Litigation
September 27, 2006
Recent rulings of interest to you and your practice.
Priority for Unpaid Workers' Comp Premiums
August 30, 2006
Priorities are the alchemist's stone of the Bankruptcy Code ' they have the power to turn worthless claims into pots of gold. Without priority status, unsecured claims typically receive little or no distributions from the bankruptcy estate. When these claims fall within one of the statutory priorities of ' 507(a) of the Bankruptcy Code, however, they often lead to significant distributions ' sometimes even payment in full. What often separates the 'haves' from the 'have-nots' in the bankruptcy arena is the ability to fit one's claim into the finite list of priorities set forth in ' 507(a).
Fiduciary Duties Owed to Subsidiary
August 30, 2006
On June 23, 2006, the jurisdiction that invented the 'zone of insolvency' delivered its latest lesson on the fiduciary duties of directors and officers of insolvent companies. The Delaware Bankruptcy Court, in <i>In re Scott Acquisition Corp.</i>, ___ B.R. at ____, 2006 WL 1731277 (Bankr. D.Del. 2006), ruled that directors and officers of insolvent subsidiary companies owe fiduciary duties to both its creditors and the subsidiary itself. Before this, leading cases on this issue held that fiduciary duties were owed only to creditors and the single-shareholder, parent companies. Though the decision stands on some firm legal ground, it is sure to create more uncertainty and doubt in the boardroom.
Postpetition Plan Support Agreements
August 30, 2006
The propriety of postpetition plan support agreements (aka 'lockup' agreements) has been the subject of considerable controversy since 2002 when Judge Mary Walrath of the U.S. Bankruptcy Court for the District of Delaware issued two unreported decisions announcing a 'bright-line' rule that such agreements are 'solicitations' within the meaning of ' 1125(b) of the Bankruptcy Code. In light of these rulings, parties seeking to memorialize a heavily negotiated consensus to support confirmation of a plan of reorganization have run the risk that any such consensus that is reduced to writing could be deemed a violation of ' 1125(b) unless it was accompanied by a prior court-approved disclosure statement. Furthermore, parties to such agreements also faced the significant risk that they could be disenfranchised from the Chapter 11 process through designation of their votes regarding the plan that they have agreed to support.
Ordinary-Course Preference Defense
July 31, 2006
Congress' one-word change to the ordinary course of business preference defense will make this already common preference defense even more prevalent. The Bankruptcy Abuse Prevention and Consumer Protection Act's ('BAPCPA') substitution of an 'and' for an 'or' to the defense's elements should significantly assist the typical unsecured creditor in defending a preference claim, and, in most cases, enable the creditor to defend the claim without an expert witness.
An Appealing Proposition
July 31, 2006
Let's face it, bankruptcy can be frustrating, not to mention costly and lengthy. First is the sober reality that in almost all cases, creditors ' and unsecured creditors especially ' will not be paid in full. Second is the fact that making sure your client's rights are protected, and recoveries maximized, takes time, money, and involvement in the bankruptcy process, all of which can be disruptive to its ongoing operations. The frustration factor, however, reaches its zenith with bankruptcy appeals. Unlike 'normal' appeals in state and federal courts, bankruptcy appeals provide for two levels of automatic appeal. Bankruptcy orders are first appealed to the district court or, in certain jurisdictions, to the bankruptcy appellate panel (BAP), and thereafter each party has the automatic right to appeal anew to the circuit court.
Multiple Debtor Representation
July 31, 2006
The complex structure of modern corporate entities presents unique challenges when it comes time for a Chapter 11 filing. In addition to facing the fundamental questions of whether Chapter 11 is the right course, when it should be filed, and what the ultimate reorganization strategy should be, management and its counsel must grapple with how to manage a multiple debtor filing. For example, which entities should file? How should the filings be timed? How can the separate interests and obligations of each entity be respected and yet be coordinated in such a way as to make reorganization of the overall enterprise manageable from a practical standpoint? The widely accepted approach is to implement an essentially simultaneous filing on behalf of most or all of the entities in the corporate family. In the interest of efficiency and cost control, a single set of debtors' counsel most often represents all the filing entities, with each of the individual cases jointly administered under a common umbrella.
What Does the Business Appraiser Do?
June 28, 2006
In many divorces, the 'asset value' of business equity is the largest money piece of the divisible marital pie. Hiring a business valuation expert to appraise the equity, or rights, owned by the parties as of a date in time is normal practice. Yet sometimes there are issues underneath the valuation opinion that 'just do not seem right.'
