All items from Delaware Bankruptcy Litigation

From December 17-19, 2014, THQ Inc. filed approximately 78 preference 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, THQ Inc. (the “Debtor”) filed a petition for bankruptcy in the U.S.Bankruptcy Court for the District of Delaware on December 19, 2012 under Chapter 11 of the Bankruptcy Code.  On July 16, 2013, the Debtor filed its Second Amended Chapter 11 Plan of Liquidation of THQ Inc. and its Affiliated Debtors, which was approved by the Court on July 17, 2013, and went effective on August 2, 2013.
Rosner Law Group and Andrews Kurth LLP represent the Debtor 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 Mary Walrath.
For reader’s looking for more information concerning claims and defenses in preference litigation, attached is a reference guide prepared on the subject: “A Preference Reference: Common Issues that Arise in Delaware Preference Litigation.”
In addition, below are several articles on this topic:

Posted 19 hours 15 min ago

Can a financially distressed be “forced” into bankruptcy by its creditors?  In other words, is it possible for creditors to subject a distressed entity into an involuntary bankruptcy proceeding?
The answer is yes.  Under Section 303 of the Bankruptcy Code, a debtor can be “forced” into an involuntary bankruptcy.  11 U.S.C.§ 303(b)(1).  If a company has 12 or more creditors, an involuntary petition requires three or more creditors whose claims are not contingent as to liability or subject to a bona fide dispute as to either liability or amount to file the petition.
If the company timely objects to the involuntary filing, for the company to be placed in bankruptcy, the company also must: generally not be paying its debts as they become due unless those debts are subject to a bona fide dispute as to liability or amount, or have had a custodian appointed within the past 120 days to take possession or control of substantially all of its assets.
Stay tuned for additional posts regarding involuntary bankruptcy proceedings under Section 303 of the Bankruptcy Code.

Posted 5 days 18 hours ago

DEB Stores Holding LLC and certain of its affiliated companies (“DEB” or the “Debtors”) filed for bankruptcy under Chapter 11 of the Bankruptcy Code on December 4, 2014 in the United States District Court for the District of Delaware.
According to the Declaration of Dawn Robertson, Chief Executive Officer of the Debtors, in Support of the Debtors’ First Day Motions (the “Robertson Declaration”), DEB is a mall-based retailer operating 295 retail store locations.  In 2011, the predecessor company to DEB, which operated the retail stores under the same name, filed a bankruptcy petition.  In that prior bankruptcy, DEB’s current equity holders purchased substantially all the assets of the predecessor company with a credit bid in a 363 sale.
Events Leading to Bankruptcy
According to the Robertson declaration, DEB’s recent performance has suffered due to weakness in the Juniors space and unfavorable mall traffic trends.  In October, 2013, DEB began working to reduce costs in an effort to return to profitability.  In August and September, DEB attempted to obtain additional cash infusions from its equity holders, without avail.  DEB also sought to locate a buyer of the company or its assets.  With its continually shrinking liquidity, and unable to locate any entities interested in purchasing DEB as a going-concern, DEB has filed for bankruptcy protection.
Objectives in Bankruptcy

Posted 1 week 1 day ago

The efficient manner of speech which Judge Walsh employs during hearings shines through in this opinion released December 5, 2014 in the Worldspace bankruptcy (Bank. D. Del. 08-12412).  In 3-1/2 pages of his opinion, Judge Walsh explains the requirements of a motion for reconsideration and illustrates the weakness of the movant’s position.  Judge Walsh’s opinion is available here (the “Opinion”).
The Movant was the plaintiff in a lawsuit brought against the Chapter 7 Trustee in this case as well as other defendants.  In response to the complaint, the defendants moved to dismiss, claiming that the Movant had no standing as he was not an employee of a Debtor.  After Judge Walsh granted the motion to dismiss, the Movant filed his motion for reconsideration.
Judge Walsh’s Ruling
Judge Walsh cites to his own opinion, In re Fruehauf Trailer Corp., 2012 WL 604145 (Bankr. D. Del. Feb. 17, 2012), to provide the elements required for a motion to reconsider to be granted.  “A party seeking reconsideration must establish at least one of the following grounds: (1) an intervening change in the controlling law; (2) newly available evidence; or (3) the need to correct a clear error of law or fact to prevent manifest injustice.”  Opinion at *3-4.

Posted 1 week 5 days ago

In the recent decision of In re Trump Entertainment Resorts, Inc., Case No. 14-12103 (Bankr. D. Del. December 5, 2014), the Delaware Bankruptcy Court adjudicated the motion of Staller, Sklar, Chan & Brown, P.A. (“SSC&B” or “Firm”) to fix the value and priority of its claim and to allow its claim to be deemed secured in full.  SSC&B served as tax counsel to the Trump Debtors prior to their filing for bankruptcy.  This case is a good read for any law firm attempting to enforce a claim for pre-petition services provided to a debtor.
SSC&B was retained in 2008 to file tax appeals in the Tax Court of New Jersey for casino hotel properties owned by Trump Debtors.  SSC&B achieved a settlement in 2012 which resulted in a $50.5 million reduction in tax liabilities, plus additional tax reduction assessments in the future.
The Firm was retained on a contingency basis, receiving a 17.5% contingency fee.  Because the Debtors were financially distressed, SSC&B agreed to a delayed payment of their fees to accommodate Debtors.  Thereafter, the Firm entered into various amendments of their agreement, and Trump Debtors acknowledged the Firm’s Charging Lien.  In addition, the Firm obtained an order from the Tax Court perfecting its Charging Lien.

