Expedited Pre-Packs: Balancing Cost-Saving with Adequacy of Notice

In HighPoint Resources Corporation, Case No. 21-10565-CSS (Bankr. D. Del. 2021), the U.S. Trustee’s office filed an objection (Dkt. No. 48) to the rapid confirmation of the Debtors’ plan of reorganization, among other things, indicating its concern regarding the recent trend of expedited pre-packaged plans because of their failure to provide interested parties with adequate notice.

Expedited Pre-Packs

In a typical bankruptcy, a debtor files for bankruptcy, notifies its creditors and other interested parties, prepares compressive schedules, proposes a plan of reorganization and solicits votes on such plan with a disclosure statement. This will often take anywhere from 6 to 20 months, and sometimes much longer.

By contrast, as discussed in our prior post entitled “Rocket Confirmations Gain Traction,” an expedited pre-packaged plan (a “Pre-Pack”) occurs when a debtor files its bankruptcy petition having already solicited votes on a confirmable plan, and a court approves the debtor’s plan within the first few weeks and sometimes, as in In re Belk Inc., Case No. 21-3060630 (Bankr. S.D. Tex. 2021), within the first 24 hours of the filing of the debtor’s bankruptcy petition.

Adequate Notice

The U.S. Trustee’s concerns in HighPoint Resources center on whether creditors and other interested parties can truly receive adequate notice as to the debtor’s disclosure statement and plan of confirmation given the tight timeline of an expedited pre-packaged plan. Given the nature of the U.S. Trustee’s role in cases generally, we should expect to see similar objections as the trend of rocket confirmations gains further traction.
Under the Federal Rules of Bankruptcy Procedure Rules 2002(b) and 3017, creditors, the trustee, and other interested parties must receive at least 28 days’ notice prior to a hearing on either the disclosure statement or plan confirmation. As in Belk, debtors comply with the necessary notice requirements in an expedited pre-packaged plan by providing notice to all interested parties pre-petition.

The U.S. Trustee, however, has made two arguments against expedited Pre-Packs. First, the interested parties receiving pre-petition notice may not be the same interested parties on the petition date. Second, even if there is an identity of the parties, those parties cannot meaningfully question the disclosures contained in the disclosure statement, or challenge the terms of the proposed plan prior to the petition date (relative to their rights to be heard in court).

Conclusion

It remains unclear whether courts will uniformly find that interested parties received adequate notice prior to the petition date and confirm expedited pre-packaged plans, condition confirmation on additional procedures to ensure notice, or outright reject such expedited Pre-Packs. For now, absent statutory mandate, courts will exercise their discretion in deciding whether these plans should be approved.