Best Practices Identified A Chat with the Claims Noticing and Solicitation Agents Helping Us Avoid Some Case Administration Landmines

Best Practices Identified A Chat with the Claims Noticing and Solicitation Agents Helping Us Avoid Some Case Administration Landmines

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Any candid case-administration expert will tell you that he or she knows what they know—at least in part—from either working through his or her own mistakes or learning from the mistakes of others. If you are a new professional in this industry whose eyes glaze over when conversation turns to the anatomy of a notice, take note: Notices might seem like the most mundane restructuring task, but they are actually among the most important. Without proper notice, there is no due process. Without due process, there is no deal, there will be no order and there can be no reorganization.

As cases become more complicated, courts and debtors have increasingly relied on claims and noticing agents to help facilitate information flow and ensure due-process protections for stakeholders. As the chart on p. 78 illustrates, the claims agent plays a role in every facet of the restructuring process.

Below, we enlisted a panel of experts—Meade Monger and Todd Brents of AlixPartners, Jonathan Carson of Kurtzman Carson Consultants, Stephenie Kjontvedt and Tinamarie Feil of BMC Group, Ronda Collum and Kathy Yeatter of Wells Fargo Trumbull, and Diane Streany, Kathy Gerber and Ron Jacobs of BSI—to share some thoughts on how professionals can avoid some of the most typical landmines.

"Twas the Night Before Confirmation..."

Situation #1: The constituencies finally reached a deal on a plan. The debtors' professionals quickly produced a comprehensive reorganization plan and disclosure statement. The court approved the disclosure statement and set the plan-confirmation hearing date. Ballots had been sent to the voting classes. Oddly, a week before the voting deadline, the debtors still hadn't received any executed ballots. Routine procrastination, right? Wrong. Was there an incorrect return address? Nope, it was right. Then what was the problem? In short, rent. Just before the voting deadline, the debtors discovered that the lease on the return P.O. box had expired; the Post Office had already rejected hundreds of ballots. Result: re-solicitation; confirmation delayed.

Situation #2: Ballots were printed by a financial printer. Each ballot included the creditor name and voting information. In the first run of the two-page ballot, the printer discovered formatting problems on the first page of the ballot (which included the creditor name and voting information). Acting alone, the printer decided to reprint only that page and used the wrong data file.

Claims Chat: How could these problems have been avoided?

Diane Streany: Dot every "i" and cross every "t." Check and recheck every phone number, address and P.O. box. While duplicating and revising notices can save time and money, never assume that numbers or addresses have not changed.

Jonathan Carson: Attorneys often come to the printer to spot-check documents. Their participation in the process [is welcomed]. When I was a lawyer working on large debtor cases, I would sit at the printer to monitor large jobs. A more hands-on approach could have avoided the problems identified above.

Tinamarie Feil: Involve the claims agent in the planning meetings, copy him or her on correspondence related to solicitation, provide clear points of contact for the claims agent and channels of communication. Do not leave him or her out of the loop when it involves solicitation or service of documents upon large populations. Don't farm it out. If you do, make sure there is a "babysitter!"

Ronda Collum: [One] practice is to set up the P.O. boxes for automatic renewal and always maintain case-specific contact points for at least duration of our retention. Solid relationships with bankruptcy professionals and print providers, proactive planning and demonstrated quality control procedures are crucial to the balloting process. Successful solicitations start long before the paper "rolls off the presses."

Claims Chat: Provide clear, written instructions to all of the players in the printing and mailing process. Arrange a call with all of the players (printer, claims agent, financial consultants and lawyers) to walk through the instructions before the mailing event. Listen to the suggestions of the claims agent and printer—sometimes they are in the best position to know how it should work.

Still Partying Like It's 1999

Situation #3: It was a debtor's New Year's resolution to set a bar date with a mere 60-day notice period. The bar date notice was perfect, except that it was dated January 1999 as opposed to January 2000. Result: set a new bar date and reserve.

Claims Chat: This is a common mistake, especially in January and February. It is also common to see incorrect phone or fax numbers on notices. How can the parties prevent this from happening?

Diane Streany: Check your .pdf documents before sending them to [the claims agent]. Ask...to conduct a final review of the notice and check all dates, addresses and phone numbers. When I receive a request from counsel to serve a document, I print it out, check the formatting and try to catch any obvious problems. In this age of electronic noticing, it is possible that the attorney may not see a document once it leaves his or her office. Through the processes of e-mail, photo copying, .pdf conversions and scanning, bad things can happen to good documents.

Claims Chat: Ask the claims agent to conduct a "numbers review" just before going final. In a numbers review, the reviewer focuses solely on the numbers to verify accuracy.

Situation #4: In another case, without checking the local rules that required a 90-day bar date notice period, this debtor tried to establish a bar date with a 60-day notice period.

