“First Day Motions” in Chapter 11 Bankruptcy Cases

At the onset of a Chapter 11 bankruptcy case, the debtor’s attorney will make certain motions to the court to address immediate concerns, to allow the debtor to maintain business continuity and to preserve the value of the debtor’s property for creditors. 

Here is an overview of the most common “first day motions” and their specific purposes:

• Cash collateral motion — This seeks court approval for the debtor to use cash collateral, such as accounts receivable or proceeds from the sale of inventory. These funds often serve as a lifeline for daily operations. Since cash collateral is typically encumbered by liens held by secured creditors, the motion also provides for “adequate protection” measures to ensure these creditors’ interests are not diminished, such as replacement liens or periodic cash payments.
• Debtor-in-possession (DIP) financing motion — This requests permission to secure new financing. DIP financing allows the debtor to access fresh capital to continue operations during the bankruptcy process. Lenders providing DIP financing usually receive priority repayment status or additional collateral to mitigate their risk. Approval of this motion ensures that the debtor has sufficient liquidity to fund operations, pay employees, and manage other critical expenses.
• Critical vendor motion — This seeks to allow the debtor to pay pre-petition claims of vendors deemed essential to the business. These vendors provide goods or services that cannot be easily replaced and are instrumental in maintaining the debtor’s operations. Without these payments, vendors may refuse to continue supplying goods or services to the debtor, potentially jeopardizing its ability to stay in business.
• Wage and benefit motion — This requests authorization to pay wages, salaries and employee benefits owed prior to filing the petition, as well as to continue existing payroll and benefit programs. Bankruptcy laws impose limits on the amounts that can be paid to employees without further court approval, but timely payment of wages reassures employees that their livelihoods are secure, helping maintain operational stability.
• Cash management motion — This seeks permission for the debtor to maintain existing bank accounts and cash management systems, in order to continue to process transactions, manage cash flow and meet financial obligations without interruption. Modifications to standard procedures, such as opening new accounts or altering payment systems, could disrupt operations and delay the restructuring process.
• Utilities motion — This seeks an order preventing utility providers from discontinuing service due to unpaid pre-petition bills. The debtor proposes to provide adequate assurance of future payments, such as deposits or letters of credit, to ensure uninterrupted utility services. Utilities are vital to the debtor’s ability to operate and thus essential for a successful reorganization.
• Joint administration motion — When multiple entities within a corporate group have filed for Chapter 11, this motion seeks to streamline the administration of the bankruptcy by consolidating procedural matters, such as filing schedules and motions, thereby reducing administrative costs and inefficiencies.

These motions, typically heard within the first few days after a Chapter 11 filing, are integral to the debtor’s survival and the success of the reorganization effort. Courts often grant these motions on an interim basis, subject to further review and possible objections from stakeholders.

The Law Offices of Michael Jay Berger in Beverly Hills is one of Southern California’s most experienced Chapter 11 bankruptcy law firms, with 12 locations across the region. If your company needs help with debt reorganization, call 310-271-6223 or contact us online to schedule a free consultation.