The US Northern Texas Bankruptcy Court in Dallas wants to update its guidelines to attract large, complex, and expensive bankruptcy proceedings.
The Northern District bankruptcy judges have appointed more than 20 restructuring attorneys from Dallas-Fort Worth and elsewhere to a committee that will evaluate and recommend changes to the complex case rules.
Large companies can usually file for bankruptcy in any court of their choice. Making a court more attractive with updated procedures and rules could attract large cases and encourage local businesses in distress to file in their hometown, where the judges are familiar with their business. Registering near your place of residence also saves travel costs.
The rule revisions are expected to be presented to the five Northern District bankruptcy judges by the end of the year, said Ian Peck, a committee member and attorney with the Dallas office of Haynes and Boone.
“The goal of the committee is to ensure that the Northern District of Texas stays up to date in troubleshooting the largest and most complex Chapter 11 cases,” he said.
As the courtrooms reopen, most courts allow certain matters to continue virtually, and this is just one of the more visible changes the committee is considering.
Other rules concern funding, such as providing emergency aid in the early stages of complex cases and implementing new standards for pre-made or pre-negotiated plans.
“Every jurisdiction wants to provide accessibility to participants in bankruptcy proceedings; Predictability and, perhaps most importantly, in large, complex cases, a sophisticated judiciary capable of solving delicate and unique problems, ”said Peck. “The Northern District is no exception.”
The Northern District already has a seasoned bank and all five judges have handled complex Chapter 11 cases as attorneys. The court has received praise from independent sources for its handling of cases over the past year. The bankruptcy of off-price retailer Tuesday Morning Corp., which was wound up by Peck, won several awards, including one from the Turnaround Management Association.
CiCi’s Pizza went from submission to confirmation in less than 40 days. Gold’s Gym completed its sale 110 days after filing, and it took Studio Movie Grill just six months from filing to exiting Chapter 11.
“Cases are going through the process faster than they were five, 10, 20 years ago,” said Peck.
Cases are shorter due in part to bankruptcy costs and the business trauma of filing, he said. “Corporations, lawyers, judges all recognize that it is better for everyone to go through the process as quickly as possible.”
Because of this, courts want to make large Chapter 11 cases more streamlined and predictable. Many of the complex case rules are 20 years old.
In recent years, the US bankruptcy court in the Southern District of Houston has increased its capacity to handle larger cases. Several major local personal bankruptcies last year – Neiman Marcus of Dallas and JC Penney of Plano – filed for Chapter 11 in Houston instead of Dallas. Other major bankruptcies from the Houston court included Chesapeake Energy and Diamond Offshore Drilling.
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During the pandemic, many businesses were propped up by forbearance from lenders or by recent bailouts such as the Congressionally Approved Paycheck Protection Program and the Federal Reserve’s Main Street Lending Program. Corporate bankruptcies could spike in the coming months if companies fail to fix their problems as the economy reopens.
There are also record levels of private money for mergers and acquisitions, private equity buyouts and debt refinancing, which for some companies is “a step forward,” said Clark Ansel, senior managing director of restructuring consultancy FTI Consulting in Dallas.
“Capital is welcome and active in the high-yield bond markets,” he said, even in industries that are still trying to recover, such as hospitality. “Even though they don’t sail, cruise lines have been able to borrow billions.”
Retail and energy continued to lead the way in bankruptcies in the first half of this year, followed by business services, healthcare and real estate, he said, and some will file for a second time within a few years. Basic Energy Services, based in Fort Worth, for example, signed up again in August.
“Stressed companies can find additional capital in this market,” said Ansel. “That gives them the liquidity they need to survive a short-term storm or not.”
Twitter: @MariaHalkias
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