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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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Commercial Leasing Law & Strategy
Lessor Repossession of Property on Eve of Lessee Bankruptcy: Voluntary Turnover or Face Contempt
Theresa A. Driscoll
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 the debtor obtains an order of turnover.
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The Bankruptcy Strategist
Supreme Court Rules Rejection of Trademark License Does Not Rescind Rights of Licensee
Mark Page
Mission Product Holdings, Inc. v. Tempnology, LLC
The question is whether a debtor’s rejection of its agreement granting a license “terminates rights of the licensee that would survive the licensor’s breach under applicable nonbankruptcy law.”
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The Bankruptcy Strategist
Trustee Litigation Trend: Tuition Clawback
Theresa A. Driscoll
With increasing frequency, Chapter 7 trustees are looking to insolvent parents as well as colleges and universities to avoid and recover for estate creditors payments made by insolvent debtors for the benefit of the debtors’ dependents. These cases are premised on the theory that the tuition payments being made by insolvent parents for the benefit of their children are avoidable as constructively fraudulent transfers because the parents do not receive reasonably equivalent value in exchange for the payment of such tuition. Courts are divided as to whether the payment of a child’s tuition provides reasonably equivalent value to the insolvent parents.
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The Intellectual Property Strategist
Case on ‘Coolcore’ Marks Settles a 34 Year Debate Regarding Bankruptcy and IP Law
Charles A. Cartagena-Ortiz
The U.S. Supreme Court issued its long-awaited decision in Mission Product Holdings, Inc. v. Tempnology , ruling that a trademark licensee can retain its rights under a trademark license agreement that is rejected by the licensor as an executory contract in bankruptcy.
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The Bankruptcy Strategist
Civil Contempt for Discharge Injunction Violations: A New Standard That Brings the ‘Old Soil’ with It
Stephanie Lieb and Dana Robbins
In its recent opinion in Taggart v. Lorenzen, the Supreme Court decided that “[a] court may hold a creditor in civil contempt for violating a discharge order if there is no fair ground of doubt as to whether the order barred the creditor’s conduct.” Although this standard appears to be new, it is more than a century old and “brings the old soil” from civil contempt with it.
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The Bankruptcy Strategist
Involuntary Bankruptcy: Limited Remedy and Strong Sanctions for Abuse
Michael L. Cook
A bankruptcy court decision recently detailed how courts applying Bankruptcy Code §303(i) can sanction creditors who “abuse … the power given to [them] … to file an involuntary bankruptcy petition.” The decision shows why the filing of an involuntary bankruptcy requires careful pre-filing legal judgment.
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The Bankruptcy Strategist
The Curious Case of Extraterritoriality and Fraudulent Transfer Under the Bankruptcy Code
Rick Antonoff
Courts Are Divided on the Issue of Whether the Fraudulent Transfer Recovery Provision Applies Extraterritorially
The U.S. Court of Appeals for the Second Circuit recently issued an opinion concluding that trustees can pursue recovery from foreign subsequent transferees who received property in transactions that occurred entirely outside the United States. The opinion reversed two lower court rulings and arguably conflicts with Supreme Court precedent on extraterritoriality of U.S. legislation.
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The Bankruptcy Strategist
Navigating the Attorney-Client Privilege and Work Product Doctrine in Bankruptcy
Rena Andoh and Kate Ross
When a company declares bankruptcy, avoidance actions under Chapter 5 of the Bankruptcy Code can assist in securing extra cash for the debtor’s dwindling estate. When a debtor-in-possession does not pursue these claims, creditors’ committees often seek the bankruptcy court’s authorization to pursue them on behalf of the estate. Once granted such authorization through a “standing order,” a creditors’ committee is said to “stand in the debtor’s shoes” because it has permission to litigate certain claims belonging to the debtor that arose before bankruptcy. However, for parties whose cases advance to discovery, such a standing order may cause issues by leaving undecided the allocation of attorney-client privilege and work product protection between the debtor and committee.
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The Bankruptcy Strategist
New York District Court Rules that Chapter 15 Recognition Is Not Prerequisite to Enforcement of Foreign Bankruptcy Judgment under Principles of Comity
Dan T. Moss and Mark G. Douglas
It has been generally understood that recognition of a foreign bankruptcy proceeding under Chapter 15 is a prerequisite to the enforcement by a U.S. court of an order or judgment entered in such a foreign bankruptcy proceeding under the doctrine of "comity." A ruling recently handed down by the U.S. District Court for the Southern District of New York directly challenges that principle.
