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Delaware Bankruptcy Litigation

Information on Corporate Bankruptcy Proceedings in Delaware and Throughout the United States

Karmaloop, Inc. Formation Meeting and Section 341 Meeting Scheduled

Posted in Bankruptcy Case Update

In the Karmaloop, Inc. bankruptcy proceeding, a formation meeting has been scheduled for Wednesday, April 1, 2015 at 10:30 a.m. (ET) at the DoubleTree Hotel, 700 King St., Salon C, Wilmington, DE 19801.  Click Here for a copy of the Notice of Formation Meeting for Official Committee of Unsecured Creditors issued by the Office of the United States Trustee.  If you want to be considered for Committee membership, you MUST complete a questionnaire and return it to the U.S. Trustee no later than March 30, 2015 at 5:00 p.m. (ET).

In addition, the U.S. Trustee has requested that a Section 341 Meeting of Creditors be scheduled for Thursday, April 16, 2015 at 10:30 a.m. (ET) at the J. Caleb Boggs Federal Court House, 844 N. King Street, 2nd Fl., Room 2112, Wilmington, DE 19801. Continue Reading

Can the landlord apply the tenant’s security deposit to the landlord’s claims?

Posted in Commercial Landlords

Security deposits are considered property of the bankruptcy estate, and as such, are generally required to be returned to the debtor.  Even so,  landlords are permitted in certain instances to setoff their rejection damage claim against the security deposit.  This benefits a landlord for two reasons.  First, instead of returning the deposit to the debtor-tenant, a landlord can setoff its claim against the deposit, and thus reduce the amount of the deposit that must be returned.  Second,  the landlord’s rejection damage claim is a general unsecured claim, meaning it gets paid after all other types of claims under the Bankruptcy Code.  However,  the landlord’s rejection claim can be setoff against the security deposit “dollar for dollar,” which in essence raises the status of the rejection claim to secured status, up to the amount of the security deposit.

Landlords should not setoff any claims they have against the debtor-tenant’s deposit without first receiving an order from the bankruptcy court granting the landlord relief from the automatic stay.  If the parties reach an agreement as to the amount of the claim to be applied to the deposit, the debtor-tenant may consent to relief from the automatic stay.

Carl D. Neff is a bankruptcy attorney with the law firm of Fox Rothschild LLP.  Carl is admitted in Delaware and regularly practices before the United States Bankruptcy Court for the District of Delaware. You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

Allied Nevada Gold Formation Meeting and Section 341 Meeting Scheduled

Posted in Bankruptcy Case Update

In the Allied Nevada Gold Corp. bankruptcy proceeding, a formation meeting has been scheduled for Thursday, March 19, 2015 at 10:00 a.m. (ET) at the J. Caleb Boggs Federal Building, 844 King St., Room 2112, Wilmington, DE 19801.  Click Here for a copy of the Notice of Formation Meeting for Official Committee of Unsecured Creditors issued by the Office of the United States Trustee.

In addition, The U.S. Trustee has requested that a Section 341 Meeting of Creditors be scheduled for Wednesday, April 15, 2015 at 2:00 p.m. (ET) at the J. Caleb Boggs Federal Court House, 844 N. King Street, 2nd Fl., Room 2112, Wilmington, DE 19801.

One way in which creditors can assert their interests is to attend the Formation Meeting and become a part of the creditors’ committee.  The creditors’ committee is one of the most active participants in a corporate bankruptcy, and has access to a significant amount of information not available to normal creditors.  There are, naturally, trade-offs to gaining access to this information (limitations on a company’s ability to trade in securities of the debtor), but you will be far better informed of what occurs in the bankruptcy proceeding.

Another way creditors can assert their interests is to attend the Section 341 Meeting of Creditors, in order to depose the debtor’s representative regarding the assets and liabilities of the bankruptcy estate.  Creditors may retain counsel to conduct such an examination of the debtor’s representative.  The Section 341 meeting of creditors is an integral component of a bankruptcy proceeding.  Creditors often want to know what information is made available, and what procedures are followed, during a typical meeting of creditors.

