All items from Delaware Bankruptcy Litigation

On October 10, 2012, Vertis Holdings, Inc. ("Vertis"), and various related entities, filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  This is Vertis' third time in bankruptcy in recent years.  As stated in the company's Declaration in Support of Chapter 11 Petitions (the "Decl."), Vertis filed a prepackaged bankruptcy in Delaware in July of 2008.  Vertis filed its first bankruptcy in order to merge with American Color Graphics and restructure some of the company's debt.   Decl. at *10.  Vertis emerged from its first bankruptcy as the global economy entered a recession.  According to the company, the recession left it "overly leveraged and unable to service its restructured obligations.  Id. 

This week, Edward Gavin, the liquidating trustee (the "Trustee") for the Ultimate Escapes bankruptcy, filed preference complaints against several defendants.  Under the complaints, the Trustee alleges that the defendants received preferential transfers that are avoidable under 11 U.S.C. section 547 of the Bankruptcy Code.  For those unfamiliar with this bankruptcy proceeding, Ultimate Escapes ("Ultimate" or the "Debtor") filed petitions for bankruptcy in the Delaware Bankruptcy Court on September 20, 2010. 
Prior to bankruptcy, Ultimate was in the luxury destination club industry.  The company provided members with access to high-end residences and resorts in the U.S. and around the world.  According to the company's declaration in support of its bankruptcy pleadings (the "Declaration"),  Ultimate operated 119 "luxury club residences," most of which were owned by the Debtor.  Decl. at *2.
Ultimate blames its bankruptcy on the declining sales that followed the 2008 recession.  As demand for the company's services declined, Ultimate was faced with a liquidity problem and inability to service its debt.  The company tried unsuccessfully to negotiate an out of court restructuring with its lenders.  Once negotiations failed, Ultimate decided that filing for bankruptcy would provide the most value to creditors.  Decl. at *3. 

On September 11, 2012, Digital Domain Media Group and various related entities (collectively, "Digital Domain") filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  Digital Domain filed several "first day" pleadings with the Bankruptcy Court, one of which is the Declaration of Digital Domain's Chief Restructuring Officer in Support of First Day Motions (the "Declaration").  As set forth in the Declaration, Digital Domain provides digital visual effects and computer-generated animation to the motion picture industry.  One of the related entities, Digital Domain Productions, has provided digital production work to over 90 major motion pictures.  Declaration at *3.  Mothership Media, Inc., a Digital Domain subsidiary, focuses on advertisement and entertainment "from concept to completion."  Id.  Another subsidiary, Digital Domain Institute, is a for-profit learning center which partnered with Florida State University to provide graduates with a Bachelor of Fine Arts degree focusing on motion picture and technical animation arts.  Decl. at *8. As of the date Digital Domain filed for bankruptcy, the company employs approximately 930 employees spread throughout is production facilities in California, Florida and British Columbia.  Decl. at *10.

There are generally three types of claims in a bankruptcy proceeding: unsecured claims, secured claims and administrative expense claims. Section 503 of the Bankruptcy Code governs the allowance of administrative expense claims. Section 503 provides that "after notice and a hearing, there shall be allowed administrative expenses…, including the actual and necessary costs and expenses of preserving the estate." 11 U.S.C. §　503(b)(1)(A). A creditor who seeks to have its claim paid has an administrative claim, and therefore ahead of the general unsecured creditors, bears the burden of establishing that its claims qualifies for priority status. In re New Century TRS Holdings, Inc., et al, 446 B.R. 656, 661 (Bankr. D. Del. 2011). Courts generally apply a two-part test in deciding whether a claim qualifies as an administrative expense: (1) whether the expense arose from a post-petition transaction between the creditor and debtor; and, (2) whether the expense was "actual and necessary" to preserve the estate. Id., citing In re Unidigital, Inc., 262 B.R. 283, 288 (Bankr. D. Del. 2001). Claims which do not constitute an administrative expense are often treated as general unsecured claims which are payable in the ordinary course with other unsecured creditors of the estate. In re Arrow Carrier Corp., 154 B.R. 642, 646 (Bankr. D. N.J. 1993).