What are “prepackaged bankruptcy plans” for business filings?

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prepackaged plans business bankruptcy

What are “prepackaged bankruptcy plans” for business filings?

Sometimes companies prepare a reorganization plan that is negotiated and voted on by creditors and stockholders before the company actually files for bankruptcy. This shortens and simplifies the process, saving the company money, and frequently generating more for the creditors as there is less spent in legal and related fees, there is less disruption to the company’s business and less damage to its goodwill. For example, Resorts International and TWA used this method. Prepacked bankruptcy plans generally qualify as a plan of reorganization under a Chapter 11 case.

If the prepackaged plan involves an offer to sell a security, it may have to be registered with the SEC. Under the Bankruptcy Code, two-thirds of the stockholders who vote must accept the plan before it can be implemented, and dissenters have to go along with the majority.

(Reviewed 11.10.08)

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