All items from The Insolvency Blog - Thompson & Knight LLP

Whether or not a claim is entitled to administrative expense priority is often a hotly disputed issue in business bankruptcies.  The determination of administrative expense priority often is the difference between the claimant receiving payment in full and a fraction of what the debtor owes.  The court in In re Texas Wyoming Drilling, Inc., 486 B.R. 746 (Bankr. N.D. Tex. 2013) addressed whether a post-petition service contract entered into by a chapter 11 debtor was executory at the time the case was converted to chapter 7, and if so, whether the claim under the contract was entitled to administrative priority.
The facts of the case are as follows.  Debtor had interests in a number of oil wells, and was involved in drilling and “snubbing” operations.  When Debtor ran into financial difficulties, it sought to reorganize under chapter 11. Following the chapter 11 plan confirmation, claimant Lawrence was hired as President and Chief Operating Officer and Debtor entered into an employment contract with Lawrence, which outlined his salary and benefits.  He performed services as described in the contract.

Posted 49 weeks 5 days ago

Bankruptcy allows the sale of real property free and clear of certain liens and interests.  A covenant running with the land, however, is likely not affected by a sale in bankruptcy.  Whether a right is a covenant running with the land is thus a crucial issue, especially when a debtor in bankruptcy seeks to strip the right without the owner’s consent.  The Fifth Circuit recently held in Newco Energy v. Energytec, Inc. (In re Energytec, Inc.),[1] that a right to a transportation fee in connection with a pipeline and a right to consent to the assignment of the pipeline were covenants running with the land.
Energytec, Inc. (“Energytec”) filed for Chapter 11 bankruptcy in 2009.  Under Section 363 of the Bankruptcy Code, which allows a debtor to sell property free and clear of liens and interests, Energytec proposed to sell a pipeline system to Red Water Resources, Inc. (“Red Water”).  The pipeline system included a gas pipeline, its rights-of-way, and a processing plant. 

Posted 49 weeks 5 days ago

What facts and circumstances must be present in order for an entity to qualify as a valid, bankruptcy-remote special purpose entity (SPE)? This was the issue addressed by the bankruptcy court in Paloian v. LaSalle Bank, N.A. (In re Doctors Hospital of Hyde Park, Inc.), 2013 WL 3779657 (Bankr. N.D. Ill. July 17, 2013). The bankruptcy judge made clear that a court should go beyond evaluation of the documented list of “separateness factors,” and examine whether the behaviors of the related entities are consistent with their purported “separateness.” The court further noted that when analyzing whether an asset transfer is a “true sale,” courts should carefully examine the true sale case law elements to see if they have been actually satisfied by the transaction.

The (abbreviated) facts of the case are as follows: MMA was formed as a special purpose bankruptcy remote entity to purchase and hold Doctor’s Hospital’s receivables. At the time of Doctor’s Hospital’s bankruptcy filing, the key issues were whether MMA was a separate business entity, and not an alter-ego of the debtor, and (ii) whether the transfer of the receivables to MMA constituted a true sale.
The “separateness” issue, discussed in a prior bankruptcy court opinion (see Paloian v. LasSalle Bank, N.A., Case No. 02-363, 2011 Bankr. LEXIS 4745 (Bankr. N.D. Ill. Dec. 2, 2011) was appealed to the Seventh Circuit Court of Appeals.

Posted 1 year 9 weeks ago

Canadian energy company Lone Pine Resources Inc. and several affiliates (collectively, “Lone Pine”) filed an
insolvency proceeding on September 25, 2013 in Alberta, Canada, under Canada’s
Companies’ Creditors Arrangement Act (the “CCAA”).  Lone Pine filed a Chapter 15 bankruptcy case in Delaware,
Bankr. Case No. 13-12487, seeking recognition of the CCAA proceeding. 
The bankruptcy filings are a
response to Lone Pine’s liquidity problems, primarily a result of declining
naturl gas prices.  Lone Pine
missed a $10.1 million (US) interest payment on senior notes on August 15,
2013.  The missed payment, if not
cured within 30 days, would result in a default of Lone Pine’s obligations
under the senior notes.  The New
York Stock Exchange suspended trading
of Lone Pine’s common stock on
September 16, 2013, and the Toronto
Stock Exchange suspended trading
on September 17, 2013.

Posted 1 year 11 weeks ago

Authored by Tye C.
 and Joseph E. Bain

Sixth Circuit’s recent opinion in Dow
Corning Corp. v. Caffrey (In re Dow Corning Corp.)
, Case No. 12-1253 (6th
Cir. July 29, 2013), demonstrates that Texas Rule of Civil Procedure 11 (“Rule 11”) is a
substantive law that can affect parties’ property rights – even in a bankruptcy
proceeding – when Texas law applies as applicable non-bankruptcy law.    
Dow Corning, the Sixth Circuit held
that Rule 11 applied
to preclude certain claimants from enforcing a mediation award in connection
with a proceeding to allow claims against the Dow Corning Corporation
(“Dow”) bankruptcy estate.  According to the Sixth Circuit, “[r]egrettably, there are times when
otherwise well-considered procedural rules result in hardship.  This is one such
time.”  Id. at 1.

