prepack

A prepack, short for prepackaged bankruptcy, is a form of bankruptcy filing in which a debtor negotiates a proposed reorganization plan with its major creditors before submitting a petition to the court. The plan is designed to have broad creditor support, allowing the debtor to seek court approval and emerge from bankruptcy more quickly than in a traditional Chapter 11 process.

The term is most commonly used in the United States under Chapter 11 of the Bankruptcy Code. It is employed by financially distressed companies to reduce the duration and cost of restructuring and to limit business disruption. Variants include prepackaged plans tied to a sale or other strategic transactions, and, in cross-border restructurings, coordination with foreign insolvency proceedings.

Process typically involves several steps: negotiating with key creditor groups (such as secured lenders and major bondholders) to secure a binding support agreement; drafting a plan of reorganization and a detailed disclosure statement; obtaining votes from creditors on the plan prior to filing (or immediately before filing); filing a voluntary Chapter 11 petition accompanied by the pre-negotiated plan; and seeking court confirmation of the plan, after which the company implements the restructuring and emerges from bankruptcy with reorganized operations and capital structure.

Advantages of a prepack include faster resolution, lower administrative costs, and greater predictability for stakeholders. Critics point to potential coercion of non-consenting creditors, the pressure to strike terms quickly, and the dependence on creditor approval, which may raise concerns about fairness or balance among all parties.

In practice, the prepack model aims to streamline reorganization while preserving value and enabling a quicker path to operational continuity.