All items from Business Finance & Restructuring News - Weil

In a previous installment, we wrote about the state law doctrine of adequate assurance, which sometimes gives contract counterparties who have reasonable grounds for insecurity the right to demand adequate assurance of future performance.  The Bankruptcy Code imported this doctrine, at least to an extent, in sections 365(b) and (f), governing circumstances when adequate assurance must be provided upon assumption, or assumption and assignment of a contract.  This bankruptcy application, however, seems narrower than the doctrine’s application in state law, raising questions about to extent to which the doctrines may overlap and differ.  The previous installment outlined generally the right to adequate assurance and the policy behind the doctrine.  This installment treats the common law applications of the right and the related doctrine of anticipatory breach, which give rise to similar considerations.  A final post will consider whether and how these rights can be exercised against a counterparty in bankruptcy.



Posted 12 weeks 13 hours ago

In a recent preference action, Sherron Associates Loan Fund XXI (Lacey) L.L.C. v. Thomas (In re Parks), Case No. 12-44011, Adv. No. 13-04026 (Bankr. W.D. Wa. Dec. 18, 2013), the United States Bankruptcy Court for the Western District of Washington expanded the definition of “corporation” under 11 U.S.C. § 101(9)(A) in the insider context to include limited liability companies (LLCs).  Pursuant to In re Parks, an LLC can be an “affiliate” of a debtor under 11 U.S.C. § 101(2)(B), and an insider of the LLC can thus be considered an insider of the debtor under 11 U.S.C. § 101(31)(E).  In this case, after parsing through the somewhat convoluted facts summarized below, the court found that an individual who had received settlement payments from the debtor pursuant to a prepetition settlement agreement with him resolving litigation between them was an “insider” of the debtor because the individual’s brother controlled 67% of an LLC of which the debtor controlled 33%.  Therefore, the preferential transfer look-back period was expanded from the typical 90 days from the date of the filing of the petition to one year.
 Background



Posted 12 weeks 1 day ago

In previous posts in our Slice of the Pie series, we examined the statutory definition of insolvency as applicable to corporate and municipal debtors, exploring the differences between balance sheet insolvency versus that of equitable, or cash flow, insolvency.  We also observed that, in the context of fraudulent transfer litigation involving corporate debtors, financial distress can also be established pursuant to the capital adequacy standard set forth in section 548(a)(1)(B)(ii)(II) of the Bankruptcy Code.  We now turn our attention to an analysis of this provision, which is often referred to as the “unreasonably small capital” test of financial distress.
What Constitutes Unreasonably Small Capital?



Posted 12 weeks 2 days ago

We previously blogged about the Supreme Court’s 2012 decision upholding a secured lender’s general right to credit bid in a plan sale—a unanimous decision resolving a split among the Third, Fifth, and Seventh Circuits.  Judge Gross’ recent ruling in In re Fisker Automotive Holdings, Inc., Case No. 13-13087 (Bankr. D. Del. Jan. 17, 2014) [Docket Nos. 482–83] may, however, revive the credit bidding debate with a focus on when a court can limit a lender’s statutory right to credit bid “for cause.”
Credit Bidding – A Brief Overview



Posted 12 weeks 3 days ago

The confluence of oil & gas law and bankruptcy law seldom results in simple, expected outcomes, and the intermingling of the two unusual areas of the law in the form of binding case law is somewhat sparse. One reason for the absence of significant appellate case law in this area is the complexity of these particular areas of the law. Indeed, one of these disciplines does not “play well” with other areas of the law and is a mixture of often convoluted nomenclature and occasionally inconsistent case law that functions to simultaneously protect and disregard contracted-for property rights through the distribution of finite resources. The other is oil & gas law.



Posted 12 weeks 6 days ago

The new value defense set forth in section 547(c)(4) of the Bankruptcy Code allows a creditor to use the value of goods and services provided by a creditor to a debtor after a debtor’s preferential payment for which the creditor has not been paid to offset preference liability.  In Friedman’s Liquidating Trust v. Roth Staffing Cos. (In re Friedman’s Inc.), the United States Court of Appeals for the Third Circuit considered an issue of first impression: does a postpetition payment to a creditor on account of such goods and services reduce the amount of the new value provided to the debtor?
Background



Posted 13 weeks 1 day ago

NORTH OF THE BORDER UPDATE
This article has been contributed to the blog by Caitlin Fell and Rebecca Wainstein. Caitlin Fell is an associate in the Insolvency & Restructuring group of Osler, Hoskin & Harcourt LLP and Rebecca Wainstein is an articling student at Osler, Hoskin & Harcourt LLP.
The Ontario Superior Court of Justice in the receivership proceedings of HSBC Bank Canada v. Mahvash Lechcier-Kimel, 2013 ONSC 7241, 2013 CarswellOnt 15938 (Ont. S.C.J.), declined to approve a proposed agreement of purchase and sale (the “Proposed Sale Agreement”) obtained by the receiver prior to the completion of an auction sale process approved by the Court on October 2, 2013. The Court held that, notwithstanding the Proposed Sale Agreement, it was necessary for the auction to proceed in order to maintain the integrity of the sale process in the receivership proceedings.



Posted 13 weeks 2 days ago

The Weil Bankruptcy Blog’s annual March Madness competition returns this year.  After we sat out the competition last year, we wanted to make sure we are shooting from the three-point line this year.  For this year’s tournament, we will be featuring brackets of the greatest, most inspiring, most shocking, most scatological, most cliché, most innovative, most out-of-context excerpts from any and all bankruptcy-related decisions.  You know, the kinds of passages that make you think, “Wow!  I have GOT to send this to all my friends.”  Based upon our review of decisions over the years, we know that a judge sometimes uses a decision to channel his or her inner [you fill in the blank – Shakespeare?  Tina Fey?  Dr. Seuss?  Mick Jagger?].  We will be presenting a short list of all these excerpts for your voting consideration, so that we can crown the “Greatest Bankruptcy Excerpt of All Time” (so to speak).
But we need your help!



Posted 13 weeks 6 days ago

Post image for Got Milk?  Apparently Not Enough for This Dairy Producer.  Court Denies Confirmation Because Plan Not Feasible.
When are projections so optimistic that a chapter 11 plan cannot be confirmed?  As the debtor in In re Friendship Dairies found out the hard way, when the projections start faltering right out of the gate.  In our continuing series on valuation issues, we examine the perils of highly optimistic projections in business plans.
Background



Posted 14 weeks 13 hours ago