Using Chapter 11 to Shed Extravagant Benefit Packages
October 28, 2005
In May of this year, a bankruptcy court allowed United Airlines to terminate certain of its defined benefit pension plans, clearing the way for the largest pension default in U.S. history. The default will save United an estimated $645 million a year in pension contributions, part of the $2 billion in annual savings it says it needs to emerge from Chapter 11. United's success has led to speculation that other corporations with generous and/or underfunded pension and other retiree benefit plans will also use bankruptcy to clean 'legacy costs' off their balance sheets. Modification or termination of such liabilities in Chapter 11, however, is not without difficulty.
'Deal Doing' for Restructuring Professionals
October 28, 2005
Your Scout manual was right ' you should always be prepared. And for lawyers, clients and other advisers alike, there is no substitute for doing homework. You can't control whether you're the smartest person in the room, or whether your client has the most leverage, but you are completely in control of who will be the most prepared person in the room. An important part of preparation is knowing all of the strengths and weaknesses of your position, as well as the positions of the other stakeholders. Pre-negotiation pre-paration gives everyone a sense of their goals for the negotiation, and the point beyond which it no longer makes sense to continue negotiating.
Debtor-in-Possession Financing
October 03, 2005
There has been much discussion among bankruptcy practitioners and scholars as to whether the courts have abdicated their responsibility to enforce the Bankruptcy Code and whether debtors and creditors committees are too easily pressured by lenders such that control of bankruptcy cases has been effectively ceded to secured creditors. One of the areas where many would say this is most prevalent is with post-petition lending.
When Bankruptcy Goes Public
October 03, 2005
Bankruptcy filings make headlines, regardless of whether the debtor is a large public company, a small private business, a national icon or a local not-for-profit. And media coverage -- and the public and political scrutiny it invites - can influence, for better or worse, the course of the case. It can even affect the very future of the organization. As the legal, operational and financial strategies associated with the bankruptcy process are put in place, communications must be an integral component.
Third Circuit Cuts Substantive Consolidation Risk
October 03, 2005
Lenders won a victory on Aug. 15 when the Third Circuit limited the equitable remedy of substantive consolidation in the Owens Corning reorganization case. <i>In re Owens Corning</i>, ____ F.3d ___, 2005 U.S. App. LEXIS 17150*1 (3d Cir. 2005), amended by 2005 U.S. App. LEXIS 18043 (3d Cir. Aug. 23, 2005); further amended Sept. 2, 2005, <i>petitions for reh'g en banc filed</i> Aug. 29, 2005. Reversing the district court, the court held that "affiliated [debtor and non-debtor] entities" could not be "substantively" consolidated on the facts of the case before it. According to the court, the debtor and its allies sought substantive consolidation, a "last-resort remedy," in order to "deprive one group of creditors [ie, the unsecured lenders] of their rights while providing a windfall to other creditors." Id. at *5-*6. The future claimants' representative and a creditors' committee filed petitions for rehearing <i>en banc</i> on Aug. 29. Answers to those petitions were due to be filed by Sept. 12.
Handling the Non-Profit Workout/Bankruptcy
August 30, 2005
Last month, we discussed how to handle the non-profit workout/bankruptcy with an analysis of one of the largest not-for-profit bankruptcy cases even filed -- <i>In re: the National Benevolent Association of the Christian Church (Disciples of Christ) et al.</i>, (Bankr. W.D. Texas), Case No. 04-50948 (RBK). As we explained, the National Benevolent Association of the Christian Church (Disciples of Christ) (NBA) was founded in 1887 as a Missouri-based nonprofit corporation. Its mission was to provide services to disadvantaged families and others. Prior to bankruptcy, the NBA was the parent company of approximately 25 affiliated nonprofit entities that owned and operated 11 senior care facilities, four children's care centers, and three special care facilities in 12 states, among other things. We presented a great deal of analytical background on the nonprofit corporation and its path toward bankruptcy. This month, we discuss the bankruptcy case itself.
Ninth Circuit Ruling on Preference Avoidance Power
August 30, 2005
Last month, we discussed <i>Sherwood Partners, Inc., Assignee for the Benefit of Creditors of International Thinklink Corporation v. Lycos, Inc.</i>, 394 Fed11198 (9th Cir. 2005). In that case, the Ninth Circuit Court of Appeals, by a divided court, held that a state statute authorizing an assignee for the benefit of creditors to void a preferential transfer is preempted by the federal Bankruptcy Code. This month, we discuss the ruling in depth.
Collecting D&O Insurance Proceeds
August 30, 2005
In the race between a debtor and a third party to recover the proceeds of a directors' and officers' insurance policy (a "D&O Policy"), it is critical that the debtor employ the correct strategy for the applicable jurisdiction in order to enjoin its competitor from reaching the proceeds first. Choosing the wrong strategy could mean the difference between collecting tens of millions of dollars and obtaining a judgment not worth the paper upon which it is written. Indeed, the proceeds of the D&O Policy ("D&O Proceeds") may be the largest asset of the estate. As a result, a successful reorganization could depend upon filing in the right jurisdiction and implementing the correct litigation strategy.
