WHAT ARE FIRST DAY MOTIONS IN CHAPTER 11 BANKRUPTCY ?

The filing of a Chapter 11 petition does not, by itself, resolve the immediate operational problems confronting a financially distressed corporation. A corporation may require access to cash, continued banking arrangements, payment of employees, uninterrupted utility services, continued relationships with essential suppliers and other forms of urgent relief immediately after the commencement of the bankruptcy case. If these matters are not addressed promptly, the filing of the Chapter 11 petition may itself disrupt the corporation’s business operations and impair the value that the reorganization process is intended to preserve.

To address these immediate requirements, a corporate debtor may file a series of “first-day motions” shortly before or immediately after the commencement of the Chapter 11 case. These motions seek expedited consideration and, where appropriate, interim or final orders from the Bankruptcy Court granting the debtor authority to take actions necessary to stabilize its business. Bankruptcy courts recognize that certain matters may require attention immediately after a Chapter 11 filing, including cash management, payroll, utilities, customer programs, critical vendors and the use of cash collateral.

First-day motions are therefore an important practical component of a corporate Chapter 11 filing. They are not a separate type of bankruptcy proceeding and are not expressly defined as a single category by the Bankruptcy Code. Rather, the expression describes motions seeking urgent relief at the beginning of a Chapter 11 case.

PURPOSE OF FIRST DAY MOTIONS

The principal purpose of first-day motions is to ensure that the corporation can continue operating with the least possible disruption immediately following the bankruptcy filing. A Chapter 11 debtor ordinarily remains in possession of its property and continues operating its business as a debtor in possession, unless a trustee is appointed or the case is otherwise administered differently.

The corporation may therefore need immediate authority to preserve its existing business infrastructure while it develops and implements its restructuring strategy. First-day relief may be particularly important where the corporation operates a business involving numerous employees, customers, suppliers, bank accounts, leases, utilities and other continuing commercial relationships.

The importance of preserving the debtor’s operating assets was recognized by the Supreme Court in United States v. Whiting Pools, Inc., 462 U.S. 198 (1983). In that case, the Court held that property of a Chapter 11 debtor seized by the IRS before the bankruptcy filing could become part of the bankruptcy estate and could be subject to turnover under §542(a). The Court emphasized that Congress contemplated the continued operation and rehabilitation of a debtor’s business and that excluding property essential to the debtor’s rehabilitation would frustrate the reorganization process. The decision therefore provides important support for the underlying objective of first-day relief: preserving the assets and operating structure necessary for a successful reorganization.

The precise first-day motions vary according to the nature and circumstances of the debtor’s business. There is no universal package that applies to every Chapter 11 case. A manufacturing corporation may require different relief from a technology company, retailer, healthcare business or real-estate company.

MOTION TO USE CASH COLLATERAL

One of the most important first-day requests in many Chapter 11 cases is authority to use cash collateral.

Cash collateral generally consists of cash and certain cash equivalents in which both the bankruptcy estate and another entity, typically a secured creditor, have an interest. Under 11 U.S.C. § 363(c)(2), a debtor in possession generally may not use cash collateral unless the secured creditor consents or the Bankruptcy Court authorizes such use.

Consequently, where the corporation’s operating cash constitutes cash collateral, the debtor may file a motion seeking authority to use that cash for ordinary business expenses, including payroll, utilities, inventory purchases, insurance, rent and other operating costs. The Bankruptcy Court must consider the interests of the secured creditor and may require adequate protection of that creditor’s interest.

Adequate protection may take different forms, including cash payments, replacement or additional liens, or other protection sufficient to preserve the value of the secured creditor’s interest. The debtor’s proposed cash budget and the terms of the requested use of cash collateral are therefore often central to the first-day hearing.

The Supreme Court’s decision in United Savings Association of Texas v. Timbers of Inwood Forest Associates, Ltd., 484 U.S. 365 (1988), is an important authority concerning the relationship between the automatic stay, adequate protection and secured-creditor rights. The Court explained that §362(d)(1) permits relief from the stay for cause, including lack of adequate protection of an interest in property, but held that an undersecured creditor is not entitled to compensation under §362(d)(1) merely for the delay caused by the automatic stay in foreclosing on its collateral. Timbers is therefore relevant when considering the extent of protection that must be afforded to secured creditors whose collateral is being used or whose enforcement rights are stayed during Chapter 11.

Because cash collateral may be essential to continued operations, courts may schedule these motions for expedited hearings. Some courts specifically identify cash-collateral matters as among the most critical early Chapter 11 matters.

MOTION FOR DEBTOR-IN-POSSESSION FINANCING

A corporation may also require post-petition financing to fund its operations during the Chapter 11 case. Where existing cash resources are insufficient, the debtor may seek authority under 11 U.S.C. § 364 to obtain credit or incur debt after the petition date.

