Bankruptcy

The Bankruptcy Strategist

Small Business Reorganization Act and Subchapter V

Robert W. Dremluk

The general purpose of Subchapter V was to streamline the Chapter 11 bankruptcy process for small businesses and individuals engaged in business to administer their bankruptcy estate in an efficient and less costly manner.

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The Bankruptcy Strategist

Update on Corporate Bankruptcy Tax Refund Litigation

Michael L. Cook

The bankruptcy trustee of a bank holding company was not entitled to a consolidated corporate tax refund when a bank subsidiary had incurred losses generating the refund, Tenth Circuit held.

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The Bankruptcy Strategist

Estate Professionals Can Be Compensated for Services Performed Before Entry of a Retention Order, Even Without Nunc Pro Tunc Orders

Sheryl P. Giugliano

Bankruptcy professionals should be relieved by a recent decision holding that although nunc pro tunc orders approving a professional’s retention are now considered “inappropriate” in light of the Supreme Court’s decision in Roman Catholic Archdiocese of San Juan, there is nothing in the Bankruptcy Code, Bankruptcy Rules, or applicable case law preventing an award of compensation before a retention order is entered.

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The Bankruptcy Strategist

Corporate Resiliency: How to Ensure Financial Health Ahead of an Economic Downturn

Derek F. Meek and Hanna Lahr

Proper planning is key to ensuring a company’s financial health when facing an economic downturn. Although companies will come into such planning with different levels of financial health, the same considerations can be helpful in determining the best path forward.

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The Bankruptcy Strategist

The Shutdown of the Restaurant Industry: The Widespread Impact

Gerald D. Davis and Amy L. Drushal

Restaurants are already fragile businesses, not known for lucrative revenue, but instead known for surviving on tight margins. When the industry reopens to the “new normal,” what will the restaurant industry look like?

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The Bankruptcy Strategist

Advertising Section 363 Sales in the Digital Age

Mark S. Melickian and David M. Madden

this article provides an overview of the legal landscape governing §363 sales and the types of Internet-based resources available to potential asset sellers.

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The Bankruptcy Strategist

Open Questions Regarding Disallowance Under Section 502(d)

Paul A. Rubin and Hanh V. Huynh

The intra-district divide in the Southern District of New York continued to deepen on the issue of whether claims disallowance under section 502(d) of the Bankruptcy Code applies to the claim or to the claimant.

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Cybersecurity Law & Strategy

Legal Tech: As Bankruptcies Grow, E-Discovery Counsels’ Work May Become More Challenging

Victoria Hudgins

Businesses reeling after multiple international stay-at-home mandates are finding themselves out of options and filing for bankruptcy. The situation has led some law firms to cash in on bankruptcy service, and made many cautiously optimistic that the bankruptcy practice will be in high-demand during the current recession.

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The Bankruptcy Strategist

Preparing for State Bankruptcies

Samantha Stokes

It’s no secret that major law firm bankruptcy practices are ramping up for a historic rise in Chapter 11 filings as industries are battered by the COVID-19 pandemic. Controversial comments by Senate majority leader Mitch McConnell in April raised the possibility that restructuring lawyers could also gain a new clientele: state governments.

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The Bankruptcy Strategist

Bankruptcy Asset Sales During COVID-19 Crisis

Hugh McDonald and Deborah Kovsky-Apap

The COVID-19 pandemic is already leaving its mark on the bankruptcy asset sale landscape. Despite the uncertainty — or even because of it — bankruptcy should still be viewed as a useful tool to effectuate the acquisition of assets. The current situation and anticipated distress across many industries presents opportunities for purchasers to acquire assets on favorable terms.

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The Bankruptcy Strategist

COVID-19: A Massive Impediment to Bankruptcy Relief

Joseph H. Lemkin

With Uncertainty As to When the Pandemic Will Ease, Bankruptcy Courts Do Not Seem to Be a Panacea Leading to Successful Reorganizations or Orderly Liquidations for Troubled Companies

The impact of COVID-19 on efforts of businesses to reorganize or even orderly liquidate in bankruptcy has been swift and devastating

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The Bankruptcy Strategist

COVID-19: As Coronavirus Ravages the Economy, Bankruptcy Attorneys Prepare for the Flood

Samantha Stokes

Law firms have always counted on bankruptcy as a countercyclical practice in hard times. Now, those that prepared when the economy was booming may be about to get their reward.