General topics that are discussed during a Section 341 meeting can include the following issues:

  • The nature of scope of a debtor’s assets and liabilities;
  • The amount of accounts receivable and accounts payable;
  • To what extent the debtor is able to repay its creditors;
  • Whether insurance remains active;
  • The condition and location of goods received in the 20 days before bankruptcy;
  • The condition and location of goods received in the 45 days before bankruptcy;
  • The debtor’s or trustee’s plan to reorganize its debt or liquidate its assets;
  • The debtor’s plan after it emerges from bankruptcy (not applicable to a Chapter 7 debtor);
  • Whether the debtor experienced any changes in revenue since filing for bankruptcy; and
  • Potential avoidance actions to be commenced by the debtor or trustee

John Bird is a bankruptcy attorney with the law firm of Fox Rothschild LLP.  John is admitted in Delaware and regularly practices before the United States Bankruptcy Court for the District of Delaware. You can reach John at (302) 622-4263 or at jbird@foxrothschild.com.

When can a landlord recover attorneys’ fees from a tenant in bankruptcy?

Posted in Commercial Landlords

Landlords may be able to recover attorneys’ fees incurred when a debtor-tenant seeks to assume the lease, or assume and assign the lease to a third party.  To recover attorney’s fees, however, the landlord must meet several criteria.  First, the lease must expressly state that the landlord is entitled to recover attorneys’ fees as additional rent or in connection with the collection of rent. Next, the landlord must have prevailed in the proceedings in which it seeks to recover attorneys’ fees.  “Prevailing” in a bankruptcy proceeding may include filing an objection to a motion of the debtor-tenant and receiving a favorable decision (i.e., objecting to the cure amount proposed by the tenant).

The matter in which the landlord seeks attorneys’ fees must be in pursuit or enforcement of the landlord’s rights under the lease, not matters where the landlord challenges the debtor-tenant’s rights under the Bankruptcy Code. Finally, the attorneys’ fees must be reasonable.  To determine whether the fees are reasonable, courts will consider factors such as the amount in dispute relative to the fees requested, the debtor-tenant’s good faith efforts to resolve the dispute and compliance with the Bankruptcy Code.

Carl D. Neff is a bankruptcy attorney with the law firm of Fox Rothschild LLP.  Carl is admitted in Delaware and regularly practices before the United States Bankruptcy Court for the District of Delaware. You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

Trump Decision – Administrative Claims of Employees

Posted in Opinions

In an 11 page opinion (the “Opinion”) released March 9, 2015, in the Trump Entertainment Resorts, Inc. bankruptcy (Case No. 14-12103), Judge Gross interpreted Bankruptcy Code 503(b)(1)(A) in approving the reclassification of a claim from a priority claim to a general unsecured claim.  The Opinion is available here.  Administrative claims are an integral part of the bankruptcy process and have been written about in prior blog postings:

Decision in Qimonda Bankruptcy Looks at Whether a Conversion Claim is Entitled to Administrative Priority

Decision in Goody’s Holds That Administrative Claims Under 503(b)(9) Apply to Goods, Not Services

Continue Reading

CPI Preference Actions – Pretrial Conference Scheduled

Posted in Preference Litigation

As detailed in this prior post, on February 6, 2015, Charles A. Stanziale, Jr., as the Chapter 7 Trustee (the “Trustee”) of CPI, Corp., et al. (“CPI” or the “Debtors”), filed approximately 44 preference complaints seeking to avoid and recover alleged preferential transfers pursuant to Sections 547 and 550 of the Bankruptcy Code, to disallow claims pursuant to Section 502(d), for attorneys’ fees, and prejudgment interest.

Since the filing of these actions, a pretrial conference has been scheduled for these cases.  The pretrial conference is set for May 20, 2015 at 9:30 a.m. at the United States Bankruptcy Court, 824 Market St., 6th Fl., Courtroom #1, Wilmington, Delaware.

