All items from Bankruptcy Law Insights

GGW LLC and its affiliates (“GGW”), which produce and distribute the soft core pornography videos known as “Girls Gone Wild”, recently filed for relief under chapter 11 of the Bankruptcy Code. The filing follows years of legal troubles for the company’s founder, Joe Francis, including criminal charges of racketeering and tax evasion, and civil litigation against Steve Wynn’s Mirage Resorts Casinos stemming from gambling debts owed by Francis. The bankruptcy filing of GGW was evidently precipitated by a slander judgment of $19 million obtained by Wynn against Francis.    
The prurient nature of GGW’s business model aside, the case actually provides a cautionary tale for entrepreneurs who seek bankruptcy protection under chapter 11 in order to try to maintain control of the businesses that they have founded. Such owners are often ill-suited for the so-called “fishbowl” of chapter 11; they tend to ignore the advice they are given (or are unable to comprehend) that the filing of a petition for relief under chapter 11 both creates a distinct bankruptcy estate, and imposes substantial fiduciary obligations on company officers and directors to such estate and its creditors. 

Distressed m&a is the “new normal” in Chapter 11 cases, as noted here and elsewhere. Two large media marketing and advertising companies, SuperMedia and Dex One, took the “new normal” to new extremes last week by filing simultaneous and coordinated “prepackaged” Chapter 11 cases in order to complete a merger of their businesses. 

By nearly any measure, the Chapter 11 cases of Hawker Beechcraft and its affiliates (the “Debtors”) stand as a significant success. The cases began as a standalone reorganization predicated upon a restructuring support agreement (the “RSA”) among the Debtors’ senior lenders and noteholders, which soon thereafter gained the support of the creditors’ committee. The cases then switched over to a sale process, and when that bogged down the Debtors seamlessly restarted the standalone reorganization based on the RSA. The Debtors’ plan of reorganization (the “Plan”) provides for the cancellation of all existing equity of the existing corporate parent, Hawker Beechcraft, Inc. (“HBI”) and the issuance of equity in a new holding company to creditors, with 89% going to the Debtors’ senior bank lenders and the remaining 11% going to noteholders and other unsecured creditors. The Plan contemplates that the Hawker Beechcraft corporate structure will otherwise remain the same, with existing intercompany interests being unimpaired.  (Kelley Drye & Warren LLP represents a major Hawker Beechcraft creditor.) 

The battle in California municipal bankruptcies between bond investors and Calpers, the California public employee pension system, began in the Stockton Chapter 9 bankruptcy case and continues unabated in the bankruptcy case of San Bernardino. The issues at stake – whether  California state laws protecting public employee pension obligations are pre-empted and superseded by Congress’s Article I, Section 8 authority to establish uniform laws regarding bankruptcy, or are protected under the Tenth Amendment -- implicate fundamental issues of federalism, and in all likelihood the Supreme Court will eventually need to resolve the questions being raised regarding the proper balance between state and federal power.