Belk’s Chapter 11 plan is confirmed and effective within 24 hours of filing bankruptcy

Just after 5:00 p.m. Central time on February 23, 2021, Belk, Inc. and its affiliates filed Chapter 11 petitions with the U.S. Bankruptcy Court for the Southern District of Texas, along with a draft of a “prepared” reorganization plan. Before midnight, the US trustee opposed Belk’s plan, and by 8 a.m. the next day, the parties were in court to decide whether to confirm the plan. Two hours later, bankruptcy judge Marvin Isgur upheld the plan, and it became effective that afternoon, barely 20 hours after Chapter 11 cases were filed. Typically, Chapter debtors It takes several months, if not longer, to confirm a plan, and even prepackaged bankruptcy cases like Belk’s often take several weeks from filing to confirmation. As we discuss in this article, Belk’s rapid bankruptcy case is part of a growing trend for bankruptcy courts to uphold Chapter 11 plans soon after the case is filed, when there is adequate notice and buy-in from creditors before filing.

Belk is, according to court documents, the largest private department store chain in the country, with 291 stores concentrated in the Southeastern United States and around 17,000 employees.[1] Like so many other retailers, Belk was trying to adapt to changing consumer habits when the COVID-19 pandemic further hampered the outlook for mainstream retailers. For Belk, this meant additional pressure on her cash flow to cover existing debt and operating expenses, so she needed a long-term solution before the money ran out completely.

Much like the 24-hour Sungard bankruptcy we discussed earlier here, the success of Belk’s plan was the result of extensive planning and negotiation before the bankruptcy. Seeing his looming financing needs, Belk negotiated with his capital sponsor, existing lenders and new lenders, and in January 2021 his efforts culminated in the signing of a Restructuring Support Agreement (“RSA” ) between Belk, its capital sponsor, and the holders of nearly 100% of Belk’s outstanding senior and senior term debt. Under the RSA, $ 225 million in new funding would be provided by the equity sponsor of Belk and others and a large portion of Belk’s term debt would be eliminated or converted to equity, resulting in a Belk’s net funded debt reduction of approximately $ 450 million. During this time, Belk’s ABL facility would be reinstated or refinanced, claims from unsecured creditors would be fully paid, and Belk’s capital sponsor would retain majority control of the company. But there was a catch: the RSA both demanded that Belk start his Chapter 11 case. and that the court confirm its reorganization plan no later than February 24, 2021.

With the RSA in hand, Belk notified more than 90,000 potential creditors, using what Judge Isgur described as a “first-rate” effort to ensure that all interested parties were aware on how to file bankruptcy filing and imminent financial restructuring. This pre-filing notice process was essential, because while the debtor did not need additional votes to obtain confirmation of the plan, constitutional due process requirements had to be met, so that creditors and others interested parties would be able to assert and protect any right before the bankruptcy court makes a final decision on the proposed plan.

A month after executing the RSA and securing additional support for the plan, Belk filed his Chapter 11 petitions, his draft Chapter 11 plan, and a request to expedite confirmation of the plan. Within hours, the US trustee opposed the plan on the grounds that the expedited process deprived interested parties of due process, that third party disclosures under the plan were not truly consensual, that the provisions of exoneration went beyond what was permitted under the Fifth Circuit law, and that the counterparties to the leases and to the enforceable contracts had not had sufficient time to challenge the alleged assumption and assignment of their agreements by the plan.

Notwithstanding objections from the US Trustee, Judge Isgur upheld Belk’s reorganization plan on the morning of February 24. separate “Due process preservation order”.[2] Under this order, the parties had approximately one month to opt out of the rejections contained in the plan and the confirming order, to oppose the plan or the confirmation order (provided that an opponent can establish the damage caused by the refusal of the possibility of asserting his rights), or contesting the conditions of assumption of responsibility or assignment of any enforceable contract or unexpired discharge. In addition, the regime’s exemption provisions were expressly limited to the extent permitted by applicable law.[3] It is important to note that the Due Process Preservation Order prevails if there is a conflict between its terms and the terms of the confirmation order.

With the early confirmation of Belk’s reorganization plan and its immediate emergence, Belk reduced its funded debt and improved liquidity while avoiding the large expenses and uncertainty of a protracted bankruptcy proceeding. The Belk Chapter 11 case reflects the continuing trend for ever faster confirmation of prepackaged Chapter 11 plans, provided there is sufficient creditor support prior to filing. And, while this isn’t the first quick confirmation in the South Texas District [4], this demonstrates that a growing number of jurisdictions are willing to expedite commercial bankruptcy proceedings under the right circumstances.