Skip to main content

An Inside Look at the Four Stages of Bankruptcy and the Role of the Trust and Corporate Services Providers – Part Two

By Alan Halpern
Chief Risk Officer | CSC Global Financial Markets Share this post

Alan Halpern, one of our leading subject matter experts, continues his discussion on the stages of corporate bankruptcy in the United States and how trust and corporate service providers can help facilitate every stage of this process. Missed part one? Read it here.

After Filing Preparation and Filing the next stage is:

Stage Three: Confirmation

Within 120 days of the filing of a Chapter 11 bankruptcy (unless extended by the court), the debtor company may file a plan of reorganization and submit for approval by the creditors. Along with this, the debtor must file a disclosure statement to be approved by the court, which provides “adequate information” about the debtor’s circumstances so that the creditors can make an informed judgment about the plan.

At this stage, creditors, including indenture trustees, may file objections, a process which may be brief or prolonged depending on the significance of the issues. Ultimately, a class of claims is deemed to have been accepted if creditors that hold two-thirds in amount and more than one-half in number of the allowed claims in the class accept the plan. Once this process is completed for all classes of claims, the court will confirm the reorganization plan. Upon the effective date of the plan, all prior debts of the company are discharged, and disbursements are made to creditors. The indenture trustee will then distribute funds to the noteholders.

Since there is no reorganization in a Chapter 7 bankruptcy, no plan is filed. The goal is to maximize the recovery for the creditors by selling the assets of the company at the most favorable price.  The debtor-in-possession will often choose to conduct a sale of assets under Section 363 of the U.S. Bankruptcy Code. A 363 sale is an auction where a stalking-horse bidder sets a floor price for certain company assets and then solicits higher bids. The court will frequently require the bidders to deposit funds with an independent escrow agent pending the successful completion of the bidding process and approval by the court.        

Stage Four: Post-Confirmation

Confirmation is not always the end of a Chapter 11 bankruptcy process. During the course of the bankruptcy, the court may determine that certain issues are better resolved post-confirmation through the use of liquidating trusts or litigation trusts rather than wasting valuable court time. In such cases, the court will order assets to be transferred to a trust (often a Delaware statutory trust) pending resolution of the claims or liquidation of illiquid assets. The litigation or liquidating trustee will then settle claims and distribute funds through a disbursing agent in accordance with a court order.        

CSC Global Financial Markets – Bankruptcy Services

CSC Global Financial Markets (GFM) is a leading provider of trust and corporate services for every stage of the corporate life cycle, including bankruptcy. CSC is recognized by rating agencies and lenders as one of the only approved providers of professional independent director services in the United States. CSC also offers liquidating or litigation trustee services as a fiduciary. Through our wholly owned affiliate and regulated trust company, Delaware Trust Company which, as a nonlending institution, is truly free of conflicts of interests, we offer a full range of bankruptcy-related services, including successor indenture trustee, Delaware statutory trustee for liquidating or litigation trusts, administrative and collateral agent, escrow agent for subscription offerings and Section 363 asset sales, and disbursing agent for liquidations or litigation.       

Recent Appointments


TRLG Intermediate Holdings, LLC/True Religion Apparel, Inc.