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The Bankruptcy Strategist

Parent of Secured Creditor Does Not Automatically Gain Secured Status

Rudolph J. Di Massa Jr. and Drew S. McGehrin

The ruling in In re Jarvis that the grant of a security interest to a corporate lender will not necessarily “spread” that security interest to the lender’s affiliates underscores the need for precision and care in the drafting of loan documents, particularly with respect to the granting language contained in security agreements.

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Commercial Leasing Law & Strategy

Personal Guaranty of Commercial Lease Held Discharged in Guarantor’s Bankruptcy

Andrew C. Kassner and Joseph N. Argentina Jr.

As we prepare for the anticipated increase in bankruptcy filings caused by the COVID-19 pandemic's impact on the economy, many practitioners are trying to compare this to the savings and loan crisis of the late 1980s. One of the issues that keeps coming up cycle after cycle is whether a personal guaranty of a commercial lease is discharged in the bankruptcy of the individual guarantor. Court decisions have split on this issue for years.

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The Bankruptcy Strategist

Supreme Court Defers to State Law on Ownership of Tax Refund

Michael L. Cook

High Court Rejects Application of Bob Roberts Rule

Federal courts should “turn to state law to resolve” a “fight over a tax refund,” held a unanimous U.S. Supreme Court in Rodriquez v. FDIC (In re United W Bancorp., Inc.)

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The Bankruptcy Strategist

Expect Flurry of Bankruptcy Filings With Coronavirus Slowdown

Lidia Dinkova

Potential Clients Are Reaching Out to Bankruptcy Attorneys to Assess the Need for Business Filings

Bankruptcy attorneys expected to get calls as the coronavirus pandemic swiftly slowed the economy — and they were right.

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Accounting And Financial Planning For Law Firms

Venue Reform in Corporate Bankruptcies

A bipartisan group of House lawmakers has introduced a bill that aims to limit where distressed companies can file bankruptcy, making it harder for companies to file outside of the jurisdiction where they are headquartered or have most of their assets. The Bankruptcy Strategist asked Robert J. Gayda, a partner in Seward & Kissel’s Bankruptcy and Corporate Reorganization Group who represents a clients in all aspects of restructuring, about his thoughts on proposed venue reform in corporate bankruptcies.

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The Bankruptcy Strategist

Asset Protection, Pre-Bankruptcy Planning and Code §727(a)(2)(A)

Carlos J. Cuevas

This article examines asset protection and pre-bankruptcy planning and its impact on a debtor’s discharge through Bankruptcy Code §727(a)(2)(A).

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The Bankruptcy Strategist

A New Regime in Preference Litigation

Steve Werth

One of the provisions of the Small Business Reorganization Act amends the language of Bankruptcy Code Section 547 — which gives trustees and debtors in possession the right to seek to recover a payment to a third party in the 90-day period prior to the commencement of a bankruptcy case as a “preference” — to add a due diligence requirement. Though the intent behind the added language seems clear, it may not have its intended effect.

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The Bankruptcy Strategist

Bankruptcy Court Preliminary Injunction Held Not Appealable

Michael L. Cook

A bankruptcy court’s preliminary injunction was “not a final and immediately appealable order,” held the U.S. District Court for the District of Delaware in In re Alcor Energy, LLC.

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The Bankruptcy Strategist

Discharge of Student Loan Debt OK’d Under Brunner Standard

Rudolph J. Di Massa, Jr. and Keri L. Wintle

In January, a Southern District of New York U.S. Bankruptcy Chief Judge entered a decision granting summary judgment to a pro se debtor, finding that he debtor had satisfied the “undue hardship” standard set forth in Section 523(a)(8) of the Bankruptcy Code, and ordering the discharge of the student loan debt of more than $220,000.

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The Bankruptcy Strategist

Lessor Repossession of Property on Eve of Lessee Bankruptcy

Theresa A. Driscoll

Voluntary Turnover or Face Contempt

Lessors who repossess property immediately prior to a lessee bankruptcy filing may be required to return such property or face sanctions by the bankruptcy court. Federal courts are currently split on the issue of whether the lessor must voluntary surrender property seized petition or may hold such property until such time as the debtor seeks, and obtains, an order of turnover.

