from the releases contained in the Confirmation Plan and Order, to oppose the Confirmation Plan or Order (provided that an opponent can establish the damage caused by the refusal of the possibility of asserting his rights), or contesting the conditions of the assumption of responsibility or the assignment of any enforceable contract or unexpired discharge. In addition, the exemption provisions of the scheme were expressly limited to the extent permitted by applicable law.3 It is important to note that the due process retention order prevails in the event of a conflict between its terms and the terms of the confirmation order.

With the early confirmation of Belk’s reorganization plan and its immediate emergence, Belk reduced its funded debt and improved liquidity while avoiding the large expenses and uncertainty of protracted bankruptcy proceedings. The Belk Chapter 11 case reflects the continuing trend of ever faster confirmation of prepackaged Chapter 11 plans, provided there is sufficient support from creditors prior to filing. And, while this isn’t the first quick confirmation in the South Texas District4, this demonstrates that a growing number of jurisdictions are willing to expedite business bankruptcy cases under the right circumstances.

Footnotes

1. Statement by William Langley, Chief Financial Officer of Belk, Inc., in support of the Chapter 11 Petitions and Day One Motions, ECF # 8, In re Belk,
Inc., et al., No. 21-30630 (MI) (Bankr. SD Tex. 23 February 2021).

2. Preservation of due process order, ECF n ° 62, In re Belk, Inc., et al., No. 21-30630 (MI) (Bankr. SD Tex. February 24, 2021).

3. See In re Pac. Lumber Co., 584 F.3d 229 (5th Cir. 2009) (limitation of discharges of non-debtors to a creditors committee and its members).

4. For example, the Mood Media Chapter 11 case was filed on July 30, 2020 and the prepackaged reorganization plan was confirmed the next day. In Mood Media Corp. et al., No. 20-33768 (MI) (Bankr. SD Tex.).

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