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  • | The Bankruptcy Strategist

    Seventh Circuit Voids Lien-Securing Rescue Loan

    April 01, 2016 |

    A "bank [making a secured rescue loan] had information that should have created the requisite suspicion ' to conduct a diligent search for possible dirt" ' i.e., whether the debtor had the right to pledge $312 million of customer securities, held the U.S. Court of Appeals for the Seventh Circuit on Jan. 8, 2016.

  • Avoid Mistakes of the Past

    April 26, 2012 |

    This article discusses a number of cases to have considered officer and director fiduciary duties in the context of insolvency.

  • Crystal Ball Required?

    December 21, 2007 |

    As experienced Chapter 11 bankruptcy practitioners know, when a company suffers severe financial distress and faces the prospect of imminent bankruptcy, its record-keeping procedures can break down, even if they were previously adequate. To prevent future litigation difficulties from arising in connection with the prosecution of avoidance actions, it is important for a practitioner advising a company heading into or newly in bankruptcy to begin to preserve all electronic data immediately.

  • Seller Beware: Recovering the Value of Preferential Transfers of Goods or Equipment

    November 27, 2007 |

    Imagine you are an equipment manufacturer. You sell $45 million in goods to a reliable customer on credit, shipping them to a third-party warehouse to be held for the customer to pick up when needed. Months later, unable to pay and sliding toward bankruptcy, the customer returns the unused equipment. The next thing you know, the customer, having filed for bankruptcy, sues you to recover not only the $45 million value of the returned equipment, but also an additional $55 million in cash payments the customer had made.That is exactly the situation Nortel Networks Inc. ('Nortel') recently faced ... Part One of this article discusses some of the many novel legal issues relating to prepetition equipment returns that arose in the Nortel case.

  • Valuation Experts, Beware the Gatekeeper!

    November 28, 2006 |

    Valuation issues come into play throughout Chapter 11 business reorganization cases. These issues are frequently at the heart of the reorganization process and involve a wide variety of different matters. Bankruptcy courts determine value on a case-by-case basis and in light of the purpose and circumstances of the valuation.

  • Bankruptcy Court Subject Matter Jurisdiction

    March 29, 2006 |

    In the January, 2006, issue of The Bankruptcy Strategist, we discussed the impact of two recent bankruptcy opinions out of the Delaware Court: IT Litigation Trust v. D'Aniella et al. (In re: IT Group, Inc. et al.) and Shandler v. DLJ Merchant Banking, Inc., et al.M. (In re Insilco Technologies, Inc.). We included a brief update in the February, 2006 issue after the Delaware courts weighed in on the subject for the third time in only 3 months. Now we discuss, in depth, the possible implications of Insilco and IT Group on plan structuring.

  • In Search of the Holy Grail

    December 27, 2004 |

    Part Two of a Two-Part Article. In our article that appeared in last month's issue, we discussed the special rule contained in Section 382(l)(5) with respect to the use of net operating losses by a company that has restructured under the protection of the bankruptcy court. Where the stock, debt and claims against a bankrupt company are traded, companies execute lock up agreements with their stockholders or request orders from the bankruptcy court to restrict trading in the stock, debt or claims so as to protect its net operating loss carry forwards. Often, out of an excess of caution, the orders requested have been overly broad and have disrupted trading in such debt and claims. On Nov. 22, 2004, The Bond Market Association and The Loan Syndications and Trading Association announced that in a joint effort they had developed a model NOL order to address these disruptions. Part Two discusses the results.

  • 'Necessity' Revisited: Wishing Won't Make It So

    July 29, 2004 |

    The April and May issues of The Bankruptcy Strategist featured a scholarly, interesting, and informative article by Michael L. Cook and William R. Fabrizio on the recent Seventh Circuit Kmart Opinion (In Re Kmart Corporation, 359 F. 3d 866 (7 Cir. 2004)) in which the Circuit Court affirmed the District Court's reversal (Capital Factors, Inc. v. Kmart Corporation, 291 B. R. 818 (ND Ill. 2003)) of four "critical vendor" orders entered by the Bankruptcy Judge. In all respects but one, Cook and Fabrizio concisely and accurately analyzed the Opinion as well as the history and basic flaws of the so-called "Necessity" Doctrine. Moreover, we agree not only with their conclusion that "the [Necessity] Doctrine ... lacks explicit Code authorization," but also with their flat rejection of such erroneous (and insulting) comments as that of the unnamed practitioner who was quoted by Reuters as stating that the District Court Opinion was "[A] tremendous blow to the efforts of the Chicago bench and bar to fashion their bankruptcy court system in the mold of Delaware and New York." The Bankruptcy Strategist, April 2004, p. 2. Unfortunately when they come to the Opinion of the Court of Appeals, Cook and Fabrizio overstate the case.

  • Preventing a Haven for Wrongdoers

    August 15, 2003 |

    The current economic downturn has resulted in a huge number of bankruptcy filings by publicly traded companies. During 2001, for example, a record 257 publicly traded companies filed for bankruptcy. The telecommunications sector was particularly hard hit, as 14% of those bankruptcies were filed by publicly traded telecom companies.

  • Standing on the Edge

    August 15, 2003 |

    The fact pattern is all too common: A company with an extremely over-leveraged balance sheet is hemorrhaging cash and may already be in disrepute with its trade creditors (of whom there may be thousands). The business is beyond repair. A bank group that has liens on nearly all of the company's assets wants to use Chapter 11 to liquidate those assets to recover as much as it can. The liquidation may be piecemeal (as is common with failed retailers) or it may be as a going concern (as is more common in the industrial sector), but either way the debtors are heading toward a Chapter 11 liquidation.