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The Bankruptcy Strategist

Tips to Minimize Landlord’s Exposure When a Commercial Tenant Files Bankruptcy

Carmen Contreras-Martinez 

Landlords often have clues that a tenant is going to be filing for bankruptcy, rental payments are consistently late several months in a row and the tenant falls more than a month behind on the rent. But, it can still be shocking when a landlord receives a legal notice in the mail, instead of a rent check.

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The Bankruptcy Strategist

Recent Developments in Third Circuit Bankruptcy Law

Rachel Ehrlich Albanese and Gregory Martin Juell

Bankruptcy and corporate restructurings continue to be active despite generally strong U.S. financial markets and broader macroeconomic conditions. Here is a brief overview of three recent and noteworthy bankruptcy decisions within the Third Circuit.

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The Bankruptcy Strategist

Move Quickly: Supreme Court Holds that Bankruptcy Court’s Denial of Motion for Relief from the Automatic Stay Is a Final Appealable Order

Louis F. Solimine, James J. Henderson and Andrew L. Turscak, Jr.

In a recent, unanimous opinion authored by Justice Ginsburg, the U.S. Supreme Court affirmed lower court decisions holding that a bankruptcy court order denying a motion for relief from the automatic stay constitutes a final order that must be appealed within the time provided under Federal Rule of Bankruptcy Procedure 8002.

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Commercial Leasing Law & Strategy

Tips to Minimize Landlord’s Exposure When a Commercial Tenant Files Bankruptcy

Carmen Contreras-Martinez

Because bankruptcy can add significant expenses and increase the time it takes to remove a delinquent tenant, landlords should not allow tenants to fall far behind on rental payments. Here are some tips on how to address the issues raised by a bankrupt tenant.

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The Bankruptcy Strategist

Bankruptcy Court Denies Motion for Fee Enhancement Under ‘Common Fund Doctrine’

Rudolph J. Di Massa, Jr. and Geoffrey A. Heaton

The U.S. Bankruptcy Court for the Western District of Virginia recently denied creditors’ counsel’s motion for a fee enhancement under the “common fund doctrine,” finding it could not award the requested fees absent statutory authority.

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The Bankruptcy Strategist

Examining the Interplay Between Exculpation Clause and Fiduciary Duty

Lawrence J. Kotler 

In the case of In re Solutions Liquidation, the U.S. Bankruptcy Court for the District of Delaware adjudicated a motion to dismiss filed by the debtors’ former managers and officers in connection with the breach of fiduciary duty complaint filed against them by the trustee of the debtors’ liquidating trust.

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The Bankruptcy Strategist

Sixth Circuit Considers Rejection of a Filed Power Purchase Agreement

Andrew C. Kassner and Joseph N. Argentina Jr. 

The provisions of the Bankruptcy Code sometimes conflict with other federal laws and regulations. The Sixth Circuit Court recently considered whether an energy company debtor could reject a power purchase agreement as an executory contract that had been filed with the Federal Energy Regulatory Commission (FERC)

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The Bankruptcy Strategist

Chapter 11 Plan Support Agreements: Greasing the Wheels for Confirmation Success

John J. Rapisardi and Joseph Zujkowski 

Plan support agreements are often an essential component of a successful complex Chapter 11 reorganization and provide a framework for a debtor’s financial restructuring. These agreements have increasingly been used to induce core groups of major lenders and bondholders to support a debtor’s restructuring in return for enhanced recoveries.

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The Bankruptcy Strategist

Uniform Voidable Transactions Act Signed Into Law in NY

Thomas R. Slome, Michelle McMahon and Sophia Hepheastou

On Dec. 6, 2019, Gov. Andrew Cuomo signed legislation modernizing New York’s 95-year-old fraudulent conveyance law and making it consistent with the U.S. Bankruptcy Code and the law of at least 44 other states. The Uniform Voidable Transactions Act (UVTA) primarily clarifies the rights and remedies of parties involved in transactions with financially distressed entities.

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The Bankruptcy Strategist

Changing Outcomes Through a Reservation of Rights

Francis J. Lawall and Kenneth A. Listwak

In the day-to-day practice of bankruptcy law, it may occasionally be tempting to dismiss “reservation of rights” language as unnecessary or unimportant — after all, a pragmatically minded court will consider the economic reality of the case before it. Right? Well, the U.S. District Court for the District of Delaware’s recent ruling in Emerald Capital Advisors v. Victory Park Capital Advisors (In re KII Liquidating) demonstrates the flaws in that way of thinking.

