Total Bankruptcy Filings At Mid-Year
The number of total bankruptcy petitions filed for the 12-month period ending June 30, 2004 has decreased for the first time since 2000 over this time period, according to the latest figures prepared by the Administrative Office of the U.S. Courts.
From Cradle to Grave
Bankruptcy lawyers may not get involved in their clients' transactions until it is too late. They may be called in only upon the occurrence of a default, litigation, or the commencement of a bankruptcy case. At that point, they are faced with deals that have been "set in stone" -- drafted and structured by lawyers specializing in the front-end, who may have looked at the transaction from an overly optimistic viewpoint, especially in the case of a long-term deal with another party that presently is in good financial health.
Bankruptcy Courts Allowed to Reopen Section 363 Auctions
A bankruptcy judge's mandate, and the purpose of a section 363 sale process, is to obtain the "highest and best" offer for the assets. Finality and integrity of the process are also important policy considerations. Bankruptcy sales are designed to facilitate the estate's ready realization of value from its assets, while at the same time giving purchasers some degree of certainty that they will obtain clear title to an asset, without the fear of having the transaction later reversed. At times, however, these principles may be in conflict, as outlined by the Seventh Circuit.
Order in the Court: Limits on the Court's Preservation of Debtor Assets
Telecom companies invest substantial amounts to acquire their assets, such as underground cables or fiber optic networks. As a consequence of building or acquiring this capital-intensive infrastructure, telecom companies often pay millions of dollars in annual property tax assessments. When telecom asset values drop (as has most recently been the case), telecom companies generally focus on keeping their businesses afloat, rather than on their property taxes.
'Necessity' Revisited: Wishing Won't Make It So
The April and May issues of <i>The Bankruptcy Strategist</i> featured a scholarly, interesting, and informative article by Michael L. Cook and William R. Fabrizio on the recent Seventh Circuit <i>Kmart</i> Opinion (<i>In Re Kmart Corporation</i>, 359 F. 3d 866 (7 Cir. 2004)) in which the Circuit Court affirmed the District Court's reversal (<i>Capital Factors, Inc. v. Kmart Corporation</i>, 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." <i>The Bankruptcy Strategist</i>, April 2004, p. 2. Unfortunately when they come to the Opinion of the Court of Appeals, Cook and Fabrizio overstate the case.
Unique Settlement Ruling in Smart World Case
It is the uncommon occasion when creditors seek the Bankruptcy Court's assistance to impose a settlement that compromises the debtor's asserted rights to recovery against third parties. While settlements are typically preferable to the debtor's engagement in contested and costly litigation, it is a challenge to convince a court to compromise a debtor's asserted claims. In a recent case in the United States Bankruptcy Court for the Southern District of New York, a settlement was negotiated and ultimately approved by the Bankruptcy Court over the vigorous objection of the debtors-in-possession (the "Debtors"), resolving a hotly contested adversary proceeding and third party claims.
'Megabankruptcies': Changes On the Way?
Across the nation, readers of this publication are plagued daily with myriad problems associated with "megabankruptcies" and complex reorganization cases, and sometimes with Chapter 11s that are just large enough to be cumbersome and unwieldy, but too important and/or lucrative to pass up. Notwithstanding what is generally the statutory clarity of the Bankruptcy Code, many of the solutions to these nettlesome issues have evolved on an ad hoc basis, and are often the creatures of local customs and practice, if not the rules and procedures of individual judges. Putting aside the natural peaks and valleys of Chapter 11 filings, these issues persist, no matter the economic climate.
Strategies for Lenders
It has become conventional wisdom that bankruptcy -- even Chapter 11 -- is now largely a process controlled by secured lenders. Whatever the merits of this view, the undersecured lender is still in an unenviable position as a result of the Supreme Court's holding in <i>Timbers</i> that undersecured creditors who are stayed from foreclosing on their collateral during bankruptcy are not entitled to accrue or collect interest on their claims during the bankruptcy case or otherwise be compensated for their loss.
