# Presentation: 258105

## 2005 LOCAL RULE REVISIONS         United States Bankruptcy Court Eastern District of Texas

**Notes:**
This series of PowerPoint presentations highlight the 2005 revisions to the Local Rules of Bankruptcy Procedure of the United States Bankruptcy Court for the Eastern District of Texas. This is the fourth of a 4-part series. 

## PART FOUR:Chapter 11 Issues

**Notes:**
This presentation addresses local rule revisions pertaining to Chapter 11 practice. 

## Expanded Notice                    LBR 9013(f)(2)(B)

- Please note that the minimum service list for Chapter 11 cases has been expanded.
- Now includes all secured creditors and all governmental units.

**Notes:**
You should initially note that as to any document which requires service to the matrix, must now be served to the matrix as currently constituted by the Court on the date of filing.  When such service is not required, LBR 9013(f) service is usually indicated and LBR 9013(f)(2)(B) applies in Chapter 11 cases.  The service list in such instance has been expanded to include all secured creditors and all governmental units. 

## Dismissal and Conversion Motions

- BAPCPA imposes 30-day hearing requirement for Chapter 11 Dismissal and Conversion Motions (subject to waiver).
- New rules reduce 20-Day Negative Notice to 15 days on _all_ Chapter 11 dismissal and conversion motions.

**Notes:**
As stated in the case administration presentation, the Reform Act, specifically 1112(b)(3), requires the court to hear a dismissal or conversion motion in chapter 11 within 30 days after the filing of the motion.  In order to still utilize negative notice language in that context, the negative notice applicable to all dismissal and conversion motions filed in Chapter 11 cases is reduced from 20 days to 15 days.

## LBR 1020:  Small Business Debtors 

- Election of Status Eliminated.
- Only Issue:  do you meet the definition under §101 (51D)?
- Debtor will designate on the petition (new Official Form 1)

**Notes:**
While still contemplated an expedited process for small business debtors in Chapter 11, the Reform Act changes the means by which such a status is designated.  Instead of the debtor holding the exclusive power to designate, the election power is eliminated and the designation is required when a debtor meets the statutory definition in sec. 101 (51D).  The Debtor must declare whether the declaration is applicable on the voluntary petition. 

## LBR 1020:  Small Business Debtors 

- Any challenge to Debtor’s designation governed by LBR 1020(a).
- “Motion to Determine Small Business Debtor Status.”

**Notes:**
LBR 1020(a) will govern when a party wishes to challenge the debtor’s declaration as to whether the definition of small business debtor applies.  

## LBR 1020:  Small Business Debtors 

- LBR 1020(b): Motion to Determine _Small Business Debtor Status_:
- 20 day negative notice language
- 9013(f) service required.

**Notes:**
A “Motion to Determine Small Business Debtor Status” will require 20 day negative notice language and 9013(f)(2)(B) service.

## LBR 1020:  Small Business Debtors 

- Motion for Determination of Status of _Unsecured Creditors’ Committee_:
- Means by which to impose small business debtor designation.
- If committee “not sufficiently active and representative to provide effective oversight of the debtor.”

**Notes:**
A creditor may also seek to impose the designation at a later time if any appointed unsecured creditors’ committee is not fulfilling the oversight function for which it was intended.   

## LBR 1020:  Small Business Debtors 

- Motion for Determination of Status of _Unsecured Creditors’ Committee_:
- 20 day negative notice language
- 9013(f) service required.

**Notes:**
That motion would also require 20-day negative notice language and service under 9013(f)(2)(B).

## LBR 3017.1  Small Business Debtors 

- Motion for Waiver or Conditional Approval of Disclosure Statement
- Motion filed when plan is filed.
- 10 day negative notice language
- 9013(f) service.
- Notify Courtroom Deputy to forestall setting of Disclosure Statement hearing.

**Notes:**
While on the topic of small business debtors, the court will also draw your attention to LBR 3017.1 – the odd number, by the way, is to match the corresponding Federal Rule.   LBR 3017.1 provides a mechanism by which the confirmation process can be accelerated by eliminating a separate hearing to consider a disclosure statement.  That motion should be filed upon filing of the proposed plan – with 10 day negative notice and 9013(f) service.  You should also notify the Courtroom Deputy in order to prevent the setting of a disclosure statement hearing until the court has had an opportunity to rule upon the motion to waive or the motion for conditional approval.

## Complex Chapter 11 Cases TXEB Appendix 9007

- “Notice of Designation as Complex Chapter 11 Case”:
- Should be filed with the petition.
- Court will immediately review and issue order granting or denying the designation.

**Notes:**
On the other end of the spectrum, all Texas bankruptcy courts have adopted standardized procedures for handling complex Chapter 11 cases --- cases which necessitate special scheduling and other procedures.  These procedures are outlined in detail in new TXEB Appendix 9007.  A request for complex Chapter 11 case treatment is initiated by the filing of a “Notice of Designation as Complex Chapter 11 Case” by the debtor at the filing of the case ----the form for such notice is Exhibit A to Appendix 9007.

