Photo of Frederick (Rick) Hyman

With the confirmation of Carlson Travel’s plan of reorganization within 24 hours from the company’s filing, expedited confirmations took another step toward normalization. Carlson Travel (better known as Carlson Wagonlit Travel) together with 37 affiliated entities filed bankruptcy in the Southern District of Texas (Houston Division) on the evening of Thursday, November 11, 2021. The debtors managed to schedule a joint hearing on the approval of their disclosure statement and confirmation of their prepackaged plan for Friday morning, the next day. As with all pre-packs, the debtors had solicited votes on their plan prior to filing their cases, including a pre-petition notice period for objections. The company reported that it had received acceptances from all of its bank lenders and more than 90% of its other secured debt. Earlier in 2021, Belk Inc. and affiliates accomplished a similar feat in the same Court. Others to confirm their prepackaged plans on an expedited timetable include Sunguard Availability Services Capital, Inc. and FullBeauty Brands Inc., both in 2019.

Confirmation of Carlson Travel’s plan, however, was not without dissent. The Office of the United States Trustee (or UST) filed an objection to the rapid nature of the case (as it has done in similar, expedited cases). In its objection, the UST argued that “[t]he speed of this case effectively shifts the burden to the creditor body without the protections contemplated by the Bankruptcy Code.” It focused on alleged due process violations (in the form of lack of reasonable notice) and the failure to comply with certain Bankruptcy Code requirements and norms (the filing of statements and schedules and the appointment of an unsecured creditors’ committee, for example). The UST pointed out that the plan included third party releases and broad exculpation provisions that the debtor asked the Court to approve with little opportunity for objection.

In order to achieve such a rapid confirmation, compromises were needed.  The Court raised concerns regarding due process consistent with the UST’s objection and indicated that it would approve the plan alongside a supplemental “due process preservation order.”  The order is similar to that which the Court entered in Belk’s case, extending deadlines for parties to opt-out of the plan releases, limiting exculpation, and expressly retaining jurisdiction of the Court to hear claim objections and disputes regarding executory contracts, among other things.  Additionally, the order provides for supplemental solicitation and voting rights for a tranche of creditors that had been omitted from the original prepetition solicitation and received less notice.

While not without controversy, these expedited cases provide some tangible benefits for the debtors and other parties-in-interest, including in most instances, a substantial cost savings in the form of administrative costs, US Trustee fees, and professional fees. Arguably, they also preserve value for stakeholders by minimizing disruption to the debtor’s operations that might be caused by a longer stay in bankruptcy. These savings may lead to greater recoveries for stakeholders and preserve jobs.  Of course, it remains an expensive and time consuming process as much time is spent negotiating restructuring support agreements, preparing plans and disclosure statements and consummating an out-of-court solicitation during the months prior to the filing.

Although Carlson Travel’s path through bankruptcy provides further precedent for expedited cases, it also serves as a note of caution that serious consideration must be given to the due process rights of parties-in-interest. Provisions preserving for some limited time, those parties’ rights, including those set forth in the Court’s due process protection orders, may be required. Additionally, the Court made clear that such extraordinary relief is not appropriate in all instances. Rather, a debtor’s justification for such relief must be compelling, in this instance, to preserve the value due to the nature of the debtor’s business and protect its employees.