The Prepack Primer: The Origin, Evolution, and Overview of the Prepackaged Bankruptcy

A company facing financial or business distress may seek to resolve its issues by filing a case under Chapter 11 of the United States Bankruptcy Code (the ‘Bankruptcy Code’). Chapter 11 is the business reorganization chapter of the Bankruptcy Code, and it provides for the bankrupt company’s (or ‘debtor’) existing board and management to continue to operate the business during the pendency of the Chapter 11 case.

Chapter 11 Cases and the ‘Prepack’

There are three general types of Chapter 11 cases:

• traditional/‘freefall’
• prenegotiated, and
• prepackaged (‘prepacks’)

A traditional/freefall case is one in which the debtor has filed the case without any restructuring agreements in place (and sometimes with little preparation). The debtor uses the breathing spell afforded by the Bankruptcy Code’s automatic stay, a critical feature of Chapter 11, to negotiate and then file a plan of reorganization (or ‘plan’) with the bankruptcy court during the case. Traditional/freefall Chapter 11 bankruptcies often result in the highest costs and longest time spent in bankruptcy because they are filed without a preconceived direction and, therefore, their outcomes can be more uncertain.

A prenegotiated case is one in which the debtor negotiates a plan with major creditors ahead of filing but does not formally solicit their votes until after the case has been filed. Instead, the debtor enters into a pre-bankruptcy restructuring/plan support agreement with a critical mass of creditors that secures such creditors’ commitments to vote in favor of a prenegotiated plan once solicited. A prenegotiated case can result in significantly reduced costs, duration (prenegotiated cases usually last 3-6 months), and uncertainty as compared to traditional/freefall cases.

Lastly, a prepack case is one in which the debtor negotiates a plan, solicits votes on that plan, and obtains the necessary votes in favor of the plan before the case is filed. Because the debtor has already obtained the requisite votes to secure confirmation of the plan the only matters to address in a prepack should be comparatively limited.

These include:

• convincing the bankruptcy court that the disclosure statement used to solicit plan approvals is adequate,
• the prepetition solicitation was proper, and
• that the plan otherwise complies with the terms of the Bankruptcy Code.

The idea behind a prepack is to isolate the class (or classes) of claims that need(s) to be restructured, reach agreement with, and obtain approval votes from, a critical mass of creditors holding those claims, and incorporate the restructuring terms in a plan that leaves all other creditors unaffected.

History of the Prepack

The modern prepack arose in the aftermath of the leveraged buyout (‘LBO’) wave of the 1980s. As part of an LBO, the acquired companies would often incur significant amounts of debt that were secured by liens on their assets. Sometimes the debt burdens incurred would prove to be too much for the acquired entities to service, even though these companies may have had solid business operations that did not themselves need to be restructured. To efficiently address and restructure their financial affairs, the companies often sought a consensual, non-bankruptcy solution with their financial creditors by way of a debt exchange or other agreed resolution. However, this consensual approach often met with the problem of holdouts. Generally, creditors are only bound to the terms of a debt exchange or other out-of-court restructuring to the extent that such creditors consent and, thus, non-judicial restructurings typically require agreement by a very high threshold of creditors, typically, 85% or more, to be successful.

Prepacks first came to prominence as a means of resolving this holdout problem. Chapter 11 can provide a solution to the holdout problem because:

• the class approval threshold for a plan is lower than the typical workable threshold for an out-of-court resolution (i.e., 2/3 in amount and more than ½ in number of voting class creditors vs. 85% of the class);
• creditors whose claims are unaffected by a plan are deemed to have consented to a plan; and
• a plan that has been confirmed by the bankruptcy court and becomes effective is binding on all creditors (even non-consenting creditors).

Post-LBO companies that required only a restructuring of a particular class of debt were well positioned to work with a sufficient number of debtholders to satisfy the bankruptcy acceptance threshold and to develop a plan that would restructure the relevant debt, leave all other creditors unaffected, and could quickly be confirmed in Chapter 11. Many such companies would simultaneously solicit an exchange offer and a prepack (to be deployed only if the exchange was unsuccessful), and thereby used the prospect of a prepack as a tactic to persuade affected debtholders to vote in favor of an out-of-court exchange or restructuring. Fearing the costs and uncertainties of a bankruptcy case (and often offered with better terms for their debt through an out-of-court solution), financial creditors would often fall in line and vote to approve the exchange offer or out-of-court restructuring.

Although the threat of a prepack often resulted in a successful out-of-court exchange or restructuring, some prepacks did wind up being filed.

The Modern Prepack

The success of prepack cases over time has led to a greater level of comfort (for companies and creditors alike) for using prepacks as implementing tools rather than simply threats to force an out-of-court resolution. Over time, the duration of prepacks from filing to confirmation has shrunk considerably as courts, companies, and debtholders have increasingly accepted them as common practice. In 1986, the plan of reorganization for the first modern prepack, Crystal Oil [i], took three months to confirm. Crystal Oil waited the full amount of time under the Bankruptcy Code for objections to its disclosure statement and followed a fairly typical timeline besides its solicitation prior to the petition date.

