All items from Business Finance & Restructuring News - Weil

We’ve previously focused here and here on the split in authority analyzing whether provisions in LLC operating agreements that automatically strip members of their membership interests upon a bankruptcy filing are unenforceable ipso facto provisions.  Whether an LLC operating agreement is viewed by the court as property of the debtor’s estate or an executory contract influences the analysis and the ultimate answer.  Some courts have analyzed LLC operating agreements as property of a debtor’s estate under section 541 of the Bankruptcy Code and conclude that federal bankruptcy law preempts any ipso facto clauses found in such agreements, making them unenforceable; other courts have analyzed LLC operating agreements as executory contracts and conclude they are subject to section 365’s general prohibition on ipso facto clauses and, in certain cases, its exception permitting ipso facto clauses to operate where “applicable law” protects the non-debtor party from being required to accept performance from an assignee. 



Posted 11 weeks 1 day ago

“If ye continue in the faith grounded and settled, and be not moved away from the hope of [EBIA v. Arkison]. . .”
– Colossians 1:23, King James version (as revised)



Posted 11 weeks 2 days ago

Banks, insurance brokers, and other agents can breathe a sigh of relief as the Fourth Circuit enabled the “mere conduit” defense to survive another day. The Fourth Circuit has long recognized the proposition that an avoidable transfer cannot be recovered, pursuant to section 550(a)(1) of the Bankruptcy Code, from a transferee who acted as a “mere conduit” for another party having the direct business relationship with the debtor. In Guttman v. Construction Program Group (In re Railworks Corporation), this recovery defense was put to the test.
The Alleged Preferential Transfers
Railworks Corporation, a national provider of rail systems services, filed a voluntary chapter 11 petition in 2001. Prepetition, Railworks maintained insurance coverage through TIG Insurance Company. Rather than paying premiums to TIG directly, Railworks paid Construction Program Group — the managing general underwriter for TIG — which then forwarded the payments, less commissions, to TIG.



Posted 11 weeks 3 days ago

As this Blog has discussed in a number of recent posts, free and clear sales under section 363(f) of the Bankruptcy Code often lead to disputes over whether section 363(f) can strip assets of particular types of claims and interests. Although section 363(f) plays an important role in maximizing the value of a debtor’s assets in a section 363 sale, adversely affected parties may object to those assets being sold free and clear of their claims. A recent decision out of the United States Bankruptcy Court for the District of Delaware concerned such a dispute: A creditor objected to the debtor’s sale of assets free and clear of its successor liability claim for the underfunding of the debtor’s pension plan pursuant to ERISA and the Multiemployer Pension Plan Amendments Act (MPPAA). Overruling the creditor’s objection, Judge Walrath held that the policy objectives inherent in the successor liability provisions of ERISA and the MPPAA do not trump the plain language of section 363(f) and permitted the debtor to sell its assets free and clear of the creditor’s successor liability claims.
Ormet Corp. and the 363 Sale



Posted 11 weeks 4 days ago

August is that hot, humid time of the year when many professionals in the concrete jungles across this country decide to quietly slip away to more scenic locales (if you don’t believe us, try calling up your stockbroker right now… go ahead, we’ll wait).  Unfortunately, fellow bankruptcy practitioner, the law waits for no one.
You know the drill.  Just as you’re about to take off a little early to join your investment banker friends at the beach, an email arrives in your inbox.  Congrats!  You have been tasked with writing a memo about a bankruptcy topic you know next-to-nothing about.  Oh, and did we mention it was due “yesterday”?
Have no fear, loyal reader—we’re here to help.  We at the Weil Bankruptcy Blog have compiled our favorite “must-cite” cases—the sort of cases that no brief or motion on a particular issue should go without citing.  The criteria were simple: If your emergency memo fails to cite to one particular case, will it come back with a note saying, “You missed something.  TRY AGAIN!”?  If so, then you’ve got a “must-cite” case.  (By the way, it also sounds like you’ve got a jerk for a boss, with all this last-minute memo writing and mean post-it notes.)
Our “Must-Cite” Cases



Posted 12 weeks 16 hours ago

Donald Rumsfeld might sum up a recent decision by Judge Isgur out of the United States Bankruptcy Court for the Southern District of Texas as follows: “We also know there are known unknowns; that it to say we know there are some things we do not know. But there are also unknown unknowns – the ones we don’t know we don’t know.” Little did we know that this sentiment could be applied to evaluating a company’s solvency in the context of a fraudulent transfer analysis.



Posted 12 weeks 1 day ago

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 12 weeks 2 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 12 weeks 3 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 12 weeks 4 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 13 weeks 13 hours ago