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The Bankruptcy Strategist
Safe Harbor Shields Shareholders In Tribune Fraudulent Transfer Litigation
Michael L. Cook
The U.S. District Court for the Southern District of New York denied a litigation trustee’s motion for leave to file a sixth amended complaint that would have asserted constructive fraudulent transfer claims against 5,000 Tribune Company shareholders. The safe harbor of Bankruptcy Code §546(e) barred the trustee’s proposed claims.
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The Bankruptcy Strategist
‘Fresh Start’ Leads To Bankruptcy Discharge of Environmental Contamination Claims
Andrew C. Kassner and Joseph N. Argentina Jr.
One of the powerful benefits of bankruptcy is the ability to obtain a “fresh” start by obtaining a discharge of most, but not all claims that arose prior to the filing of the bankruptcy case. But when does a claim arise? This issue is especially complex when environmental contamination claims are involved.
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The Bankruptcy Strategist
Fifth Circuit Blocks Fraudulent Transferee’s Good Faith Defense
Michael L. Cook
“A … transferee [who] received fraudulent transfers with actual knowledge or inquiry notice of fraud or insolvency” loses any “good faith” defense available under the Texas version of the Uniform Fraudulent Transfer Act (TUFTA), held the Fifth Circuit in Janvey v. GMAG, LLC
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The Bankruptcy Strategist
What Has Merit Management Changed?
Matthew Gold
It has been nearly two years since the Supreme Court upended the world of the Bankruptcy Code securities safe harbor with its decision in Merit Management Group, LP v. FTI Consulting, Inc.. For all of the speculation regarding its consequences, there have been few subsequent lower court decisions applying Merit Management, however those cases provide valuable guidance to practitioners facing safe harbor litigation as well as transactional lawyers looking to take advantage of safe harbor protections.
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The Bankruptcy Strategist
A Clash Between ‘Free and Clear’ and Tenants’ Rights Under Bankruptcy Code Section 365(h)
Albena Petrakov
With the recent carnage in the retail industry, a lot of attention goes to the fate of landlords when their tenants seek bankruptcy protection. A recent case that brings balance is Revel AC Inc. v. IDEA Boardwalk, LLC.
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The Bankruptcy Strategist
Preference Attacks To Recover Prepetition Compensation Paid to Consultants of Troubled Companies
Paul A. Rubin and Hanh V. Huynh
Employees of a troubled company who stay on as consultants to assist in liquidating its assets or preparing the company for a bankruptcy filing may later be disappointed to face claims to claw back their prepetition compensation.
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The Bankruptcy Strategist
Quasi-Bankruptcy Quagmires
Howard C. Rubin and Deirdre M. Richards
When Entities May Not Have a Filing Choice and How Creditors Are Impacted
This article explores the difficulties some entities have encountered in filing bankruptcies and how one organization used extraordinary civil remedies in an attempt to accomplish what reorganization under Chapter 11 of the United States Bankruptcy Code would have provided.
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Commercial Leasing Law & Strategy
A Clash Between ‘Free and Clear’ and Tenants’ Rights Under the Bankruptcy Code’s Section 365(h)
Albena Petrakov
With the recent carnage in the retail industry, including Sears and many other retailers of all shapes and sizes, a lot of attention goes to the fate of landlords when their tenants seek bankruptcy protection.
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The Bankruptcy Strategist
Take-Aways from the Sears Sale Process
Adam L. Rosen
As widely reported, the downfall of Sears was a slow-motion train wreck. Despite its unique size and complexity, however, some of the strategies and techniques used by the stakeholders in Sears can be applied in cases of any size.
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Business Crimes Bulletin
Eighth Circuit Rejects Ponzi Scheme Presumption to Protect Legitimate Loan Repayments
Michael L. Cook
In Stoebner v. Opportunity Finance, LLC, the U.S. Court of Appeals for the Eighth Circuit held that “… Ponzi scheme payments to satisfy legitimate antecedent debts to defendant banks could not be avoided” by a bankruptcy trustee “absent transaction-specific proof of actual intent to defraud or the statutory elements of constructive fraud — transfer by an insolvent debtor who did not receive reasonably equivalent value in exchange.”
