Swift Energy Emerges from Chapter 11
Swift Energy Co., founded in 1979, was one of the last drilling companies to seek Chapter 11 protection in 15, but has now proven to be among the first drillers to exit bankruptcy proceedings. With $1.2 billion in debt, the company was able to restructure its debt and sell off oil and gas properties in Louisiana to Houston-based TEXEGY as part of its Chapter 11.
Last year Swift was the 42nd drilling company to file for Chapter 11. So far this year 21 more drillers have also filed.
Chief Executive Officer Terry Swift stated via a written statement:
“We are pleased to announce the successful completion of our financial restructuring in a relatively prompt timeframe. Through this restructuring, we have developed a more disciplined, efficient organization and greatly improved our balance sheet.
“Our noteholders’ continued support and willingness to invest in our company were critical to our emergence as was the agreement by our reserve-based lenders to provide the financing we needed to exit Chapter 11 and operate our business into the future.
“I’d like to specifically extend my sincerest gratitude to our employees who exhibited an unwavering commitment and dedication throughout this process. I’d also like to extend my appreciation to our former board of directors and advisors who worked tirelessly to ensure a quick and successful restructuring.”
“With our emergence comes a new era for Swift, and while we are excited to have this process behind us, we must continue in our efforts to further improve our operations and maximize the value of our assets. We face the future with a renewed sense of energy and enthusiasm and look forward to working with our new board of directors and investor base to execute on our strategic plans.”
Chapter 7 and Chapter 11 – The Differences
Chapter 7 bankruptcy is when assets are liquidated to pay the debtors debt. This is the most common form of bankruptcy and available to individuals, married couples, partnerships and corporations.
Chapter 11 bankruptcy is a reorganization of a debtor’s debt that ensures claims of creditors will be pain in part or in whole by a debtor. This process allows a debtor to continue business.
Chapter 11 for Businesses
Under Chapter 11 bankruptcy, the business or individual undergoes a reorganization in order to pay down its debt and reorganize its income and expenses while regaining its profits. If your business is a corporation, limited liability company (LLC) or partnership, it can continue business operations during the bankruptcy process. While the business is making payments through the debt repayment plan, the business continues operating.
The Chapter 11 bankruptcy process can be a complex, and lengthy one. If you are facing a Chapter 11, you’ll want to work with a bankruptcy attorney to understand the process and what you will need to do to move through it. They will be able to explain the terminology in addition to what is legal, and what you will be required to do.
Here is a general outline of what is required during a typical Chapter 11 case.
Qualify for Chapter 11?
Before a company files for Chapter 11, it must be ruled out that they would not qualify for debt settlement of consolidation, and that Chapter 11 is an option (versus Chapter 7). For a company (or an individual) to file for Chapter 11, they will pay $1,046 in filing and administrative fees. This fee can be paid in installments.
Next, a company will prepare a bankruptcy petition. To prepare your petition you will need to complete a list of your (or your company’s) assets, debts, income, and expenses. Additionally, you will need to create a summary of your financial affairs. Review everything to check for accuracy. Then you will be able to file your petition with bankruptcy clerk’s office.
Once the bankruptcy has been filed, it creates an automatic stay. This “automatic stay” which prohibits most creditors from being able to continue their collection efforts against you or your assets until a bankruptcy judge gives them permission to do so.
Once a Chapter 11 is filed, the company is considered a debtor-in-possession (or just “debtor” or DIP). this means that management will still run the company and handle operations. This differs from Chapter 7 in that in Chapter 1, a trustee is appointed. The only time a company will be assigned a trustee is if the court decides that the management team is mis-managing the process ad damaging the best interests of the company’s creditors.
A Note About Emergency Filings:
Companies, as well as individuals, will often file “emergency bankruptcy” in order to enact the automatic stay so that creditors cannot seize your property or take other legal action. This is often done when a family is facing foreclosure. The automatic stay goes into effect immediately after you file, which makes an emergency filing an option for stopping debt collection activities even up to the last possible minute.
Not all of the paperwork required for a bankruptcy needs to be included in the emergency filing. However, if there is missing information in the initial filing, the rest needs to be submitted within 14 days.
In an emergency filing situation, you do have to complete a credit counseling course before filing for bankruptcy, but a bankruptcy attorney can work with you to make sure you can complete this requirement in an expedient manner.
Proposing a Plan of Reorganization
After the bankruptcy has been filed, the company or individual has a 120 day exclusivity period to propose a plan of reorganization. This plan is then submitted to the bankruptcy court. This period can be extended by up to 18 months if the court agrees.
A committee of stockholders will work with a committee of creditors to ensure the bankruptcy plan is fair. Creditors that have equity in the company are able to vote on the plan. If all sides have accepted the plan, the court gives a final confirmation to move forward with the proposed plan.
If a plan is not approved by creditors within 180 of the initial bankruptcy filing, the creditors are able to submit their own plan for consideration. A court might confirm this plan, or has the option to confirm the original plan even if some of the creditors have rejected it. It’s up to the court’s discretion to determine if the plan is fair.
A court might also decide that the company does not have enough assets to be able to adhere to a repayment plan. Often in these instances the case is converted to a Chapter 7 plan. This means that the company will need to liquidate assets in order to emerge from bankruptcy.
After a company’s reorganization plan is approved it will have to start making payments to creditors in accordance with that confirmed plan. The company will need to abide with the new contract it has with each of its creditors. If the company default on payments, a creditor may sue it on that basis. Because of the agreed to plan, a company often has little recourse.
Payments can continue for many years depending on the proposed plan.
Discharging of Debts
A discharge of debts is the main reason a company will enter Chapter 11 bankruptcy. This discharging of debts occurs after all required payments are made to unsecured creditor class. After paying everything off a company will ask the court for a discharge of the remainder of unsecured debts. This motion prevents any of these creditors from collecting on any of the debts in the plan. This is the end of the Chapter 11 bankruptcy.
Working with an Attorney
Facing bankruptcy, regardless of if it’s a personal or business bankruptcy, is a scary thing. There might be ways to avoid it and still keep your credit intact. Working with a bankruptcy lawyer will ensure you are made aware of all the options available to you. Because bankruptcy law can be confusing, it’s highly advised that you work with a bankruptcy attorney that can walk you through the process and clarify any questions or concerns you might have should you decide to file. There can be a lot of questions during this extremely stressful time. Let the lawyers at Resnik Hayes Moradi LLP walk you through the process so you can achieve the best outcome possible.