The financing may be provided by an existing lender, a new lender or another financing source. Depending upon the circumstances and the statutory requirements, the Bankruptcy Court may authorize protections for the post-petition lender, including liens or priority claims.

A motion seeking approval of debtor-in-possession financing is therefore another potentially critical first-day motion. Because such financing can affect the rights of existing secured and unsecured creditors, the Bankruptcy Rules impose specific requirements concerning notice, hearings and the terms of proposed financing. First-day motions concerning cash collateral and post-petition financing must comply with Federal Rule of Bankruptcy Procedure 4001 and applicable local court requirements.

The Bankruptcy Court’s authority in considering such applications remains subject to the provisions of the Bankruptcy Code. In Law v. Siegel, 571 U.S. 415 (2014), the Supreme Court emphasized that although §105(a) gives bankruptcy courts equitable authority to carry out the provisions of the Code, that authority cannot be used to contravene specific statutory provisions. The principle is relevant to first-day financing orders because the court’s equitable powers cannot substitute for, or override, the statutory requirements governing post-petition financing under §364.

MOTION TO CONTINUE EXISTING CASH MANAGEMENT AND BANK ACCOUNTS

A corporate debtor may maintain several bank accounts and a sophisticated cash-management system involving operating accounts, payroll accounts, collection accounts and transfers among affiliated entities. Immediately upon filing bankruptcy, the corporation may seek authority to continue using its existing bank accounts and cash-management arrangements.

The purpose of such a motion is generally to prevent disruption to the corporation’s ordinary financial operations. Closing existing accounts or requiring immediate restructuring of a complex cash-management system could interfere with the collection of receivables, payment of employees and suppliers, and movement of funds necessary for ordinary operations.

The motion should explain the existing cash-management structure and the reasons why its continuation is necessary. Courts may also require information concerning transfers among affiliated entities and the business purpose for those transfers.

This relief is particularly important for corporate groups in which several entities participate in centralized treasury or cash-management arrangements. The debtor must nevertheless ensure that the proposed arrangements comply with the Bankruptcy Code, court orders and applicable requirements concerning the handling of estate funds.

MOTION TO PAY PRE-PETITION EMPLOYEE WAGES AND BENEFITS

A corporation may seek authority to pay certain pre-petition wages, salaries, commissions, employee benefits and reimbursable business expenses.

Although the Bankruptcy Code imposes restrictions on the payment of pre-petition claims, employees may be essential to the continued operation of the business. Failure to pay employees may result in employee departures, disruption of operations and loss of business value.

A first-day wage motion therefore commonly seeks authority to continue payroll and related employee payments notwithstanding the fact that some amounts accrued before the bankruptcy filing. Courts may require detailed information concerning the categories and amounts of payments requested, including whether the claims constitute priority claims under §507 and whether the requested relief exceeds statutory priority amounts.

The motion should also distinguish between ordinary employee compensation and payments to insiders, such as officers, directors or controlling persons. Payments to insiders may receive greater scrutiny and may require additional disclosure and justification.

MOTION TO PAY CRITICAL VENDORS

A corporation may depend upon particular suppliers or service providers whose continued cooperation is essential to the survival of the business. In appropriate circumstances, the debtor may therefore seek authority to pay certain pre-petition amounts owed to critical vendors.

The rationale is that withholding payment of an old debt from an essential supplier may cause that supplier to stop providing goods or services, potentially disrupting the debtor’s business and destroying value for the entire creditor body.

The relief is nevertheless significant because it permits the debtor to pay a pre-petition claim that would otherwise be subject to the Bankruptcy Code’s distribution scheme. Courts therefore may require the debtor to demonstrate why the particular vendor is genuinely critical, what alternatives exist, and what would happen to the business if the vendor were not paid. Some courts require detailed information regarding the proposed payments, post-petition terms and the effect on creditors that are not designated as critical vendors.

The so-called “doctrine of necessity” has historically been invoked in support of such relief, although its acceptance and application can vary among courts. The Supreme Court’s decision in Czyzewski v. Jevic Holding Corp., 580 U.S. 451 (2017), is important in this context because the Court emphasized the importance of the Bankruptcy Code’s statutory priority scheme and held that a Chapter 11 structured dismissal could not distribute estate assets in a manner that violated ordinary priority rules without the consent of affected creditors. Although Jevic did not directly decide the validity of a first-day critical-vendor order, its discussion of bankruptcy priorities is relevant when a debtor seeks authority to pay selected pre-petition creditors ahead of other creditors.

Accordingly, a critical-vendor order should not be regarded as an automatic entitlement. The debtor must establish an adequate factual and legal basis for the requested relief.