Posted 1 week 5 days ago

On October 17, 2014, Charles M. Forman, the Chapter 7 Trustee of the Satcon Technology Corp. bankruptcy estate, filed a number of complaints seeking the avoidance and recovery of alleged preferential transfers pursuant to Sections 547 and 550 of the Bankruptcy Code.  To review a prior post concerning the filing of these complaints, click here.
Since the filing of these adversary actions, the Court has scheduled a pretrial conference for January 8, 2015 at 11:00 a.m.  At the pretrial conference, the Court will enter a scheduling order to govern relevant timelines of the litigation.  For a link to a standard scheduling order that can be found on the Bankruptcy Court’s website, click here.
Preference defendants should review any proposed scheduling order circulated by plaintiff’s counsel to determine to what extent the proposed order differs from the Court’s standard scheduling orders, and be prepared to object to the inclusion of any terms that materially differ.
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:

Posted 2 weeks 6 days ago

In a 28 page opinion released November 25, 2014 in the Tropicana Entertainment bankruptcy (Bank. D. Del. 08-10856), Judge Carey of the Delaware Bankruptcy Court provided an opinion regarding a defendant’s motion to dismiss an amended complaint.  Judge Carey granted the majority of the motion to dismiss, denying a second request for leave to amend because “The Trustee has now had ample opportunity to present a properly pled complaint.”  This ruling illustrates the importance of providing all the necessary details and required allegations in a complaint, particularly if the Court has already provided you with one “do-over”.  Judge Carey’s opinion is available here (the “Opinion”).

Posted 3 weeks 16 hours ago

In a prior post, we discussed the commencement of approximately 72 preference actions filed in the Quantum Foods bankruptcy proceeding by the Creditors Committee.  In the preference actions at issue, the Creditors Committee seeks to avoid and recover purported preferential transfers under Sections 547 and 550 of the Bankruptcy Code, and purported fraudulent transfers under Section 548 of the Bankruptcy Code.
Since the filing of these adversary actions, the Court has scheduled a pretrial conference for December 9, 2014 at 2:00 p.m.  The purpose of a pretrial conference, among other things, is to enter a scheduling order to govern relevant timelines of the litigation.  It is therefore important for any preference defendant to fully review any proposed scheduling order in advance with counsel to determine whether such deadlines and provisions are consistent with scheduling orders commonly entered by the Delaware Bankruptcy Court.

Posted 4 weeks 2 days ago

Unitek Global Services, Inc. (“Unitek” or the “Debtor”) filed for bankruptcy under Chapter 11 of the Bankruptcy Code on November 3, 2014 in the United States District Court for the District of Delaware.
According to the Declaration of Andrew J. Herning, Chief Financial Officer and Treasurer of the Debtor, in Support of the Debtors’ Chapter 11 Petitions and First Day Motions (the “Herning Declaration”), the Debtors are a “full service provider of technical services to customers in the wireless telecommunications, public safety, satellite television and broadband cable industries in the United States and Canada.”  While Unitek may not be a common household name, their customers are.  They include, among others, DIRECTV, AT&T, Comcast, Sprint, T-Mobile, and Time Warner Cable.
Events Leading to Bankruptcy
The Debtor is a in an extremely competitive market in which there are a small number of large customers.  This means that Unitek and its competitors are engaged in intense competition for the business.  While Unitek was operating successfully, it discovered in April, 2013, that certain employees had engaged in fraudulent activities, which impacted its revenue recognition.  Not only did this cost Unitek roughly $9 million to resolve, but it necessitated restating several years of financial statements and constituted events of default with some of Unitek’s creditors.  Unitek has suffered continual losses since that time.
Objectives in Bankruptcy

Posted 4 weeks 4 days ago

In a 27 page opinion released October 23, 2014 in the Conex Holdings case (Bank. D. Del. 11-10501), Judge Sontchi of the Delaware Bankruptcy Court provided his analysis of the ability of a debtor to recover the value of NOLs used by its parent within consolidated tax returns.  This ruling has implications for any debtor whose parent company uses its NOLs in a consolidated filing.  Judge Sontchi’s opinion is available here (the “Opinion”).
CopperCom (the “Defendant”) included the Debtor’s tax returns in its consolidated tax returns.  As the Debtor had a net loss, the Defendant included $7.79 million of net operating losses (or NOLs) in its tax return.  This created a net benefit to the Defendant of $2.64 million.  Conex Holdings’ chapter 7 trustee (the “Trustee” or “Plaintiff”) sued CopperCom to recover what he claimed was a preferential transfer of the net tax benefit.  The Defendant eventually filed a motion to dismiss.  In deciding the motion to dismiss, Judge Sontchi issued this Opinion.

Posted 4 weeks 5 days ago