All items from In The (Red) Business Bankruptcy Blog

Last week, the U.S. Court of Appeals for the Seventh Circuit addressed whether a buyer of assets outside of bankruptcy (in this case, from a receivership), takes on successor liability for federal Fair Labor Standards Act ("FLSA") claims made by the employees of the company whose assets it purchases. Although the case arose in a receivership, the Seventh Circuit's opinion provides important insights into how these issues play out in bankruptcy sales of substantially all assets of a debtor.
Successor Liability Imposed. In Teed v. Thomas & Betts Power Solutions, L.L.C., the Seventh Circuit held that the buyer took on successor liability for the FLSA claims, even though the sale was made "free and clear" of all liabilities generally and of the FLSA claims in particular. The Seventh Circuit ruled that although those provisions would have protected the buyer, Thomas & Betts, under applicable Wisconsin state law, the FLSA is a federal statute and under federal common law, the buyer had successor liability for the FLSA claims. You can read a copy of the Seventh Circuit's opinion, issued March 26, 2013, by clicking on the link in this sentence.

A Difficult Problem. Imagine that your company is facing a government investigation, requiring you to spend hundreds of thousands of dollars in legal fees and costs, while being threatened with substantially more legal expense. That financial burden is simultaneously starving the company of cash needed to grow the business, and cash balances are heading toward zero. Worse yet, the cloud over the company means it cannot raise additional investment or even find a buyer, as potential buyers fear being saddled with the government investigation and any underlying potential claims.
The Strategy. That was the trap confronting our client Cylex Inc., a Maryland-based life sciences company whose diagnostic test kit detects immune function in organ transplant patients, when they asked me for help. After considering alternatives, the strategy we crafted was to use Chapter 11 bankruptcy’s sale process to obtain a bankruptcy court order expressly permitting the buyer to purchase the company’s assets “free and clear” of the government investigation and underlying claims. 
 
The Stalking Horse Bidder. With the legal strategy in place, the next step was negotiating with a strategic buyer the company had identified.  Fortunately, Cylex recognized the need for a solution early enough that we had time to work through the challenges of implement the strategy.

The Summer 2012 edition of the Absolute Priority newsletter, published by the Bankruptcy & Restructuring group at Cooley LLP, of which I am a member, has now been released. The newsletter gives updates on current developments and trends in the bankruptcy and workout area. Follow the links in this sentence to access a copy of the newsletter. You can also subscribe to the blog to learn when future editions of the Absolute Priority newsletter are published, as well as to get updates on other bankruptcy and insolvency topics.
The latest edition of Absolute Priority covers a range of cutting edge topics, including:

On May 29, 2012, only a little more than a month after the April 23, 2012 oral argument in the case, the U.S. Supreme Court issued its decision in RadLAX Gateway Hotel, LLC, et al. v. Amalgamated Bank on the question of "credit bidding." You can get a copy of the opinion by following the link in this sentence. (You are also welcome to follow my Twitter feed @BobEisenbach for updates; I tweeted a link to the opinion the afternoon it was issued.)