Many prepacks have lasted for shorter periods, with some in recent years being ‘ultra-fast,’ and lasting 24-48 hours. The evolution to ultra-fast cases came first out of necessity and then by convention. The first of these ultra-fast cases, Blue-Bird [ii] filed in 2006. Blue-Bird manufactured school buses and operated in a market in which the company’s products were ordered once a year. Days before it filed for Chapter 11, Blue-Bird solicited and obtained the requisite votes to confirm its plan. At the time of its filing, Blue-Bird was out of money, had ceased operations, and needed to restructure post-haste so that it could obtain financing, recommence operations, and fulfill its upcoming orders. Absent a rapid restructuring, Blue-Bird would be required to liquidate. Persuaded by this rationale, the bankruptcy court found that there was cause to shorten the solicitation timeline contemplated by the bankruptcy rules and confirmed Blue-Bird’s plan within 32 hours. Blue-Bird’s record for fastest confirmation stood for 13 years but was bested in 2019 when the bankruptcy court confirmed FullBeauty’s plan within 24 hours of the bankruptcy being filed. [iii] Although FullBeauty sought to invoke the bankruptcy court’s equitable authority to confirm the plan on a compressed timetable (as Blue-Bird had), the bankruptcy court held that there was no need to do so because FullBeauty’s pre-bankruptcy solicitation had lasted more than the 28 days envisioned by the bankruptcy rules. FullBeauty’s 24-hour timeline has been followed or bested by several cases based on similar reasoning, most notably: SunGard (2019) [iv], Mood Media (2020) [v], Seadrill (2021) [vi], Carlson Travel (2021) [vii], and Belk (2021) [viii].

Advantages of the Prepack

Prepacks can have several advantages over other types of Chapter 11 cases, including:

• Shorter duration. Since the primary (if not sole) purpose of prepacks is to confirm a plan that has already received the necessary votes, prepacks are generally shorter in duration than other bankruptcy cases. As noted above, some prepacks may take as little as 24 hours but even longer prepacks are typically far shorter in duration than other types of Chapter 11 cases. A typical prepack can often be confirmed within 30-45 days of the case being filed as opposed to prenegotiated cases which often last between 3-6 months or traditional/freefall cases which last much longer.
• Lower costs. Prepacks are typically cheaper than traditional Chapter 11 cases, not only because of their often shorter duration but also because creditors’ committees (whose expenses would otherwise be borne by the debtor) are not typically appointed in prepacks.
• Greater certainty of outcome. Prepacks often have greater certainty of outcome than other Chapter 11 cases. Because the debtor is entering Chapter 11 with a plan that has already been negotiated and voted upon, there is typically greater certainty as to the result, and debtors are often better positioned to reassure employees, trade creditors, and others about their future.

Limitations of the Prepack

Although prepacks can serve as effective restructuring tools, they also have certain limitations. Because they seek an expeditious reorganization by isolating the class(es) of claims that require a restructuring and leaving all other claims unimpaired, prepacks are most well-suited to companies that need to restructure a single class of financial debt but do not need a full-operational restructuring. Prepacks are far more difficult to accomplish where there are multiple tranches of debt that must be restructured or where the obligations to be restructured are operational rather than financial in nature. This is particularly true where unsecured creditors are impaired and where an unsecured creditors’ committee is appointed. Moreover, prepacks generally do not afford the same opportunity to use the full range of tools to restructure operations that are available under the Bankruptcy Code, as compared to a traditional case.

Conclusion

Since its development as a ‘stick’ primarily used to persuade holdout creditors to consent to out-of-court restructurings following the 1980s LBO wave, the modern prepack has emerged as a potent and more ‘mainstream’ tool by which distressed companies have resolved their issues. As prepackaged Chapter 11 cases became more prevalent and developed a successful track record over time, companies and their stakeholders increasingly came to view the prepack as a potentially quick, efficient, and predictable restructuring alternative, particularly for companies that required only a financial restructuring of an isolated series of debt. The rise of the ultra-fast 24-48 hour prepack in recent years is consistent with this trend. With their speed and predictable outcomes, prepacks will likely continue to be an attractive tool for companies to execute a financial restructuring for years to come.

---

[Editors’ Note: Traditional/freefall cases can be further divided into specific subcategories that are governed by distinct statutory rules. These include: (a) Small business cases, which involve a debtor defined as a ‘small business debtor’ (currently defined as having aggregate debts of not more than $3,024,725) who does not elect to proceed under Subchapter V; (b)  Single asset real estate (‘SARE’) cases, which involve real property constituting a single property or project that generates substantially all of the debtor’s gross income, other than residential property with fewer than four units; and (c) Subchapter V cases, though they are not necessarily properly classified as a subcategory of Traditional/freefall cases because they can be executed as prepack or prearranged (though, thus far, such a Subchapter V case is exceedingly rare). See Friedland, et al. STRATEGIC ALTERNATIVES FOR AND AGAINST DISTRESSED BUSINESSES at §6:27 (page 164) ((Thomson Reuters 2025 chapter authored by Andrew M. Thau, David M. Turetsky, and Evan Hill)

This article was originally published on February 3, 2026.]

©2026. DailyDAC^TM, LLC. The opinions and views expressed herein are personal and not necessarily those of White & Case LLP, or any other organization, entity, person or party. This article is subject to the disclaimers found here.

---

References

[i] In re Crystal Oil Co., No. 586-02834 (Bankr. W.D. La. 1986).

[ii] In re Blue Bird Body Co., No. BK-N-06-50026 (Bankr. D. Nev. Jan. 27, 2006).

[iii] In re FullBeauty Brands Holdings Corp., No. 19-22185 (RDD) (Bankr. S.D.N.Y. Feb. 3, 2019).

[iv] In re Sungard Availability Services Cap., Inc., No. 19-22195 (RDD) (Bankr. S.D.N.Y. May 1, 2019).

[v] In re Mood Media Corp., No. 20-33768 (MI) (Bankr. S.D. Tex. July 30, 2020).

[vi] In re Seadrill New Finance Ltd., No. 22-90001 (DJR) (Bankr. S.D. Tex. Jan. 11, 2022).

[vii] In re Carlson Travel, Inc., No. 21-90017 (MI) (Bankr. S.D. Tex. Nov. 11, 2021).

[viii] In re Belk, Inc., No. 21-30630 (MI) (Bankr. S.D. Tex. Feb. 23, 2021).