MOTION CONCERNING UTILITY SERVICES

A corporation may also require protection against interruption of essential utility services, such as electricity, gas, water, telecommunications or similar services.

Section 366 of the Bankruptcy Code addresses the rights of utility providers after a bankruptcy filing. A utility provider may seek adequate assurance of payment as a condition of continuing service. The debtor may therefore seek an order establishing the form and amount of adequate assurance to be provided to utility companies.

The objective is to ensure continued access to essential services while protecting the legitimate interests of the utility provider. Bankruptcy courts commonly recognize utility-related relief as a matter that may require prompt consideration at the beginning of a Chapter 11 case.

MOTION TO HONOR CUSTOMER PROGRAMS AND DEPOSITS

Depending upon the nature of the business, the corporation may seek authority to continue certain customer programs, deposits, refunds, loyalty arrangements, gift cards or similar customer-related obligations.

The purpose is generally to preserve customer confidence and prevent the bankruptcy filing from causing unnecessary damage to the corporation’s commercial relationships. For a retailer, for example, interruption of ordinary customer programs may cause customers to stop purchasing from the business. For another type of corporation, customer deposits or advance payments may be essential to continuing operations.

Courts recognize that preserving customer relationships can be an important component of maintaining going-concern value. Such relief remains subject to the particular facts of the case and the Bankruptcy Court’s determination of whether the proposed payments or arrangements are permissible.

MOTION FOR INSURANCE AND OTHER ORDINARY COURSE MATTERS

A corporation may also need first-day relief relating to insurance policies, workers’ compensation programs, taxes, payment-processing arrangements, security services, transportation arrangements and other matters necessary for uninterrupted business operations.

Not every such request requires a separate motion. Depending on the jurisdiction and the nature of the relief, several related requests may be combined in an omnibus first-day motion, while particularly significant matters may be presented separately.

The governing principle is that the relief requested should be sufficiently tailored to the corporation’s actual operational requirements. A first-day motion should not become a vehicle for obtaining broad relief unrelated to the immediate stabilization of the Chapter 11 estate.

FIRST DAY MOTIONS AND EXPEDITED HEARINGS

The defining procedural characteristic of a first-day motion is the request for expedited consideration. Because the relief is often needed immediately after the petition is filed, Bankruptcy Courts may schedule hearings on the same day or shortly after commencement of the case, depending upon local procedures and the circumstances.

The procedure varies significantly among Bankruptcy Courts. Some courts require counsel to contact chambers immediately after filing, provide proposed orders and supporting declarations, and arrange an expedited hearing. Others have detailed local rules governing notice, service, hearing dates and the documents to be submitted. For example, courts may require a first-day hearing binder, an agenda and a declaration from a representative of the debtor.

Consequently, there is no single nationwide procedural format for first-day motions. Counsel must comply with the Federal Rules of Bankruptcy Procedure together with the local rules, standing orders, judge-specific procedures and applicable administrative orders of the Bankruptcy Court in which the Chapter 11 case is filed.

SUPPORTING DECLARATION

First-day motions are ordinarily supported by a declaration or affidavit from a knowledgeable representative of the corporate debtor. The declaration provides the factual foundation for the relief requested.

The declarant may describe the corporation’s business, financial condition, liquidity position, existing financing arrangements, employees, customers, suppliers, banking arrangements and the consequences that would result if the requested relief were not granted.

Some Bankruptcy Courts expressly require first-day motions to be supported by admissible evidence and permit a single omnibus declaration to support several first-day motions where the declarant is competent to testify concerning the relevant facts.

The declaration is therefore an important component of the first-day presentation. The motions explain what relief is requested and why it is legally available, while the declaration supplies the factual basis demonstrating why the relief is necessary in the particular case.

PROPOSED FIRST DAY ORDERS

A first-day motion is ordinarily accompanied by a proposed order setting out the precise relief the debtor asks the Bankruptcy Court to grant.

The proposed order is important because first-day relief may affect numerous parties and may establish operating procedures that remain in effect for some period of the Chapter 11 case. The order should therefore clearly identify the authority granted, any limitations or monetary caps, reporting requirements, adequate-protection provisions and the duration of the relief.

The Supreme Court’s decision in Law v. Siegel is relevant to the scope of bankruptcy-court authority in entering such orders. The Court held that §105(a) does not authorize a bankruptcy court to take action that is inconsistent with an express provision of the Bankruptcy Code. First-day orders must therefore remain within the statutory authority applicable to the particular relief sought.

Where the Court grants only interim relief, the matter may be scheduled for a subsequent hearing at which the Court considers whether the relief should be continued or modified. Some Bankruptcy Courts expressly provide that relief granted at an initial first-day hearing is preliminary and subject to further order.