Claims Chat: What advice do you have concerning the establishment of a bar date?

Jonathan Carson: Many aspects of the bar date and proof of claim process greatly vary between jurisdictions, and the claims agent is best qualified to facilitate the administrative aspects of the bar-date process (such as determining the appropriate turnaround time between entry of the bar date order and the deadline to send the notice and proof-of-claim forms). Retaining a claims agent before the process commences enables all parties to collaborate on the desired procedural approach to noticing creditors of the bar date and ensuring a smooth claims process.

Claims Chat: Clerks' offices in some jurisdictions automatically serve upon creditors identified on the creditors' matrix a notice of case commencement, 341(a) meeting and bar date immediately after a case files. This can lead to confusion if the debtor intends to seek an alternative bar date. If you do not have a claims agent on board that is coordinating with the clerk's office before the filing, make sure you contact (1) the clerk's office to indicate that the debtor intends to seek an order of the court establishing a bar date and (2) the U.S. Trustee's office to schedule the 341(a) meeting.

Kathy Gerber: While mailing of bar date notices in many jurisdictions is routine, the claims agent can work with the clerk's office to facilitate mailing of these notices in keeping with the needs of the case, rather than as a pro forma response to a chapter 11 filing. Most claims agents typically will obtain approval to issue a tailored bar-coded notice containing unique ID numbers instead of the standard b-10. Such tailored notices (a) eliminate unnecessary filing of claims in instances where the debtor has scheduled the creditor properly and (b) save the debtor time and money in resolution of its claims by automated matching of scheduled liabilities to filed proofs of claims. Additionally, a tailored notice will address other aspects of a case that may give rise to confusion and will channel creditors to FAQ pages on the debtor's Web site.

"What's Up, Doc?"

Situation #5: Many people consider themselves "professionals," especially doctors. This health care debtor served an administrative bar date notice—requiring all "professionals" to file fee applications—on more than 60,000 physician-creditors. Result: The debtor received tons of phone calls from doctors asking whether the professional fee bar date affected them since they considered themselves "professionals."

Claims Chat: The debtor was required to serve the physician-creditors with notice of the administrative claim bar date. What could have been done to curtail the confusion?

Jonathan Carson: Attorneys should draft notices to avoid confusion. Know your audience. When drafting the notice, stand in the shoes of the reader and ask whether the reader will be confused and forced to call or e-mail the debtor. If the answer is yes, tailor the notice to accommodate different audiences. In this case, the drafter could have included language to the effect of: "'Professional,' as defined in this notice, does not include doctors; it includes lawyers, accountants or financial advisors who are employed by the company pursuant to an order of the bankruptcy court."

Ronda Collum: It is not uncommon to serve several different forms of notice, particularly in large or complex cases, if it will help avoid confusion among various creditor constituencies. In this case, the general form of notice sent to all creditors could have been appropriately modified for the physician-creditors and served upon them in a special mailing.

Ron Jacobs: The debtor could have established a call center to address the doctors' inquiries. A call center should be established when a notice is served on large populations. [This] accomplishes several important goals. First, it ensures consistency in that all callers will receive a clear and consistent message from the debtor. Second, it eases the burden on counsel and the debtor's personnel, thereby resulting in a cost savings to the estates. Claims agents are often in the best position to administer the call center because we have the technology to log calls and relay questions to counsel. If the questions are fairly uniform, counsel may decide to send additional correspondence or post additional information on the company's Web site.

Tinamarie Feil: On certain notices to which a response is not required (e.g., notice of case commencement, 341(a) meeting, establishment of procedures, sale motion), many of our clients include clear language at the top of the document that says: "You have received this notice because you are a known creditor of the XYZ Company. You are not required to respond to this notice."

Hmm: Maybe It Wasn't a Mistake After All...

Situation #6: A junior associate was asked to "duplicate and revise" a notice that would be served upon thousands of creditors. Thinking she was being diligent, she included the supervising attorney's direct-line phone number on the notice. Result: the partner received so many calls that his line was unavailable for days.

Situation #7: In another case, the debtor's president sent a letter to 50,000 parties on company letterhead. The company letterhead included his direct dial phone number and e-mail address. Result: 50,000 people had direct access to the president.

Claims Chat: What can be done to prevent this from happening, and what are some tips for communicating with employees and creditors?

Stephenie Kjontvedt: To avoid the problems above, a notice [should be] sent to more than a few hundred people include only one phone number—a hotline number established by the company or claims agent. Although the attorneys' names, phone numbers and e-mails are often included in their standard signature block, we try to warn counsel that this is not the best and most efficient way to handle mass phone calls. Remove the full signature block and only include the attorneys' names.

