SEVEN CONCEPTS
the government, etc.
Evading
responsibility
hurts
credibility.
Adults take responsibility for their
actions; others do not. School your
clients to accept responsibility.
Accepting responsibility is hard.
Some people believe that accepting
responsibility makes them look
weak but, to most people, accepting
responsibility shows strength. We
empathize with someone who has
not done well, realized this, tried to
do better and accepts responsibility.
Some creditors may take an
admission of responsibility as a
signal to attack. Let them. Their
attacks just irritate most judges.
Use the fact that the debtor accept
responsibility for what happened
during the case, from the first day
motions onward, to build credibility
and to allow the judge to build
confidence that the debtors can
succeed.
Concept 6: Following Rules.
Chapter 11 has the Bankruptcy
Code, the Federal Rules of
Bankruptcy Procedure, the Local
Bankruptcy Rules, each judges’
own rules, the U.S. Trustee’s rules,
etc. Some rules make sense; some
do not. It does not matter.
In a reorganization case, it is not
enough to make things work right,
e.g., cut a deal with the junior lender,
fix business problems. The judge
needs to see that the debtors can
follow rules. If they cannot follow
rules, then they cannot be trusted
to handle a plan.
Chapter 11 debtors make real the
land of opportunity. They have
vision, work hard and take risks.
They succeed and fail ... massively.
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CONSUMER BANKRUPTCY JOURNAL
While they have vision, they have
problems operating businesses
day to day. They lack the natural
temperament to run a business day
to day. They do not like to follow
rules.
Many or most debtors see rules as
interfering with business success.
Judges, on the other hand, are
usually not visionaries or risk takers.
They do things step by step. You
are the bridge between the two
different temperaments.
What happens when the rules
are not followed? Bad things. I
represented a business chapter
11 debtor. All chapter 11 debtors
must pay a quarterly fee to the U.S.
Trustee. The U.S. Trustee is very
particular about collecting this fee.
The client chose not to pay this fee
one quarter as its cash flow was
tight. Though I communicated the
need to pay the fee, the debtor
did not pay the fee until the day
the U.S. Trustee filed its motion to
convert/dismiss the case. Though
the fee was paid, the U.S. Trustee’s
attorney, wanting a victory, next
raised questions about the debtor’s
ability to reorganize. Ultimately
the court dismissed the case, even
though the debtor had consistent
and positive cash flow. Following
the rules is key.
You must teach debtors the rules,
convince them that it is in their best
interest to follow the rules and then
keep them following the rules after a
plan is confirmed. It will be difficult.
Concept 7: Control the narrative.
The narrative is the debtors’ story,
their background, their successes
and failures, what they have done,
both good and bad. Judges need
a narrative that allows them to
Spring 2018
support the case.
I took a small company through
a chapter 11 case where the
company’s principal had been
sentenced
for
making
false
statements to a bank. I brought
up the conviction in the first day
motions along with these facts:
The principal had pled guilty at
his first hearing; sentencing had
been delayed for years as he was
assisting the government to charge
players in a much larger conspiracy;
he continued to operate the
business; and he worked hard. The
court accepted my narrative, that
the principal had done wrong, but
he had accepted responsibility, was
working and was trying to redeem
himself. I put the information out first
ahead of the creditors who would
have had a different narrative.
When do begin you tell the Smiths’
story? Start with the first day
motions and continue to tell the
story though out the case. Don’t
worry about boring the judge. Most
motions tell judges nothing about
the debtors. Take the time to
discuss who the Smiths are, what
is good about them, what is not so
enviable about them, why they can
succeed and what it will probably
take to succeed. Give the judge
reasons to like your client. By the
time creditors’ counsel can offer
contrary information to the judge,
it may be too late - the judge has
heard your narrative enough times
and it has stuck. Mix controlling the
narrative with Concept 6, following
the rules, and you have a potent
mixture leading your clients toward
plan confirmation.
There are hooks and angles in
every case which can tell a powerful
narrative. Find them. Use them.
National Association of Consumer Bankruptcy Attorneys