NOTICE AND RELIEFS

Although first-day motions seek expedited relief, the debtor must still comply with applicable notice and service requirements. The precise requirements vary by Bankruptcy Court and by the nature of the relief requested.

Parties commonly entitled to notice may include the United States Trustee, secured creditors whose interests may be affected, the creditors’ committee if one has been appointed, the twenty largest unsecured creditors and other parties in interest identified by the applicable rules or court orders. Certain courts prescribe specific procedures for serving first-day motions before and after the petition is filed.

The need for speed does not eliminate procedural fairness. Courts must balance the debtor’s need for immediate relief against the rights of creditors and other parties whose interests may be affected.

INTERIM AND FINAL FIRST DAY RELIEF

First-day relief may be granted on an interim basis where immediate action is necessary and a full hearing cannot reasonably be conducted before the debtor’s business would be adversely affected.

For example, a court may authorize limited use of cash collateral or payment of specified employee obligations on an interim basis and schedule a later hearing for consideration of a final order. The final order may modify the relief, impose additional safeguards or establish longer-term authority.

The distinction between interim and final relief is particularly important where the requested order affects significant creditor rights. Courts have recognized the importance of limiting the breadth and finality of initial orders where immediate relief is necessary but interested parties have not yet had a full opportunity to be heard.

FIRST DAY MOTIONS ARE NOT AUTOMATIC

The filing of a first-day motion does not mean that the requested relief will automatically be granted. The debtor must establish an adequate statutory, factual and procedural basis for the relief sought.

This is especially important where the motion seeks to pay pre-petition claims, use cash collateral, grant liens, obtain post-petition financing or otherwise alter the rights of creditors. The Bankruptcy Court may grant the requested relief, modify it, impose conditions or deny it altogether.

The Supreme Court’s decision in Law v. Siegel reinforces this principle. Although bankruptcy courts possess equitable powers under §105(a), those powers may not be used to override or circumvent specific provisions of the Bankruptcy Code. Thus, the Bankruptcy Court’s authority to grant first-day relief remains bounded by the statutory scheme governing the particular matter.

The corporation should therefore carefully distinguish between business necessity and legal entitlement. The fact that a particular payment or action would be convenient or desirable does not necessarily mean that the Bankruptcy Code authorizes the Bankruptcy Court to approve it.

STRATEGIC IMPORTANCE OF FIRST DAY MOTIONS

First-day motions are strategically important because they establish the corporation’s ability to operate during the earliest and often most unstable period of the Chapter 11 case. A successful first-day presentation can preserve liquidity, maintain employee and supplier confidence, protect customer relationships and prevent disruption of essential services.

At the same time, first-day motions can significantly affect creditor interests. A request to use cash collateral affects secured creditors; a request to pay critical vendors affects the treatment of other unsecured creditors; and a request for debtor-in-possession financing may create new liens or priority claims.

The decisions in Whiting Pools, Timbers, Law v. Siegel and Jevic collectively illustrate the legal framework within which these competing interests must be balanced: preservation of the reorganization estate, protection of secured interests, adherence to the Bankruptcy Code’s statutory scheme, and respect for statutory priority rules.

Accordingly, the preparation of first-day motions should begin before the Chapter 11 petition is filed. The debtor and its counsel should identify the corporation’s immediate operational requirements, determine which relief requires court authorization, engage with affected stakeholders where appropriate, prepare supporting evidence and proposed orders, and review the applicable local rules and judge-specific procedures.

TYPICAL FIRST-DAY MOTION PACKAGE

Although the exact package varies from case to case, a corporate Chapter 11 debtor may commonly consider the following requests:

(i) Motion to use cash collateral;

(ii) Motion for debtor-in-possession financing;

(iii) Motion to continue existing bank accounts and cash-management arrangements;

(iv) Motion to pay pre-petition employee wages, salaries and benefits;

(v) Motion to pay critical vendors;

(vi) Motion concerning utility services and adequate assurance;

(vii) Motion to continue customer programs and honor certain customer obligations;

(viii) Motion concerning insurance and other essential business arrangements;

(ix) Motion for other relief necessary to maintain ordinary business operations; and

(x) Motion for expedited or emergency consideration, where required by local procedure.

Not every corporation will require all of these motions. The appropriate first-day package should be determined by the corporation’s business, financial position, existing secured debt, liquidity requirements, contractual relationships and the specific circumstances giving rise to the Chapter 11 filing.

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Mukesh Suman is a lawyer based at Delhi, India. He also provides bankruptcy paralegal services to clients based in USA. He may be contacted at mukesh_suman@outlook.com or +91 9717864570.