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The Bankruptcy Strategist

The Small Business Reorganization Act: A New Bankruptcy Law for Small Businesses

Zach Shelomith

The advantages of Chapter 11 bankruptcy are oftentimes unavailable to small businesses and its owners. The substantial disclosure and reporting requirements alone scare off many potential debtors. In response to this problem, Congress recently created the Small Business Reorganization Act of 2019.

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The Bankruptcy Strategist

Overview of Limitations on Employee Compensation in Bankruptcy

Carl E. Black and Jonathan Noble Edel

Recognizing the potential consequences, companies in Chapter 11 bankruptcy often try to reduce employee uncertainty by seeking authority from the bankruptcy court. The Bankruptcy Code, however, imposes a variety of limitations on the ability of a debtor-employer to provide certain types of compensation and benefits to “insiders,” a term that is broadly defined in the Bankruptcy Code.

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The Bankruptcy Strategist

Third Circuit Allows Repossessing Secured Lender to Hold Collateral Pending Bankruptcy Stay

Michael L. Cook

“[A] secured creditor [has no] affirmative obligation under the automatic stay to return a debtor’s [repossessed] collateral to the bankruptcy estate immediately upon notice of the debtor’s bankruptcy,” the U.S. Court of Appeals for the Third Circuit held on Oct. 28, 2019 in In re Denby-Peterson.

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The Bankruptcy Strategist

Sympathy for the Debtor? Not When It Comes to Student Loans

Rudolph J. Di Massa Jr. and Jarret P. Hitchings

The assumption that bankruptcy can’t relieve a borrower of student loan obligations is incorrect, however a debtor must provide compelling evidence that an undue hardship will result if the debtor is required to repay the loan.

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The Bankruptcy Strategist

‘Dirt for Debt’ In Bankruptcy Plans of Reorganization

Peter Janovsky

A debtor’s goal in a Chapter 11 Bankruptcy is to confirm a “plan of reorganization.” Creditors usually have the right to vote for or against a plan, and in some cases, a plan can be confirmed over the objection of one or more classes of creditors. This is called a “cram-down.” The Bankruptcy Code’s rules governing cram-down are complex and differ for secured and unsecured classes of creditors. This article shows how bankruptcy courts have ruled on a particular method of cram-down known as a “dirt-for-debt” plan.

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The Bankruptcy Strategist

Cannabis Businesses In Bankruptcy

Aaron R. Cahn

Any Cannabis-Related Business or Any Business In a Relationship With One Will Likely Find Itself Barred from the Door of the Federal Bankruptcy Courts

The ability to file a federal bankruptcy case is an important resource for struggling businesses. It is particularly important to start-up businesses in an emerging field, such as the production and marketing of cannabis-related products. It is precisely this resource, however, that is currently being denied to cannabis-related businesses.

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The Bankruptcy Strategist

D&O Policy ‘Bankruptcy Exclusion’ Held To Be an Unenforceable ‘Ipso Facto’ Clause

Mark D. Silverschotz

The new decision is significant because lawsuits against former (and current) officers and directors of debtors commonly are brought, as here, by trusts established under plans of reorganization. Because insurance policies often are the only viable source of recovery for the claims asserted in such lawsuits, this decision potentially opens a pathway to creditor recovery in other similar matters.

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The Bankruptcy Strategist

Faster, Shorter, Smarter, Better: Strategies for a New Era of Bankruptcy

Chris Updike and Joseph Zujkowski

Faster, Shorter, Smarter, Better

Among other trends, practitioners are increasingly using pre-packaged and pre-negotiated cases, drafting clearer and more concise pleadings, employing smarter deposit management practices, and harnessing improved technology — strategies for a new era of bankruptcy.

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The Bankruptcy Strategist

Same Class, Different Recoveries — No Bar to Plan Confirmation

Francis J. Lawall and John Henry Schanne II

Equal treatment of claims in the same class within a plan of reorganization is an important creditor protection in Chapter 11. However, is it possible to provide certain benefits to some creditors within a single class and not others without running afoul of the Bankruptcy Code? In a recent ruling on an issue of first impression, the U.S. Court of Appeals for the Eighth Circuit certainly made clear it thought so.

