All items from Bankruptcy Law Insights

Many commentators have remarked that a “new normal” has evolved for Chapter 11 proceedings, wherein the major constituents negotiate the salient terms and exit strategy of the debtor’s restructuring prior to the filing of the bankruptcy petition, generally leading to shorter, less litigious cases. This dynamic, often evidenced by a plan support agreement, a proposed sale of assets under Section 363 of the Bankruptcy Code, or a pre-packaged plan of reorganization for which creditor approval has already been solicited and obtained, has led to expeditious resolutions in many recent large and complex corporate restructurings.   
Allied Systems Holdings clearly did not get the memo.   
Its Chapter 11 case, now in its sixteenth month, has been a scorched-earth battleground featuring internal fights among its first lien lenders, conflicts between its secured and unsecured creditors, and litigation brought by its creditors’ committee against its major shareholder. 



Posted 30 weeks 4 days ago

A few weeks ago in In re S. White Transportation, the U.S. Court of Appeals for the Fifth Circuit permitted a secured creditor that had indisputably received notice of the debtor’s chapter 11 case, but took no steps to protect its interests until after the confirmation of the debtor’s plan, to continue to assert a lien against the debtor’s property post-confirmation. 
In S. White Transportation, the debtor contested the lien of Acceptance Loan Co. It listed Acceptance’s lien as “disputed” in its schedules. The court noted that “Acceptance received effective notice of the pendency of SWT’s bankruptcy on at least several occasions”, but Acceptance never appeared in the case and never filed a proof of claim. Acceptance also failed to object to the debtor’s plan of reorganization, which provided no recovery for Acceptance. Shortly after the debtor’s plan was confirmed by the bankruptcy court, Acceptance filed a motion seeking a declaration that its lien had nevertheless survived. 



Posted 33 weeks 4 days ago

A few weeks ago in In re S. White Transportation, the U.S. Court of Appeals for the Fifth Circuit permitted a secured creditor that had indisputably received notice of the debtor’s chapter 11 case, but took no steps to protect its interests until after the confirmation of the debtor’s plan, to continue to assert a lien against the debtor’s property post-confirmation. 
In S. White Transportation, the debtor contested the lien of Acceptance Loan Co. It listed Acceptance’s lien as “disputed” in its schedules. The court noted that “Acceptance received effective notice of the pendency of SWT’s bankruptcy on at least several occasions”, but Acceptance never appeared in the case and never filed a proof of claim. Acceptance also failed to object to the debtor’s plan of reorganization, which provided no recovery for Acceptance. Shortly after the debtor’s plan was confirmed by the bankruptcy court, Acceptance filed a motion seeking a declaration that its lien had nevertheless survived. 



Posted 33 weeks 4 days ago

Two years ago in Stern v Marshall, the Supreme Court surprised many observers by placing constitutional limits on the jurisdiction of the United States Bankruptcy Courts. The Court, in limiting the ability of a bankruptcy court judge to render a final judgment on a counterclaim against a party who had filed a claim against a debtor’s bankruptcy estate, re-opened separation of powers issues that most bankruptcy practitioners had thought settled since the mid-1980s. While the holding of Stern v Marshall itself was relatively narrow, the Court’s reasoning strongly suggested that further limitations on bankruptcy court authority could be in the offing. 
The Court has now granted certiorari in a Ninth Circuit case, Executive Benefits Insurance Agency v. Arkinson, that could lead the Court to circumscribe further or even eliminate the powers of bankruptcy court judges. 



Posted 37 weeks 2 days ago

Two years ago in Stern v Marshall, the Supreme Court surprised many observers by placing constitutional limits on the jurisdiction of the United States Bankruptcy Courts. The Court, in limiting the ability of a bankruptcy court judge to render a final judgment on a counterclaim against a party who had filed a claim against a debtor’s bankruptcy estate, re-opened separation of powers issues that most bankruptcy practitioners had thought settled since the mid-1980s. While the holding of Stern v Marshall itself was relatively narrow, the Court’s reasoning strongly suggested that further limitations on bankruptcy court authority could be in the offing. 
The Court has now granted certiorari in a Ninth Circuit case, Executive Benefits Insurance Agency v. Arkinson, that could lead the Court to circumscribe further or even eliminate the powers of bankruptcy court judges. 



Posted 37 weeks 2 days ago

Everyone gathered last week at the meeting convened by Detroit Emergency Manager Kevyn Orr knew that the news would be dire. Nonetheless, Orr’s report on Detroit’s financial condition and his proposal for the treatment of the city’s creditors – an offer of approximately ten cents on the dollar for the city’s unsecured bonds - still managed to drop jaws. Therein lies what is perhaps the city’s best hope for a path forward that does not involve years of costly litigation.



Posted 43 weeks 4 days ago

Everyone gathered last week at the meeting convened by Detroit Emergency Manager Kevyn Orr knew that the news would be dire. Nonetheless, Orr’s report on Detroit’s financial condition and his proposal for the treatment of the city’s creditors – an offer of approximately ten cents on the dollar for the city’s unsecured bonds – still managed to drop jaws. Therein lies what is perhaps the city’s best hope for a path forward that does not involve years of costly litigation.



Posted 43 weeks 4 days ago

Kevyn Orr, the emergency manager appointed by Michigan Governor Rick Snyder to try to resolve the Detroit financial crisis, has effectively replaced the Detroit mayor, former NBA legend Dave Bing. However, it is Orr who in the upcoming weeks will need to hit the equivalent of a three-point shot at the buzzer if Detroit is to avoid becoming the largest municipal bankruptcy case in history. 



Posted 46 weeks 3 days ago

Kevyn Orr, the emergency manager appointed by Michigan Governor Rick Snyder to try to resolve the Detroit financial crisis, has effectively replaced the Detroit mayor, former NBA legend Dave Bing. However, it is Orr who in the upcoming weeks will need to hit the equivalent of a three-point shot at the buzzer if Detroit is to avoid becoming the largest municipal bankruptcy case in history. 



Posted 46 weeks 3 days ago

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. 



Posted 50 weeks 4 days ago