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The Bankruptcy Strategist
Don’t Set Me Off: No Triangular Setoff Among Affiliated Entities and a Debtor Counterparty
Adam C. Rogoff
In today’s global economy, companies often have multiple business lines operating through separate entities. Outside of bankruptcy, these affiliated operations sometimes transact in a holistic — albeit legally distinct — debtor-creditor relationship with their counterparty. But, as this article discusses, the legal separateness of affiliates can hinder economic protections that a creditor might have otherwise when its counterparty files for bankruptcy.
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The Bankruptcy Strategist
Caveat Intercreditor: Bankruptcy May Be Coming
Joel H. Levitin, Richard A. Stieglitz Jr. and Stephen J. Gordon
Bankruptcy Provisions in First Lien/Second Lien Intercreditor Agreements
While intercreditor agreements (ICAs) are not necessarily the most attention-grabbing of the various loan documents common to large financing transactions, they are nevertheless important, and lack of attention to detail with respect to their provisions could lead to unintended results in any future bankruptcy case.
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The Bankruptcy Strategist
Case Study: Delaware Bankruptcy Court Denies Trustee’s Breach of Fiduciary Duty Suit
Earl M. Forte
In January, a bench trial occurred in In re Covenant Partners, L.P., in which the Trustee of Debtor, Covenant Partners, L.P., sued for breach of fiduciary duty.
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The Bankruptcy Strategist
How Bankruptcy Courts Will Treat Cases Involving Cryptocurrency Exchanges
Richard J. Mason
This article looks at some of the issues that may arise if a cryptocurrency exchange becomes a debtor in a case under the Bankruptcy Code.
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The Bankruptcy Strategist
The How, What and Why of a Potential PG&E Bankruptcy
John J. Rapisardi and Daniel Shamah
PG&E Corporation and its subsidiary, Pacific Gas & Electric Company announced that it expects to file for Chapter 11 bankruptcy protection on or around Jan. 29, 2019, right around the conclusion of a mandatory 15-day notice requirement under California law. Such a filing would represent the second time PG&E resorted to protection under the U.S. Bankruptcy Code.
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The Bankruptcy Strategist
Junior Noteholders Successfully Petition for Dismissal of Involuntary Filing
H. Peter Haveles, Jr. and Eric Winston
The bankruptcy court’s ruling is a seminal decision that meaningfully circumscribes the ability of a secured noteholder under an indenture, particularly for structured debt, to force the debtor (i.e., issuer of the debt) into an involuntary bankruptcy.
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The Bankruptcy Strategist
Reports of the Demise of ‘Gifting’ Chapter 11 Plans Are An Exaggeration
Timothy W. Hoffmann and Mark G. Douglas
In Nuverra Environmental Solutions,, the U.S. District Court for the District of Delaware affirmed a bankruptcy court order confirming a non-consensual Chapter 11 plan that included “gifted” consideration from a senior secured creditor to fund unequal distributions to two separate classes of unsecured creditors.
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Commercial Leasing Law & Strategy
The Bankruptcy Code’s Inherent Limitations for Struggling Golf Courses
Daniel A. Lev
Part One of a Two-Part Article
This article describes conflicts with zoning boards and neighbors as it relates to distressed golf course properties and the methods sometimes available in the bankruptcy realm for working around the problem of restrictive covenants that run with the land.
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The Bankruptcy Strategist
Eighth Circuit Rejects Ponzi Scheme Presumption to Protect Legitimate Loan Repayments
Michael L. Cook
The Eighth Circuit affirmed the lower courts’ dismissal of a bankruptcy trustee’s $250 million fraudulent transfer suit against two banks (the Banks), rejecting the so called “Ponzi scheme presumption” that “allows a creditor to by-pass the proof requirements of a fraudulent-transfer claim by showing that the debtor operated a Ponzi scheme and transferred assets ‘in furtherance of the scheme.’”
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The Bankruptcy Strategist
Fifth Circuit Holds Asset Purchaser Unable to Acquire Rejected License Agreement
Michael L. Cook
A license agreement “deemed rejected by operation of law” could not be acquired under a court-approved asset purchase agreement, held the U.S. Court of Appeals for the Fifth Circuit
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