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The Bankruptcy Strategist

Fifth Circuit Subordinates Claim for Deemed Dividends

Michael L. Cook

“… [P]ayments owed to a shareholder by a bankrupt debtor, which are not quite dividends but which certainly look a lot like dividends, should be treated like the equity interests of a shareholder and subordinated to claims by creditors of the debtor,” held the U.S. Court of Appeals for the Fifth Circuit.

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The Bankruptcy Strategist

8th Circuit Affirms Dismissal of Lawsuit Attacking Approved Bankruptcy Sale

Andrew C. Kassner and Joseph N. Argentina Jr. 

Sales of substantially all of a debtor’s assets are commonplace in corporate Chapter 11 bankruptcies. The sale is supervised and approved by the Bankruptcy Court. Purchasers desire to know that if the sale is consummated, they will be protected from subsequent attacks on the sale and the sale process and presumably more bidders will participate, resulting in greater returns for the estates and creditors. Issues surrounding the finality of a bankruptcy sale were recently reviewed by the U.S. Court of Appeals for the Eighth Circuit.

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The Bankruptcy Strategist

Something to Remember: The Flexibility of Chapter 11 in Retail Situations

Christopher T. Greco, Spencer A. Winters and Derek I. Hunter

In the face of increasing pressure from online retailers, and declining foot-traffic in malls and other brick-and-mortar locations, distressed retailers like Things Remembered need to act expeditiously to execute going-concern transactions if they are going to survive the market disruption.

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The Bankruptcy Strategist

Mitigating Lender Risk in Constructive Fraudulent Transfer Litigation

Arthur Steinberg and Michael R. Handler

Lenders must carefully analyze the full ramifications of how best to approach the constructive fraudulent transfer issue when it emerges in their bankruptcy case.

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The Bankruptcy Strategist

Third Circuit Clarifies Appeal Process in Settlement and Reorganization Plan Disputes

Michael L. Cook

The Third Circuit recently took a “pragmatic approach” when affirming lower court orders denying a stay of bankruptcy settlement distributions pending appeal. After holding that the district court’s “stay denial order” was “final” for jurisdictional purposes, it also confirmed “the applicable standard of review” on motions for stays pending appeals.

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The Bankruptcy Strategist

Lessor Repossession of Property on Eve of Lessee Bankruptcy

Theresa A. Driscoll

Voluntary Turnover or Face Contempt

Lessors who repossess property immediately prior to a lessee bankruptcy filing may be required to return such property or face sanctions by the bankruptcy court. Federal courts are currently split on the issue of whether the lessor must voluntary surrender property seized pre-petition or may hold such property until such time as the debtor seeks, and obtains, an order of turnover.

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The Bankruptcy Strategist

Fourth Circuit: Debt Incurred As a Result of Willful and Malicious Injury May Be Dischargeable

Rudolph J. Di Massa Jr. and Drew S. McGehrin

The U.S. Court of Appeals for the Fourth Circuit recently held that a debt incurred as a result of a willful and malicious injury may nevertheless be dischargeable notwithstanding the provisions of 11 U.S.C. Section 523(a)(6).

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The Bankruptcy Strategist

Resolving the Competing Desires of Buyers and Tenants In Bankruptcy

Daniel A. Lowenthal

A Tension Between §§363(f) and 365(h)

How do bankruptcy judges resolve the competing desires of buyers and tenants? Must buyers bid for property knowing that tenants might have the right to stay if their leases are rejected? Are tenants in jeopardy that they might have to move elsewhere to live or work?

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The Bankruptcy Strategist

Bankruptcy Court Rules U.S. Trustee Amended Fee Schedule Unconstitutional

Francis J. Lawall and Marcy J. McLaughlin

The Office of U.S. Trustee is known among practitioners as the “watchdog” of the bankruptcy process. To fund the U.S. Trustee, Chapter 11 debtors must pay quarterly fees. Following a recent substantial increase to the U.S. Trustee fee schedule, the U.S. Bankruptcy Court for the Eastern District of Virginia found the amended fee schedule to be unconstitutional because it was being applied nonuniformly to Chapter 11 debtors around the country.

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