All items from Delaware Bankruptcy Litigation

In the decision of In re Fairfield Sentry Ltd., 2014 WL 4783370, *4-5 (2d Cir. Sept. 26, 2014), the U.S. Court of Appeals for the Second Circuit ruled that a U.S. Bankruptcy Court was required to review a foreign debtor’s sale of property within the territorial jurisdiction of the United States, relying upon the language of Section 1520(a)(2) of the Bankruptcy Code.  While this decision was rendered by the Second Circuit, it may have an impact on decisions within the Third Circuit, including the District of Delaware.
Moreover, the Second Circuit held that the bankruptcy court erred when it gave deference to a foreign court’s approval of the asset sale.  According to the opinion, regardless of what the foreign (BVI) court did, the U.S. bankruptcy court had an obligation to approve only the “best possible bid.”  Id. at 19.  It had no “good business reason” and no valid legal reason for deferring to the BVI court’s misjudgment. Id. at 10.
This opinion should be considered by any purchaser of U.S. assets of a foreign debtor in a Chapter 15 proceeding. Chapter 15 of the Bankruptcy Code is relatively new (adopted in 2005), and there is a dearth of case law interpreting its provisions.



Posted 2 weeks 6 days ago

In the recent decision of Caspian Select Credit Master Fund, Ltd. v. Key Plastics Corp., Inc., C.A. No. 8625-VCN (Del. Ch. Sept. 3, 2014), the Court analyzed whether categories of documents requested by Caspian, the minority shareholder of Key Plastics, were “narrowly  tailored” to a proper purpose.
In an earlier decision, the Court found that Caspian had asserted a proper purpose to investigate possible waste and wrongdoing linked to a loan made to Key Plastics by its controlling shareholder.
In the September 2014 ruling, the Court found that the following categories of documents were necessary and essential to the purpose stated:



Posted 3 weeks 1 day ago

Introduction
Earlier this month, Barry E. Mukamal, in his capacity as Litigation Trustee (the “Trustee”) of the SAI Litigation Trust, began filing complaints to recover what the Trustee contends are avoidable preferences.  The Trustee filed the preference actions in the Delaware Bankruptcy Court and argues that the transfers, or payments, received by various defendants are avoidable and subject to recovery under 11 U.S.C. § 547 and 548 of the United States Bankruptcy Code. This post will look at the Southern Air Holdings bankruptcy proceeding, why the company filed for bankruptcy as well as key developments during the course of the bankruptcy proceeding.  In October, 2012, Jason Cornell published a summary of the Southern Air bankruptcy filings in this post.
Background



Posted 3 weeks 5 days ago

Trump Entertainment Resorts, along with its affiliated debtors (“Trump Resorts” or “Debtors”), filed for bankruptcy under Chapter 11 of the Bankruptcy Code on September 9, 2014 (the “Petition Date”) in the United States Bankruptcy Court for the District of Delaware.
According to Declaration of Robert Griffin, Chief Executive Officer of the Debtors in Support of Chapter 11 Petitions and First Day Motions and Applications (the “Griffin Declaration”), the Debtors “own and operate two casino hotels located in Atlantic City, New Jersey: the Trump Taj Mahal Casino Resort and the Trump Plaza Hotel and Casino.”  Griffin Declaration, ¶ 5.  According to the Petition, the Debtors’ assets are valued at $100 million to $500 million, and their debts are estimated at $100 million to $500 million.   Debtors owe about $286 million to Carl Icahn-owned funds.
Events Leading to Bankruptcy



Posted 5 weeks 6 days ago

The Judicial Conference Advisory Committees on Appellate, Bankruptcy, Civil, and Criminal Rules have proposed amendments to their respective rules and forms, and requested that the proposals be circulated to the bench, bar, and public for comment.
The following proposed amendments were approved for publication by the Judicial Conference Committee on Rules of Practice and Procedure in May 2014.
To view the proposed amendments, click here.
Carl D. Neff is a bankruptcy attorney with the law firm of Fox Rothschild LLP.  Carl is admitted in Delaware and regularly practices before the United States Bankruptcy Court for the District of Delaware. You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.



Posted 6 weeks 4 days ago

What remedies do you have to recover goods shipped to a company in the weeks leading up to its bankruptcy?  As to those goods shipped 45 days prior to a debtor’s filing, Section 546(c) of the Bankruptcy Code provides a reclamation right to creditors to recover such goods.  This may provide you with the ability to recover your goods directly from the debtor.

