In less than 24 hours beginning on May 1, 2019, Sungard Availability Services Capital, Inc., and its affiliates (collectively, “Sungard”) commenced and completed Chapter 11 proceedings in what has been described as the fastest Chapter 11 case ever. Sungard filed its Chapter 11 cases just before 9pm on May 1 in the Bankruptcy Court for the Southern District of New York, White Plains Division, and, before 6pm the next day, Judge Robert Drain entered an order confirming Sungard’s prepackaged Chapter 11 plan.[1] The Sungard debtors were able to obtain this rapid result through extensive pre-filing planning and negotiations, and likely also benefited from assignment of their cases to Judge Drain, who had prior experience in addressing similar, expedited pre-packaged cases.[2]

Sungard and its affiliates are global providers of a variety of IT services, including information recovery services following a natural or manmade disaster, with headquarters in Pennsylvania and operations in nine countries. The company’s funded debt of about $1.3 billion was a holdover from a 2005 leveraged buyout and 2014 spinoff, but became unserviceable amid declining revenues. The debt consisted of a small revolving loan, two secured term loans totaling $800 million, and approximately $425 million of unsecured notes.

In late 2018, Sungard began marketing itself for acquisition, but it did not receive any offers sufficient to satisfy its outstanding debt, so it shifted its attention toward a consensual debt-for-equity restructuring. Following extensive negotiations with an ad hoc groups of its creditors, Sungard entered into a restructuring support agreement (the “RSA”) with its debtholders outlining the terms of Sungard’s reorganization. Under the RSA and proposed Chapter 11 plan, holders of Sungard’s $800 million of term loan debt would be entitled to participate in a new $300 million term loan facility and would receive nearly 90% of the equity in the new, reorganized debtors, while Sungard’s $425 million in unsecured notes would be canceled with former noteholders to receive the remainder of the new equity. General unsecured creditors would be reinstated, paid in full, or otherwise unimpaired, while operations and current debt payments would be supported by a $100 million delayed draw DIP facility (to be converted to an exit facility upon confirmation) and a $50 million revolving facility under commitments from the RSA support parties.

To promote rapid confirmation, Sungard began soliciting approval[3] of its proposed Chapter 11 plan on April 5, 2019, well in advance of its actual May 1 filing date, with a voting deadline of April 26 and an objection deadline of April 30. Because general unsecured creditors were unimpaired, they were not entitled to vote—only Sungard’s debtholders could vote to accept or reject the plan, and they voted unanimously in favor of confirmation.

Sungard also shared its restructuring proposal with the office of the United States Trustee (the “UST”), which would have oversight of Sungard’s bankruptcy, and learned in advance of the substance of the U.S. Trustee’s objections. Once Sungard’s case and plan were filed, the UST objected, arguing, due to the speed with which Sungard sought confirmation, that parties in interest were being deprived of their statutory and due process rights to adequate notice of and opportunity to object to Sungard’s plan. The UST noted that Sungard had offered only “boilerplate justifications” for why speed was required, mentioning only generic items like the reduction of administrative costs, and also pointed out that the RSA milestones permitted plan confirmation as late as July 15. The UST also contrasted the “normal practice” of confirming prepackaged plans in a range of 30 to 60 days after filing with cases that had “unusual challenges” requiring faster timelines (such as cases with an imminent foreign tax obligation).  Because Sungard had not identified any such challenges in its case, the UST argued that the “normal practice” should control.  The UST also raised objections to (i) the assumption of Sungard’s employee benefits program, (ii) the breadth and permissibility of the exculpation and release provisions included in Sungard’s plan, and (iii) the characterization of non-voting classes as unimpaired. Sungard responded that they had complied with applicable law and that their approach was consistent with prior practice in the Southern District of New York.

Judge Drain overruled the UST’s objections and confirmed Sungard’s plan as filed. To support his decision, the judge relied on the fact that no creditor or other party-in-interest other than the UST had objected to the plan and there were no impaired creditors voting against the plan.  Additionally, Judge Drain found that there was no need for Sungard to demonstrate a “need for extraordinary speed” in order for a prepackaged plan to be confirmed shortly after filing.

As noted above, in addition to Sungard’s case, Judge Drain has adjudicated prior prepackaged bankruptcies on fairly expedited timelines.  In February 2019, for example, Judge Drain confirmed the prepackaged Chapter 11 reorganization plan of Fullbeauty Brands and its affiliates less than 48 hours after their bankruptcy cases were filed.[4]  Given that prior experience, it is unsurprising that debtors in similar situations might seek to have their cases heard by Judge Drain.  That said, venue may present a limitation for many debtors – in general, a bankruptcy case can only be heard in the district in which a debtor was incorporated, the district in which its principal place of business or principal assets are located, or the district in which an affiliate’s case is pending.[5]

In its case, Sungard stated that venue was proper in the Southern District of New York, and in the White Plains division in particular, based on a variety of other factors, including the location of the company’s physical stock certificates, forum selection clauses in Sungard’s debt agreements, the location of Sungard’s advisors and funded debt creditors, and an office rental in White Plains.

The speedy pace of Sungard’s bankruptcy case might prove tempting precedent for other debtors looking to use a prepackaged bankruptcy filing to cut down on the time and expense of a drawn-out in-court process.  However, Sungard’s case was likely unusual in that it was able to reach a consensus with each of its impaired creditors and in that it was able to file in a venue that was familiar with expedited, prepackaged cases.  It is far from clear that debtors in other jurisdictions, or without such creditor unanimity, will be able to proceed on similar timelines.



[1] In re Sungard Availability Services, LP, et al., Case No. 19-22914 (RDD) (Bankr. S.D.N.Y.).

[2] See In Re Fullbeauty Brands Holdings Corp. et al., Case No. 19-22185 (RDD) (Bankr. S.D.N.Y.) (plan confirmed two days after petition filed); In re Global A&T Elec. Ltd., et al., Case No. 17-23931 (RDD) (Bankr. S.D.N.Y.) (plan confirmed five days after petition filed);  In re Roust Corp., et al., Case No. 16-23786 (RDD) (Bankr. S.D.N.Y.) (plan confirmed seven days after petition filed).

[3] See 11 U.S.C. § 1126(b); Fed. R. Bankr. P. 3018(b) (outlining certain requirements for prepetition solicitation).

[4] In Re Fullbeauty Brands Holdings Corp. et al., Case No. 19-22185 (RDD) (Bankr. S.D.N.Y.).

[5] 28 U.S.C. § 1408.