Draft Cash Collateral Stipulation

Skill: Draft Cash Collateral Stipulation

1. Subject-matter triage

• Confirm whether the source set contains a proposed stipulation, budget, cash flow forecast, financing order, committee position, and any lender markup or term sheet. If multiple versions exist, identify the operative draft and the points of divergence before drafting.
• Separate the court-facing stipulation from the advisory memorandum. The stipulation should read as an order-ready bankruptcy filing; the memorandum should read as counsel’s issue-spotting and negotiation memo.
• If the source materials show more than one debtor entity, lender, collateral bucket, reporting period, or proposed deadline, enumerate each before analysis and keep the treatment entity- and term-specific.

2. Failure modes the skill is correcting

• Draft includes adequate protection mechanics but omits debtor-protective limits commonly required in a cash collateral order: exclusion of avoidance action recoveries from replacement lien coverage, a bankruptcy-rule-based limitation on post-petition lien effect, a meaningful lien challenge period, and a workable carve-out.
• Draft accepts lender-favorable control provisions without testing them against market practice, including overbroad control of insurance proceeds, budget variance controls that are too rigid, and post-termination rights that do not permit practical case administration.
• Memorandum describes issues but does not close them with the operative facts, related provisions, and client consequence needed to support negotiation.
• Counsel memo flags a problem but fails to translate it into a concrete drafting fix or fallback position.
• The court-facing document reads like a summary of concepts instead of a proposed order with recitals, findings, conclusions, operative relief, and signature blocks.
• The drafting assumes the lender’s requested mechanics are standard; the skill should test each against Bankruptcy Code authority and ordinary cash collateral practice.

3. Legal frameworks / domain conventions that apply

• Cash collateral may be used only with secured creditor consent or court authorization under 11 U.S.C. § 363(c)(2), and any order should be framed as consent-based relief or court-approved adequate protection.
• Adequate protection and replacement liens should be tied to 11 U.S.C. §§ 361 and 363(e), with replacement collateral no broader than the prepetition collateral package.
• The automatic stay and postpetition lien preservation issues should be analyzed by reference to 11 U.S.C. § 552 and any applicable court-authorized limitation on postpetition effect.
• Use market-standard carve-out drafting to preserve payment of committee professionals and other allowed administrative expenses needed for case administration.
• Treat the lien challenge period as a negotiated litigation-rights window; in a contested case, brevity may impair investigation and should be tested against the committee’s investigatory function under the Bankruptcy Code and local practice.
• Budget and variance provisions should be read as a control mechanism, not a substitute for actual notice or court approval of material deviations.
• Insurance proceeds provisions should preserve the debtor’s ability to administer claims and disputes subject to ordinary creditor protections; a lender’s unilateral dominion over proceeds is a negotiation issue.
• Any restriction on plan filing rights should be evaluated against exclusivity and plan-process rights under 11 U.S.C. §§ 1121 and 1129, and should not be characterized as routine if it materially constrains reorganization strategy.
• Where the source documents identify controlling authority, cite it by name and section in both the stipulation and memorandum; do not state a legal proposition without its supporting authority.

4. Analytical scaffolds

• Draft the stipulation in court-entry form:
  • caption and introductory identification of the case, parties, and relief sought;
  • recitals describing the debt structure, collateral, and cash collateral need;
  • findings of fact supporting necessity, notice, consent or emergency posture, and adequate protection;
  • conclusions of law citing the Bankruptcy Code provisions supporting relief;
  • ordered paragraphs granting use of cash collateral, adequate protection, reporting, reserve, default, and challenge-right mechanics; and
  • signature blocks or approval lines consistent with the forum’s practice.
• Build the operative relief around the core mechanics the court must approve, not around narrative exposition. Each operative paragraph should specify what is permitted, what is restricted, what constitutes a default, and what happens upon termination or cure.
• In the replacement lien section, expressly narrow scope to collateral actually supporting the adequate protection bargain and carve out prohibited categories that should not be swept in by implication.
• The memorandum should be issue-driven and organized as Problem → Impact → Recommended Resolution, with each issue tied to source text, market practice, and the requested drafting fix.
• For every issue in the memorandum, close the analysis by stating: the relevant transaction scale or term from the source documents; the clause or document that interacts with it; and the practical consequence for the debtor if the term stands.
• If the source set contains multiple challenged provisions, address each one separately rather than collapsing them into a generic “lender-favorable terms” bucket.
• If a provision appears acceptable, say so only after checking it against the related reporting, budget, default, and termination mechanics.

5. Vertical / structural / temporal relationships

• Track the relationship between prepetition collateral, postpetition replacement liens, and any limitation imposed by the Bankruptcy Code or the order itself.
• Distinguish between interim relief and final relief, and ensure the duration of the lien challenge period and carve-out are calibrated to the stage of the case.
• Tie budget variance covenants to the relevant reporting period and reserve mechanics; do not treat them as standalone covenants detached from cash flow timing.
• Separate ordinary course operations from post-default restrictions, especially where the order accelerates lender remedies after a termination event.
• Preserve the temporal sequence of rights: use of cash collateral, reporting, challenge period, default notice, cure or termination, and post-termination carve-out.
• If multiple debtor entities or collateral pools exist, map each right and limitation to the correct entity or pool before drafting the operative paragraph.

6. Output structure conventions

• Produce two deliverables: the cash collateral stipulation first, then the counsel memorandum.
• Draft the stipulation as a standalone court-ready instrument, not as notes or an annotated outline.
• Draft the memorandum as a separate advisory document that identifies issues in the lender’s proposed terms and pairs each issue with a practical drafting response.
• For the memorandum, use a uniform issue format with a severity label stated once at the top and applied consistently to each entry.
• For each memorandum issue, include:
  • the problem;
  • why it matters to the debtor’s financing, operations, or case administration;
  • the recommended resolution or fallback position;
  • the controlling Bankruptcy Code or rule authority, if applicable; and
  • any source-document cross-reference that anchors the issue.
• End the memorandum with a short Recommended Actions section that assigns an action, a responsible role, and a timing anchor tied to the filing or negotiation sequence.
• Before finishing, verify that the stipulation contains operative relief, not just summaries, and that both requested files are complete and non-empty.