All items from Business Finance & Restructuring News - Weil

The following article was written by Kenneth R. Epstein and Nelly Almeida and originally published in the December 8, 2014 edition of the New York Law Journal.  Kenneth Epstein is the Managing Director of the Insured Portfolio Management Special Situations Group at MBIA Insurance Corporation. A link to the journal can be found here.” 
A successful restructuring depends, in part, on disclosure by a debtor of information pertaining to its finances and operations. This feature, however, is notably absent in most municipal bankruptcies. Chapter 9 of the Bankruptcy Code, available to municipalities seeking to reorganize their debts, imposes few statutory requirements on municipal debtors. Additionally, federal courts have been careful not to interfere with the affairs of a municipality due to the inherent constitutional limitations on courts’ powers. The absence of mandatory disclosures by municipal debtors often creates inefficiencies and increased costs during a bankruptcy process and should, therefore, be addressed. This article compares and contrasts Chapter 11 and Chapter 9 disclosure requirements and discusses a bankruptcy court’s ability to compel greater disclosure from municipal debtors under the current Chapter 9 framework.
A Comparison of Disclosure Requirements

Posted 7 hours 7 min ago

“Always look out for Number One, but don’t step in Number Two” – Rodney Dangerfield
“What-eva – I’ll do what I want [as long as my company is solvent]” – Eric Cartman, South Park
It is widely known that under Delaware law, officers and directors of a solvent corporation owe fiduciary duties not to the corporation’s creditors, but to the corporation’s shareholders, who bear the risks and rewards of any rise or fall in the company’s value. In Lightsway Litig. Servs., LLC v. Yung (In re Tropicana Entmt., LLC), the United States Bankruptcy Court for the District of Delaware teaches us that the logical consequence of this regime of fiduciary duties is that officers and directors of a solvent corporation who are also the sole owners of that corporation are charged with maximizing value for themselves, even where those actions may negatively impact the corporation itself. 

Posted 1 day 6 hours ago

As a company turns in the widening gyre of financial distress, its directors and officers are often confronted with situations that require them to make difficult decisions. Should things fall apart, those decisions may give rise to claims that directors or officers breached their fiduciary duties to the company. A recent decision by the United States Bankruptcy Court for the District of Delaware serves as a comforting reminder — to directors, officers, and their counsel — that transactions are not judged in hindsight, and the business judgment rule can still offer protection when a business fails despite last-minute efforts.
Ultimate Escapes
Ultimate Escapes was a luxury destination club that provided its members with access to a portfolio of vacation residences and offered related travel services. Following the economic crisis, Ultimate Escapes began to experience financial distress as new membership sales and existing membership upgrades decreased and the value of luxury real estate declined.
Club Holdings Merger

Posted 2 days 6 hours ago

Providing proper notice to existing and potential creditors is an important consideration for debtors’ counsel. A seminal Supreme Court decision established that due process for “unknown” claimants is generally satisfied by publication notice, so long as it is reasonably calculated to reach such creditors under the circumstances. As covered extensively on this blog here, here and here, sufficiency of publication notice is a fact-specific inquiry that can make a difference in whether the debtor is or is not liable for certain claims. 

Posted 3 days 7 hours ago

In the first part of our two-part series on In re Suntech, we discussed the bankruptcy court’s ruling that Suntech was eligible to be a debtor under the Bankruptcy Code and that venue was proper in the Southern District of New York because of a bank account established in New York on the eve of the chapter 15 filing. We noted the implications of the decision for bankruptcy professionals handling cross-border cases, and that, among other things, the court’s interpretation of section 109(a) of the Bankruptcy Code (which sets forth the standard for a debtor’s eligibility) offers a more “open border” policy for foreign companies wishing to commence a chapter 15 case, and arguably a chapter 11 case, in the United States. In today’s post, we discuss the bankruptcy court’s center of main interests (COMI) analysis in addressing Solyndra’s argument that the foreign administrators had manipulated COMI to the Cayman Islands in bad faith.

Posted 6 days 10 hours ago

Businesses with a global footprint require agile, sophisticated counsel possessing in-depth knowledge of the international aspects of bankruptcy and restructuring. The bankruptcy court decision in Suntech Power Holdings highlights the issues of debtor eligibility under the Bankruptcy Code and the appropriate venue for a chapter 15 case of one such global business: a multi-national group of corporations focused on solar energy. In our two-part series, we first turn our spotlight on the court’s ruling that Suntech was eligible to be a debtor under the Bankruptcy Code and that venue was proper in the Southern District of New York because of a bank account established in New York on the eve of the chapter 15 filing. Tomorrow, we will focus on the court’s center of main interests (COMI) analysis, including whether the activities of the foreign administrators transferred COMI from China (where the debtor listed its principal executive offices as being located) to the Cayman Islands (where the provisional liquidation was commenced).
The Cross-Border Proceedings

Posted 1 week 7 hours ago

A debtor’s prepetition causes of action and other legal interests typically become property of the debtor’s estate under section 541 of the Bankruptcy Code. In a chapter 11 case, this often leaves the trustee (or debtor in possession) with the sole authority to pursue – or not pursue – such causes of action postpetition. Although the trustee is generally required to maximize the value of the estate, situations can arise where a trustee refuses to pursue litigation that is otherwise in the estate’s best interest. A debtor in possession may, for example, refuse to pursue avoidance actions against insiders or members of management even though such actions could result in substantial recoveries for the estate. Faced with such inaction, creditors may attempt to assert such claims directly on behalf of the estate. In response, courts developed the doctrine of derivative standing, which allows creditors (typically acting through official committees) to step into the trustee’s shoes to assert claims on behalf of the estate. 

Posted 1 week 1 day ago

This article has been contributed to the blog by Andrea Lockhart, an Associate in the Insolvency and Restructuring Group of Osler, Hoskin & Harcourt LLP, and Mary Angela Rowe, an Articling Student-at-Law at the firm

Posted 1 week 2 days ago

The American Bankruptcy Institute Commission to Study the Reform of Chapter 11 today released its long-awaited, much-anticipated Final Report and Recommendations. Over the next several weeks, we at the Weil Bankruptcy Blog will provide our faithful readers with summaries of the most interesting and important issues addressed in the Report—our goal is to enable you to discuss these topics at holiday cocktail parties and elsewhere without having to miss out on your beauty sleep by reading all 400 or so pages yourself. Think of it as our early holiday gift to you. 
First, a bit of background. The ABI Commission was established in recognition of the “general consensus among restructuring professionals” that the time has come to evaluate U.S. business reorganization laws as a result of numerous changes that have occurred since the Bankruptcy Code was enacted in 1978. Some of the changes cited by the ABI Commission include:

Posted 1 week 2 days ago

When a contract looks like a lease, but operates more like a security agreement, how should the contract be treated in bankruptcy? The United States Bankruptcy Court for the District of Kansas recently considered this question in In re James, noting that the issue of categorizing a transaction as a lease or security agreement is a “problem that has ‘vexed the court for many years.’” Ultimately, the court applied a test analyzing the underlying economics of the transaction to find that what appeared to be a car lease was, in fact, a disguised financing arrangement.
The “Lease”
The debtors in James had an agreement with an automotive company that required them to make weekly payments in exchange for the use of a car. The company argued that the arrangement was a lease, and that the debtors could retain the use of their car only by assuming the lease and curing any monetary defaults. The debtors, on the other hand, asserted that the contract was a disguised security interest and purchase money sale agreement and proposed to treat the claim as a secured claim (a “910 claim”) under their chapter 13 plan.
Intent vs. Economic Realities

Posted 2 weeks 9 hours ago