Posted 1 year 18 weeks ago

The Bankruptcy Court for the Western District of New York
recently approved procedures for the sale of Norse Energy Corporation USA’s
approximately 130,000 net acres of oil and gas leases in the Marcellus Shale,
Utica Shale, and other formations.  Norse Energy’s interests are located
in Cattaraugus, Allegany, Madison, Chenango and Broome Counties, New
York.  The bid deadline is August 23, 2013 at 4:00 p.m. EST.  The
sale of the assets remains subject to final approval at a hearing to be held
before the Bankruptcy Court on September 23, 2013. 
 For more information on the assets, see the Oil & Gas
Clearinghouse listing: 

In the interest of full disclosure, Thompson & Knight LLP
represents the President of Norse Energy.

Posted 1 year 19 weeks ago

Authored by Tye C. Hancock, Joseph E. Bain, and Evelyn Breithaupt
Recently, in the case of In re Village at Camp Bowie, I, L.P., 710 F.3d 239 (5th Cir. 2013), the Fifth Circuit announced a rule that provides greater flexibility to debtors seeking to successfully emerge from Chapter 11.   Under Chapter 11 of the Bankruptcy Code, a plan of reorganization cannot be confirmed unless at least one “impaired” class claims has voted to accept the plan.  11 U.S.C. § 112 (a)(10).  Generally, a class of claims is impaired under a
plan of reorganization if its members’ rights under applicable non-bankruptcy law are altered in any respect.  In many cases, debtors will attempt to intentionally alter (in a non-material way) the rights of a “friendly” class in order to obtain the necessary vote of acceptance from the “impaired” class of creditors.  In Village at Camp Bowie, I, L.P.,  the Fifth Circuit upheld this method of “artificial” impairment as compliant with the plain language of the Bankruptcy Code.
The debtor, Village at Camp Bowie I, LLC (the “Village”), owned real estate in Fort Worth, Texas.  Western Real Estate Equities, LLC (“Western”) acquired the debtor’s secured debt “with an eye toward displacing the Village as owner of the underlying real estate.” 

Posted 1 year 28 weeks ago

When is a loan
document not evidence of a loan, but rather of an equity investment? In their article, “Ninth Circuit Favors Substance Over Form in Fitness Holdings" Thompson & Knight Partner Ira
L. Herman
and Associate Evelyn
discuss the nuances of the Ninth Circuit decision in In re
Fitness Holdings International Inc.
(2013 U.S. App. LEXIS 8729). This
ruling and similar decisions permit the recharacterization of an obligation
labeled as debt, as equity. This decision is an important reminder that
although parties may structure a transaction to look like a loan, courts have
the inherent authority to determine what the transaction really is and are not
bound by what it is called. The decision warns that payments made on account of
a recharacterized loan may constitute a distribution on account of an equity
interest, subject to “clawback” as a fraudulent transfer.

Posted 1 year 29 weeks ago

The New York Court of Appeals (New York’s highest court) recently upheld the New York choice of law and venue provisions in a guaranty in the case of IRB-Brasil Resseguros, S.A. v. Inepur Invs., S. A., 2012 NY Slip Op 08669 (Ct.App. December 18, 2012).  The unanimous decision written by the chief judge held that the provisions of the guaranty allowed use of NY Gen. Obl. Law 5-1402 providing access to New York courts for actions in excess of $1 million, and that a New York choice of law clause be given mandatory effect pursuant to NY Gen. Obl. Law 5-1401(1) for transactions in excess of $250,000.
The Court, in holding mandatory application of both Sections 5-1401 and 5-1402 of the General Obligations Law, reasoned that the goal of these two sections was to “promote and preserve New York status as a commercial center and to maintain predictability for the parties.”
 The Court also held that the provision designating choice of law need not contain the language “without regard to conflict of law principals.”  Thus, guaranties and other contracts designating New York law will be applicable without a conflict of laws analysis. 

Posted 1 year 30 weeks ago

Our colleagues
in the Employment and Labor Practice Group at Thompson & Knight
have launched a new blog called "Best Little Employment Blog in Texas:
Employment-Law News and Views You Can Use."  As a follower of The Insolvency Blog, you may find this useful.

The blog will
feature timely news, advice, and tips for employers along with analysis
of developments in employment law, with an emphasis on federal and Texas
law. Plus, as the title of the blog suggests, there will be occasional offbeat or irreverent commentary on the amazing intersection of law and the workplace.
Follow this link to view the blog and to sign up to receive updates by email.

Posted 1 year 35 weeks ago