## Complex Chapter 11 Cases TXEB Appendix 9007

- _Factors_:
- Size of case (debt exceeding $10 million)
- Large # of parties (over 50)
- Publicly-traded interests
- Other relevant considerations.

**Notes:**
The Court will immediately review and issue an order either granting or denying the designation.  The factors as to whether a case is worthy of complex case treatment include the amount of the debt, the number of parties, whether publicly-traded interests are implicated, or other factors which would justify such treatment.

## Complex Chapter 11 Cases TXEB Appendix 9007

- Granting of designation will result in special procedures:
- Heavier reliance upon debtor for noticing and establishing hearing agenda.
- Pre-set hearing dates established.
- Special procedures for obtaining hearings.
- Special compensation rules.

**Notes:**
Appendix 9007 contains a number of forms and procedures which will be implemented if complex case treatment is granted.  You should carefully review those forms to determine whether such alterations of normal procedures is truly needed.  Those procedures include heavier reliance upon the debtor for noticing, the establishment of pre-set hearing dates and procedures for obtaining hearings on those dates, and some alterations of normal compensation rules. 

## Complex Chapter 11 Cases TXEB Appendix 9007

- Imposes guidelines for service lists.
- Imposes guidelines for early disposition of assets through §363 sales.
- Imposes checklist for lengthy cash collateral and DIP financing orders.

**Notes:**
The designation will also result in the imposition of special guidelines for service, for early disposition of assets through sec 363 sales, and a checklist which must be tendered in conjunction with cash collateral or DIP financing orders in excess of 10 pages.

## LBR 4001(e)

- Checklist for lengthy cash collateral and financing orders (in excess of 10 pages) must be submitted in all Chapter 11 cases.
- (Exhibit J to TXEB Appendix 9007).

**Notes:**
In fact, you should become very familiar with Exhibit J to Appendix 9007 because the checklist for lengthy cash collateral and DIP financing orders applies in ALL chapter 11 cases under LBR 4001(e).

## Pre-Petition Fee Retainers LBR 2016(e)

- _General Rule_:  hold payments in trust and no withdrawal without court order.
- LBR does not preclude pre-petition withdrawals for pre-petition work.

**Notes:**
As for attorneys’ fees, the rules have not substantially changed.  On receipt of pre-petition funds, such funds must be placed into the attorney’s trust or IOLTA account and cannot be withdrawn without court order.  However, this general rule does NOT preclude the typical practice in ch 11 cases of withdrawing funds from a retainer in the pre-petition period for pre-petition work.  However, all such withdrawals must be accounted for in the statement of financial affairs.   

## Post-Petition Fee Retainers LBR 2016(f)

- PROHIBITED unless:
- Court authorization obtained by motion;
- Only if “exceptional need.”
- Motion requires 20-day negative notice language & 9013(f) service.

**Notes:**
Post-petition receipt of payments are prohibited in chapter 11 unless prior court authorization is obtained based upon a showing of exceptional need.

## Distribution of Retainer :  LBR 2016(g)

- Amounts held in a retainer may be made available to the practitioner without the necessity of a formal fee application.

**Notes:**
Another addition to Chapter 11 practice is the adoption of a mechanism whereby professionals can drawdown any retainer in an expedited fashion without the necessity of a full-blown fee application.  

## Distribution of Retainer :  LBR 2016(g)

- A “Motion for Distribution of Retainer” may be filed monthly until retainer is exhausted.

**Notes:**
A “motion for distribution of retainer” may be filed on a monthly basis for so long as that professional holds a retainer.

## Distribution of Retainer :  LBR 2016(g)

- Filed on monthly basis.
- Submit fee exhibit with information regarding professionals and paraprofessionals.

**Notes:**
The specific provisions are outlined in LBR 2016(g) but generally the motion for distribution must be accompanied by a fee exhibit with relevant fee information regarding the professionals.

## Distribution of Retainer :  LBR 2016(g)

- Filed on monthly basis.
- Submit fee exhibit.
- Required service is limited to US Trustee, any committee or 10 largest unsecured creditors, and to all parties filing a Notice of Appearance.

**Notes:**
With service required only upon the US Trustee, any committee or the 10 largest unsecured creditors, and all parties which have filed a Notice of Appearance or Request for Notice.

## Distribution of Retainer :  LBR 2016(g)

- Filed on monthly basis.
- Submit fee exhibit.
- Limited service.
- Follow new expense guidelines (TXEB Appendix 2016)

**Notes:**
In this regard, and in reference to fee apps in general, you should note the revision of expense guidelines under revised TXEB Appendix 2016.  These guidelines match those adopted statewide in the complex chapter 11 case procedures.

