By Charles Moster
“So what do you want for Christmas, little Ricky?”

“Well, I don’t want or need a Lexus and I’m already driving a Cadillac. Maybe putting GM into bankruptcy would be a super gift. After all, according to my bankruptcy attorneys it can come “pre-packaged”. Think how much I’ll save on the wrapping.”

When it comes to bailouts, the news bites echoing in the media do have a certain Christmas-like appeal. Apparently, some bankruptcy attorneys are recommending that GM, Ford and Chrysler embark on a so-called “pre-packaged” Chapter 11 bankruptcy filing that theoretically provides a mechanism for an expedited approval of the reorganization plan. The idea is to get the major creditors and power brokers to agree to a consensual plan before the actual Chapter 11 filing and thus increase the odds that the approval of the Chapter 11 Bankruptcy Plan will not only be successful but accomplished at lightning speed.

With all due respect, I must express my disagreement with such naiveté. I say this having been involved in some of the largest Chapter 11 bankruptcy cases ever filed. In my experience, Chapter 11 is better characterized as the “Roach Motel for Mega Corporations” like the Big 3 automakers, rather than the expressway to successful restructure. Many of these corporate giants check in but “never check out”.

The sheer complexity of the Chapter 11 process is a major factor in causing a delay in the ability to rapidly emerge from bankruptcy protection. Once a company submits to the bankruptcy process and jurisdiction of the federal bankruptcy court it can easily lose control of its destiny. Creditors of all types, large and small, can launch an attack on the debtor’s remaining assets. Conflicts and power plays abound as creditors, shareholders, unions, and government (local, state, and federal) all circle around the cookie jar for a share of the wonderful delights to come.

So, does all of this mean that I am cynical about the Chapter 11 bankruptcy process? Not at all! I just want my clients and the public at large to understand that with complexities come risks and delay. I do not believe that a positive result can be pre-ordained or as the law firm publicists like to say these days, “pre-packaged.”

In my experience, Chapter 11 bankruptcy is a more effective tool for smaller and mid-size businesses. When there are fewer variables to confront, I believe the odds are improved for a successful reorganization. As to downsides, well… Ricky’s Christmas dinner will most likely feature turkey or ham and not steaks and caviar.