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Bankruptcy courts typically rely on three valuation methods to determine a debtor’s enterprise value: comparable company analysis, precedent transaction analysis, and discounted cash flow analysis. As previously reported, the United States Bankruptcy Court for the Southern District of New York recently concluded the DCF method was inappropriate for the valuation of dry bulk shipping companies because rate volatility obscured future cash flows. In re Genco Shipping & Trading Limited, Case No. 14-11108 (Bankr. S.D.N.Y. July 2, 2014). In the same decision, the bankruptcy court accorded substantial weight to a fourth, asset-based method: Net Asset Valuation. As with its holding with respect to the DCF method, the bankruptcy court’s decision to consider the NAV method could easily serve as precedent for the valuation of companies in other segments of the shipping industry, as well other industries that experience significant volatility in rates.

Background and Facts



Posted 11 weeks 3 days ago

NORTH OF THE BORDER UPDATE
This article has been contributed to the blog by Caitlin Fell and Sean Stidwill. Caitlin Fell is an associate in the insolvency and restructuring group of Osler, Hoskin & Harcourt LLP and Sean Stidwill is a summer student at Osler, Hoskin & Harcourt LLP.
Overview
The Alberta Court of Queen’s Bench recently revisited an old issue with a new twist. The court had to decide whether a trust, specifically one created by provincial statute, could trump the secured interest of a creditor in bankruptcy proceedings under Canada’s Bankruptcy and Insolvency Act (BIA). In addressing this question, Justice Eidsvik ruled that a trust set up under provincial legislation could not displace normal distributions under the BIA.
Background



Posted 11 weeks 4 days ago

The Uniform Fraudulent Transfer Act (UFTA), which has been adopted by the majority of states, provides a good faith defense to fraudulent transfer actions so that parties innocently conducting business may be protected where a debtor engages in a fraudulent transfer. The United States Court of Appeals for the Tenth Circuit recently demonstrated the limits of this defense in Klein v. King & King & Jones, where the transferee was unable to successfully assert the defense despite acting in good faith. Additionally, the opinion discusses the requirements for the subsequent transferee defense, which the transferee in Klein similarly could not successfully claim despite the debtor’s payment of a third party’s expenses.
Ponzi Scheme and Fraudulent Transfer



Posted 11 weeks 5 days ago

Weil partner, Harvey Miller, recently provided his commentary for the latest installment of The Examiners, on The Bankruptcy Beat.  Click here to read his commentary in The Examiners Take on Argentina and Distressed Investors.



Posted 12 weeks 1 day ago

For a Throwback Thursday, we often go way back, to cases establishing first principles. This time, however, we travel not so far back, but still to a bygone era, the early 80’s. It was a time when the Bankruptcy Code was still new, and judges could interpret it without the weight of much practice and precedent. Often, these cases present the starting point for familiar interpretations that continued to develop in later years, but other times it’s surprising to see a new interpretive opening that, years later, is not thoroughly explored. The recognition of stoppage rights against debtors in possession pursuant to the Uniform Commercial Code in In re National Sugar Refining Company is such an instance. There, the District Court for the Southern District of New York recognized that the UCC rights of a seller of goods to stop delivery trump the passage of title of goods in question to the debtor and the automatic stay. Does the court’s logic tell us anything about whether the Bankruptcy Code may preserve other UCC rights?



Posted 12 weeks 2 days ago

Steve McCroskey: Jacobs, I want to know absolutely everything that’s happened up ‘til now.
Jacobs: Well, let’s see. First the earth cooled. And then the dinosaurs came, but they got too big and fat, so they all died and they turned into oil. . . .
-Airplane II: the Sequel
One of the hallmarks of bankruptcy is that it provides a fair and open forum for the resolution of claims against the debtor. Another primary goal of the corporate bankruptcy process is to create an efficient and meaningful process for resolving claims and either (i) reorganizing the debtor as a going concern or (ii) fairly distributing the debtor’s assets in accordance with the statutory order of priority. But what happens when these two goals conflict?
Sticky situations can often arise when the bankruptcy process involves proceedings that are kept under seal, behind closed doors, or for certain parties’ eyes only. Disputes are often resolved in back room deals. Confidential information may be useful for certain parties’ decision-making but may be harmful if released to the public, and parties may be more forthcoming and productive in chambers conferences with the presiding judge and with key players in the case. But balancing these considerations against the overarching goal of transparency and due process can be quite tricky. We’ve previously written about similar sticky situations.



Posted 12 weeks 3 days ago

Canons of statutory construction are used frequently to resolve ambiguities in the Bankruptcy Code. In a recent decision arising out of the Madoff liquidation, Judge Rakoff of the Southern District of New York had to implement more than a few to creatively resolve a potential conflict between the Bankruptcy Code and the Securities Investor Protection Act (SIPA). He also had to take a practical, yet expansive, view of what the word “prompt” can mean when managing the untangling of one of the largest financial frauds in American history.
The Facts



Posted 12 weeks 4 days ago

Creditors contemplating the bold step of commencing an involuntary bankruptcy case against a putative debtor may wish to consider a recent decision of the Bankruptcy Court for the District of Minnesota Court, In re American Resource & Energy, LLC, where the court dismissed an involuntary chapter 7 petition by summary judgment motion after determining that (a) each of the three petitioning creditors failed to qualify under section 303(b)(1) of the Bankruptcy Code to file a bankruptcy petition as a “bona fide dispute” existed with respect to each of their putative claims when they filed the petition that commenced the case and (b) with the disqualification of those parties as petitioners, the joinder of a fourth creditor to the petition post-filing did not satisfy the debt threshold of section 303(b)(2) to allow that party to maintain the petition even if the putative debtor had fewer than twelve creditors in all. For want of a qualified petitioning creditor holding claims in a sufficient amount against the putative debtor, the petition, and the case as a whole, was dismissed.
Background



Posted 12 weeks 5 days ago

Discounted cash flow analysis is a mainstay among the valuation methodologies used by restructuring professionals and bankruptcy courts to determine the enterprise value of a distressed business. Despite its prevalence, the United States Bankruptcy Court for the Southern District of New York recently concluded the DCF method was inappropriate for the valuation of “dry bulk” shipping companies. In re Genco Shipping & Trading Limited. Although the bankruptcy court merely applied existing law to the facts of the case, the decision in Genco could serve as precedent for the valuation of companies in other segments of the shipping industry, or other industries, that experience significant volatility in rates.
Genco and the Prepackaged Plan of Reorganization
Genco Shipping & Trading Limited is a leading provider of maritime transportation services for “dry bulk” cargoes, such as iron ore, coal, grain, and steel products. Through its subsidiaries, Genco owns and operates a fleet of 53 vessels, which it contracts out to third-parties under fixed-rate or spot-market time charters.



Posted 13 weeks 2 days ago