## Distribution of Retainer :  LBR 2016(g)

- Filed on monthly basis.
- Submit fee exhibit.
- Limited service.
- Follow expense guidelines (TXEB Appendix 2016).
- 15-day negative notice language

**Notes:**
 A motion for distribution of retainer will require 15-day negative notice language....and the submission of a proposed order approving the distribution.

## Distribution of Retainer :  LBR 2016(g)

- Filed on monthly basis.
- Submit fee exhibit.
- Limited service.
- Follow expense guidelines (TXEB Appendix 2016).
- 15-day negative notice language.
- Submit proposed order.

## Distribution of Retainer :  LBR 2016(g)

- However, if no objection filed in 15 days, you may withdraw requested amounts from retainer without entry of formal order.

**Notes:**
However, if no objection to the motion is filed within the 15 day period, the rule authorizes the professional to drawdown the requested amounts from the retainer even in the absence of any formal order.

## Individual Debtor Discharge:  LBR 4004(b)

- Chapter 11 discharge for individual debtors changed to mirror Chapter 13 process --- no discharge until completion of plan payments.

**Notes:**
While discharge still occurs at confirmation for corporate and partnership debtors, the Reform Act imposes significant changes to the discharge procedures for individual debtors in Chapter 11.  It delays the entry of any discharge for individual debtors until the completion of all payments under any confirmed plan.  

## Individual Debtor Discharge:  LBR 4004(b)

- _LBR 2015(c)(2):_  individual debtor in a confirmed Chapter 11 case must file annual status report outlining status of payments and other steps to consummation.

**Notes:**
This revision affects the individual debtor’s case in a number of ways.  New LBR 2015(c)(2) will require individual debtors with confirmed plans to file annual status reports with the Court outlining the status of payments and the fulfillment of other plan provisions required for consummation.

## Post-Confirmation Modifications: LBR 3019

- Works precisely as Ch. 13     (with one addition):
- Motion practice setting forth necessity for the modification and precise changes proposed.
- 30 day negative notice language.
- Service upon matrix.

**Notes:**
Post-confirmation modification procedures are also changed to mirror those in Chapter 13.  Such modifications will be governed by LBR 3019 and accomplished by motion practice with 30-day negative notice language and service on the matrix.  

## Post-Confirmation Modifications: LBR 3019

- _One addition_:  necessity for modification must be accompanied by sufficient information regarding the circumstances to satisfy the disclosure requirements.

**Notes:**
However, because disclosure requirements are still applicable to such modifications, the modification motion, in addition to identifying the precise changes to be implemented and the reasons therefore, must also contain sufficient information regarding the surrounding circumstances which would enable a hypothetical investor to make an informed judgment regarding the legitimacy of the need for modification.

## Individual Debtor Discharge:  LBR 4004(b)

- Upon completion of plan payments, the individual debtor (in lieu of trustee) will file “Notice of Plan Completion” [TXEB Local Form 4004-b].

**Notes:**
When an individual debtor has completed payments under a confirmed plan, that debtor must file a “Notice of Plan Completion” in substantial conformity with TXEB Local Form 4004-b.

## Individual Debtor Discharge:  LBR 4004(b)

- Upon completion of plan payments, the individual debtor (in lieu of trustee) will file “Notice of Plan Completion” [TXEB Local Form 4004-b].
- Incorporates §522(q) requirements if state homestead exemptions implicated.

**Notes:**
Such notice incorporates, if applicable, the prerequisites for an individual discharge under sec 522(q) when state homestead exemptions are implicated. 

## Individual Debtor Discharge:  LBR 4004(b)

- Notice of Plan Completion.
- Incorporates §522(q) requirements
- No service required.

**Notes:**
The Notice of Plan Completion need not be served upon any party....because

## Individual Debtor Discharge:  LBR 4004(b)

- Notice of Plan Completion triggers entry of “Notice of Intent to Enter Discharge” by Clerk.
- Sent to matrix.
- 30 days negative notice ...for parties to raise any barrier to entry of discharge order.

**Notes:**
Its filing will trigger the dissemination to the matrix of a “Notice of Intent to Enter Discharge” by the Clerk.  Such notice provides a 30 day negative notice period within which parties may object to the debtor’s declarations that all prerequisites for the entry of a discharge have been fulfilled.

## Individual Debtor Discharge:  LBR 4004(b)

- If no objection, discharge order entered.
- Upon entry of discharge and in absence of any pending administrative issue, a final decree closing the Chapter 11 case will be entered by the Court without the necessity of an application.

**Notes:**
If no objection is timely filed, the Court will proceed to enter the discharge order for the Chapter 11 individual debtor.  Given the amount of time which has likely passed prior to this discharge process being initiated, upon entry of the discharge order, and if all other administrative issues have been resolved, a final decree closing the case will be entered by the Court without the necessity of a separate application.

## END OF PRESENTATION 

**Notes:**
This concludes the PowerPoint presentations regarding review of the new local rules.  The Court would again suggest consulting the “Guide to Practice and Procedures” for additional guidance on the filing of any document. Thank you for your attention.