There are several requirements under Section 546(c).  The goods must have been sold in the “ordinary course” of the vendor’s business and the debtor must have received the goods while insolvent.  Also, the reclamation demand must be in writing and made within 45 days of the receipt of the goods by the customer (now the debtor in bankruptcy).
If the 45-day period expires after the bankruptcy case is filed, the vendor must make the reclamation demand within 20 days after the bankruptcy filing.  As with pre-bankruptcy demands under the UCC, the demand should identify the goods being reclaimed, include a general statement reclaiming all goods received by the debtor from the vendor during the 45-day period, and demand that the goods be segregated. Often times, vendors will file a notice of reclamation with the bankruptcy court.
Conclusion



Posted 6 weeks 6 days ago

In the recent decision of In re Genco Shipping & Trading Ltd., the United States Bankruptcy Court for the Southern District of New York approved certain non-consensual third-party releases granted by unimpaired creditors and equity holders, to the extent that they complied with the US Court of Appeals for the Second Circuit’s standard for approval of these releases.
Background and Analysis
The prepackaged plan presented by Genco included:

  • Releases granted by the Debtors and exculpation for released parties.
  • An injunction provision to implement the releases, exculpation and discharge provided under the plan.
  • Releases granted by non-debtor third parties (Third-party Releases).

The US Trustee and the Equity Committee objected to the Third-party Releases on various grounds.  The Court held that the Third-party Releases were permissible if they satisfied the standard set out by the Second Circuit in Deutsche Bank AG v. Metromedia Fiber Network, Inc. The Metromedia standard considers whether:



Posted 7 weeks 3 days ago

In the recent Third Circuit decision of In re Lower Bucks Hospital, No. 13-1311 (3d Cir. July 3, 2014), the Third Circuit upheld the ruling of the Bankruptcy Court for the Eastern District of Pennsylvania that non-consensual releases were not part of the debtor’s plan of reorganization due to failure to adequately disclose the same to the Court.  In the bankruptcy case, bondholders objected to the release in favor of The Bank of New York Mellon Trust Company, N.A., in its capacity as indenture trustee, on the basis that adequate notification was not provided.
Only a single paragraph in the disclosure statement referenced the third-party release, with no use of distinguishing font, and the debtor’s plan was even less direct.
The third-party release was deemed by the Court to be an injunction that must be described in “specific and conspicuous language” in both the plan and disclosure statement pursuant to Fed. R. Bankr. P. 3016(c).  This would allow a hypothetical investor to be able to make an informed judgment about the plan.  See 11 U.S.C. § 1125(a)(1).  The Third Circuit agreed with the Bankruptcy Court that the pleadings failed on both “presentation and placement.”  Accordingly, a finding of inadequate disclosure and the resulting denial of the third-party release was warranted.



Posted 7 weeks 3 days ago

In a prior post, we discussed that a number of preference actions were filed in the MCG Limited Partnership, et al. bankruptcy proceeding by the Chapter 7 Trustee.  Since this post, an additional 93 preference complaints were filed, bringing the total to 131.
Click here for an example of a preference complaint filed in these cases.
For defendants to preference actions looking for an analysis of defenses that can be asserted in response to a preference complaint, below are several articles on this topic:
Preference Payments: Brief Analysis of Preference Actions and Common Defenses
Minimizing Preference Exposure: Require Prepayment for Goods or Services



Posted 7 weeks 4 days ago

On August 1, 2014, the Chapter 7 Trustee of MCG Limited Partnership, et al., filed approximately 38 complaints seeking to avoid and recover alleged preferential transfers pursuant to Sections 547 and 550 of the Bankruptcy Code, and to disallow claims of the defendants pursuant to Section 502(d).
By way of background, MCG Limited Partnership, and various affiliated entities (the “Debtors”) filed petitions for bankruptcy in the District of Delaware on November 7, 2012 under Chapter 11 of the Bankruptcy Code.  On August 5, 2013, the Bankruptcy Court entered an order converting the Debtors’ Chapter 11 cases to cases under Chapter 7 of the Bankruptcy Code.
The law firm of Cooper Levenson, P.A. represents the Trustee in these various preference cases.  The pretrial conference has not been scheduled.  These adversary actions, as well as the Debtors’ bankruptcy proceeding, are before the Honorable Christopher Sontchi.
For preference defendants looking for an analysis of defenses that can be asserted in response to a preference complaint, below are several articles on this topic:
Preference Payments: Brief Analysis of Preference Actions and Common Defenses



Posted 11 weeks 2 days ago