Early evening on February 23, 2021, Belk Inc. and its affiliates (collectively, “Belk”) filed their Chapter 11 bankruptcy petitions in the Bankruptcy Court for the Southern District of Texas. Less than seventeen hours later, Judge Marvin Isgur confirmed Belk’s pre-packed plan of reorganization. Belk is not the first Chapter 11 bankruptcy case to accomplish plan confirmation within the first twenty-four hours after filing a petition, and it certainly won’t be the last. In 2019, Sungard Availability Services Capital, Inc. and its affiliates filed their Chapter 11 petitions and similarly confirmed their plan the following day. Likewise, FullBeauty Brands Inc., a retailer like Belk, also achieved plan confirmation less than 24-hours after filing its Chapter 11 petition earlier in 2019.
These rocket confirmations entitle debtors and other parties in interest with undisputed benefits: they ensure the efficient administration of a bankruptcy case with substantial cost savings.
The short stay in bankruptcy minimizes administrative expenses, including the costs and expenses of counsel and other professionals to various constituents, including the debtors, secured creditors and an unsecured creditors’ committee, among others. A quick detour through bankruptcy also limits any disruptions to the debtor’s operations that might otherwise impair enterprise. But the expedited administration of a bankruptcy case does not mean that such a result was quickly or easily obtained. To the contrary, much time and effort is spent prior to the filing in connection with hard-fought negotiation among many constituents, planning and preparation.
In Belk, the debtors spent months before filing their Chapter 11 petition negotiating complex debt for equity exchange and finalizing restructuring support agreements. Creditor support contributed to the success of Belk and its expedited plan confirmation. Notably, the debtors shared proposed “first day” pleadings, disseminated the proposed plan and the disclosure statements, and solicited votes on the plan. By the petition date, Belk had unanimous consent on the plan and was able to achieve confirmation of a plan that left unsecured creditors, including landlords, unimpaired.
“This is a rare Chapter 11… where everyone wins,” said Belk’s counsel at the plan confirmation hearing. Nonetheless, the Belk court issued a due process preservation order and extended the deadline for opt-out releases — a matter of increasing concern in bankruptcy courts across jurisdictions where the rights of the individual creditors intersect with due process. A once thorny issue of due process, notice, and consent that has halted prior plan confirmations was expediently resolved by the Belk court.
In Belk, the debtors, parties in interest, their respective counsel, and the court paved a record-breaking path for plan confirmations where the work begins and mostly ends prepetition. In doing so, despite the unprecedented effects of the COVID-19 pandemic on the retail industry, Belk was able to keep all of its 291 stores open and its 17,000 workers employed. While the circumstances and results obtained in Belk may be rare, where the restructuring objectives can be successfully negotiated and votes obtained pre-prepetition, rocket confirmations are an attractive option for would-be debtors.