Claims Chat: If you have to include the name of a lawyer, employee or any other person on a notice, let that person know that their name is being included on a notice that will be served upon thousands of creditors. If you are going to include contact information for committee counsel or any other player, make sure they are aware!

15 Minutes of Shame

Situation #8: Counsel could not believe how lucky he was to have no responses to the hundreds of claim objections that were not served upon an officer of the company in accordance with Rule 7004 of the Federal Rules of Bankruptcy Procedure. Result: Counsel showed up to court and was directed by the judge to re-serve the claim objections in accordance with the rule, giving the claimants an additional 30 days to respond to the claim objection.

Claims Chat: How do you avoid this landmine?

Todd Brents: Know the rules and check them often. It is critical to understand the "local local" rules and the idiosyncrasies of the particular judge. For example, while some judges would require service of a claim objection in accordance with Rule 7004, some do not.

Claims Chat: This would not have happened if claim-objection procedures were in place that included a waiver of the requirement to serve an officer of the company in accordance with Rule 7004. Get ahead of the process and control it—don't let it control you.

A Second Bite at the Apple

Here are some other instances in which parties could be given a second bite at the apple due to a noticing or procedural failure:

• failing to serve lienholders and/or taxing authorities with a 363 sale motion or notice;
• sending first day pleadings to P.O. boxes via Federal Express or another carrier that won't deliver to P.O. boxes;
• not checking the notice provisions of unexpired leases or executory contracts for addresses before serving a notice to extend the time to assume or reject or similar motions;
• serving a bar date notice that includes the wrong zip code for a return address.

Claims Chat: How can professionals avoid these pitfalls?

Kathy Yeatter: It is critical to know which creditors must be served with a motion or notice and in what manner they must be served. Effective communication between counsel and the claims agent is another crucial element of this process. [M]aintain checklists with respect to the various categories of creditors and parties in interest that must be served with each motion or document, and [be] available to discuss the related requirements with counsel in the event of any questions. For example, a lien search must be conducted, and all lienholders must be served with notice of an asset sale.

Claims Chat: When the intended action involves a contract or lease, review the notice provisions of the contract and serve the motion or notice on the parties who are required to be served, at the addresses set forth in the contract. If there are no names, address the mailing to "General Counsel." Also, serve any guarantors with a notice of the intended action. If you are working with a financial advisor, claims agent or company personnel who are preparing a database of contracts and leases, verify that the reviewers are capturing information from the notice provisions of each contract or lease.

Jonathan Carson: [Claims agents can] often make recommendations concerning the service of documents. For example, KCC was once asked to fax fee applications (at times, exceeding 400+ pages) to the Rule 2002 service list. This request is impractical and inefficient. To save time and costs, KCC faxed a one-page notice directing the parties being served to go to the case-specific Web site to download the full document (free of charge) or request a faxed copy.

Closing Words of Wisdom

Todd Brents on Data Integration: The key to successful case management is understanding the debtor's business and obtaining the most useful data early on to leverage its use throughout the proceedings. Good data begins with proper pre-filing planning, which leads to accurate and complete Statement of Financial Affairs and Schedules. This information can be integrated throughout the remainder of the proceedings, such as in claims reconciliation, preference analysis, executory contract assessments, balloting and distributions. During each of these steps, the case data repository grows and becomes more intertwined, allowing for the efficient and effective management of the case.

Jonathan Carson on the Importance of Case Management Orders: Case Management Orders (CMOs) should include the basic standards and processes for notice procedures, hearing schedules and the claims-administration process. With input from the claims agent, counsel can draft CMOs to reflect cost-effective and logical means of service (such as mailing, faxing, e-mailing, copying and printing). Certain CMOs also identify unique noticing roles of the claims agent. For example, in one case, the CMO directed interested parties to the case Web site to access pleadings. To avoid pitfalls, counsel should provide the claims agent with a draft to review and comment, particularly because counsel may not be familiar with the most efficient means of notice in a particular jurisdiction.

Stephenie Kjontvedt on Solicitation: The balloting agent should participate in the formulation of the solicitation procedures. The single biggest misunderstanding in this context is the solicitation of public securities, and we often see unworkable procedures for soliciting this sector. An example of poor drafting includes provisions that require that certain materials be delivered to or distributed to beneficial holders by the indenture trustee. Indenture trustees are not equipped to distribute materials to the beneficial holders and then submit a master ballot on their behalf. Additionally, orders have been entered requesting the nominees provide the balloting agent with a list of all of their beneficial holder names and addresses. Regardless of whether a bankruptcy court order directs this, the nominees in the securities industry dig in their heels and are adamant that they will not release the names and addresses of all of their beneficial holders based upon the nominees' need to protect the privacy of their clients.

Journal Date: 
Saturday, July 1, 2006