All items from Delaware Bankruptcy Litigation

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 6 days 9 hours 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 1 week 1 day 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”).
Background
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 1 week 2 days ago

On November 7, 2014, in the neighboring jurisdiction of the United States Bankruptcy Court for the District of New Jersey, Dots, LLC, et al. (“Debtors” or “Dots”) filed approximately 70 complaints seeking to avoid and recover alleged preferential transfers pursuant to Sections 547 and 550 of the Bankruptcy Code, to disallow claims of the defendants pursuant to Section 502(d), and seeking attorneys’ fees.
By way of background, the Debtors filed petitions for bankruptcy in the District of New Jersey on January 20, 2014.   The Debtors are operating their businesses and managing their properties as debtors-in-possession.
The law firm of Trenk, DiPasquale, Della Fera & Sodono, P.C. are special counsel to the Debtors in these various preference cases.  The pretrial conference has been scheduled for January 22, 2015 at 10:00 a.m.  These adversary actions, as well as the Debtors’ bankruptcy proceeding, are before the Honorable Donald H. Steckworth.
For readers looking for more information concerning preference litigation, including an analysis of defenses that can be asserted, below are several articles on this topic:
Preference Payments: Brief Analysis of Preference Actions and Common Defenses



Posted 1 week 5 days ago

Any defendant to a bankruptcy adversary proceeding seeking to transfer venue of their case should read the recent opinion dated November 3, 2014, in which the Honorable Mary F. Walrath granted Defendant’s motion to transfer venue in the case styled as: IPC Int’l Corp. v. Milwaukee Golf Shopping Center LLC, et al. (In re IPC Int’l Corp.), Adv. No. 14-50333 (MFW) (Bankr. D. Del. Nov. 3, 2014).  The Court transferred the case to the U.S. District Court for the Northern District of Illinois.
Analysis
In granting the motion, the Court was persuaded that the “interests of justice and convenience of the parties favors transfer”.  (Slip op. at 1.)  The Court found that each of the claims asserted by the Debtor IPC Int’l Corp. (“Debtor” or “IPC”) were non-core claims, despite the fact that IPC asserted a claim for turnover under Section 542 of the Bankruptcy Code.



Posted 2 weeks 3 days ago

Introduction
On October 28, 2014, The Official Committee of Unsecured Creditors of Q v. AB Foods LLC (the “Committee”), the committee in the Quantum Foods, LLC bankruptcy, began filing complaints to recover what it contends are avoidable preferences.  The Committee filed the preference actions in the Delaware Bankruptcy Court and argue 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 Quantum Foods, LLC bankruptcy proceeding, why the company filed for bankruptcy as well as key developments during the course of the bankruptcy proceeding.
Background



Posted 2 weeks 6 days ago

Introduction
On October 17, 2014, Charles M. Forman, the Chapter 7 Trustee (the “Trustee”) for the bankruptcy estate of Satcon Technology Corp., began filing complaints to recover what he contends are avoidable preferences.  The Trustee filed the preference actions in the Delaware Bankruptcy Court and argued 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 Satcon Technology Corp. 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 Satcon Technology Corporation bankruptcy filings in this post.
Background



Posted 3 weeks 4 days ago

In a 28 page opinion released October 20, 2014 in the Trump Entertainment Resorts case (Bank. D. Del. 14-12103), Judge Kevin Gross of the Delaware Bankruptcy Court provided a thorough analysis of the ability of a debtor to reject a collective bargaining agreement pursuant to 11 U.S.C § 1113.  Judge Gross’s opinion is available here (the “Opinion”).
My colleague, Carl Neff, provided a summary of the Trump Entertainment Resorts bankruptcy here.
In this case, the debtors petitioned the Court to terminate the collective bargaining agreement (“CBA”) between UNITE HERE Local 54 (the “Union”) and Trump Taj Mahal Associates LLC, which operated the casino the Taj Majal.  The Opinion lays out a history of attempts by the debtors to engage the Union to revise the CBA in an effort to cut costs and keep the Taj Mahal open.  Opinion at *6-7.  In the Court’s words, the debtors “stood on their heads to negotiate and were rebuffed time and time again.”  Opinion at *26.



Posted 3 weeks 5 days ago

Under Section 503(b)(9) of the Bankruptcy Code, creditors may receive administrative-expense priority for the value of goods “received” by the debtor within 20 days before the debtor’s bankruptcy filing in which the goods have been sold to the debtor in the ordinary course of business. 11 U.S.C. § 503(b)(9).
The question becomes: when are goods considered to be received” under Section 503(b)(9) of the Code?
The majority of Courts construing the word “received” have relied upon the Uniform Commercial Code (“UCC”). For example, in the decision of In re Circuit City Stores Inc., 432 B.B. 225 (Bankr. E.d. Va. 2010), the United States Bankruptcy Court for the Eastern District of Virginia ruled that “received” was the functional equivalent of “receipt” under the UCC, and indicated that the terms should be construed identically.
The Court ruled that “received” means “having taken into physical possession” the goods and should be applied as a “federal definition” for purposes of interpreting Section 503(b)(9). This analysis was subsequently applied by the U.S. Bankruptcy Court for the District of New Hampshire which also applied the UCC’s definition of “receipt” to the term “received” contained in Section 503(b)(9). See In re Momenta Inc., 455 B.R. 353, 358-59 (Bankr. D. N.H. 2011).
For creditors seeking to assert a Section 503(b)(9) claim, below are several additional articles on this topic:



Posted 3 weeks 6 days ago

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 7 weeks 5 days ago