Defenses to a Preference Action

The Bankruptcy Code provides creditors with many defenses to preference actions. Included among these are the “ordinary course of business defense” and the “new value defense.” For reader’s looking for more information concerning claims and defenses in preference litigation, attached is a booklet that we prepared on the subject: “A Preference Reference: Common Issues that Arise in Delaware Preference Litigation.”

In addition, an analysis of defenses that can be asserted in response to a preference complaint, below are several articles on this topic:

Preference Payments: Brief Analysis of Preference Actions and Common Defenses

Minimizing Preference Exposure: Require Prepayment for Goods or Services

Minimizing Preference Exposure (Part II) – Contemporaneous Exchanges

Carl D. Neff is a bankruptcy attorney with the law firm of Fox Rothschild LLP.  Carl is admitted in Delaware and regularly practices before the United States Bankruptcy Court for the District of Delaware. You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

How does a landlord recover its administrative rent claim?

Posted in Commercial Landlords

Section 365(d)(3) of the Bankruptcy Code requires the debtor-tenant to “timely perform all the obligations …. under any unexpired lease of nonresidential real property” until such time that the tenant assumes or rejects the lease.  If a tenant files for bankruptcy and remains in possession of the property, yet fails to pay rent as provided for under the lease, the landlord should consider filing a motion for an administrative claim.

In drafting the Bankruptcy Code,  Congress intended for tenants who remain in possession of property to abide by the terms of the lease.  If the debtor-tenant maintains possession and use of the property,  the tenant is receiving a benefit and the landlord is entitled to an administrative expense claim.  Although the landlord is entitled to the “fair market value” for purposes of determining the amount of its claim, there is a presumption that the rental amount provided in the lease represents fair market value. If the tenant believes it is entitled to pay an amount less than the rate provided for in the lease, it has the burden of showing why the contract rate is not fair market value.

Carl D. Neff is a bankruptcy attorney with the law firm of Fox Rothschild LLP.  Carl is admitted in Delaware and regularly practices before the United States Bankruptcy Court for the District of Delaware. You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

Cal Dive Formation Meeting Scheduled

Posted in Bankruptcy Case Update

In the Cal Dive International, Inc. bankruptcy proceeding, a formation meeting has been scheduled for Tuesday, March 17, 2015 at 10:00 a.m. (ET) at the Doubletree Hotel, 700 N. King Street, Wilmington, DE 19801.  Click here for a copy of the Notice of Formation Meeting for Official Committee of Unsecured Creditors issued by the Office of the United States Trustee.

The U.S. Trustee has not yet requested that a Section 341 Meeting of Creditors be scheduled.

One way in which creditors can assert their interests is to attend the Formation Meeting and become a part of the creditors’ committee.  The creditors’ committee is one of the most active participants in a corporate bankruptcy, and has access to a significant amount of information not available to normal creditors.  There are, naturally, trade-offs to gaining access to this information (limitations on a company’s ability to trade in securities of the debtor), but you will be far better informed of what occurs in the bankruptcy proceeding.

Cal Dive’s Bankruptcy

According to the Declaration of Quinn J. Hébert, Document 15 in this case (Quinn Declaration attached here), Cal Dive and it’s bankrupt affiliates constitute a global marine contractor that provided highly specialized offshore services.  Over the past year, Cal Dive has been struggling with liquidity issues, which ultimately led to its bankruptcy filing.  Through its bankruptcy, Cal Dive intends to sell off certain underutilized assets through a 363 sale, and reorganize its core business, which it claims is still profitable.  See Quinn Declaration at * 5.  Given its declared intent to reorganize and the continued relationships Cal Dive will have with its creditors and suppliers, this is a case in which creditors should consider attending the Formation Meeting and (if possible) joining the creditors’ committee.

John Bird is a bankruptcy attorney with the law firm of Fox Rothschild LLP.  John is admitted in Delaware and regularly practices before the United States Bankruptcy Court for the District of Delaware. You can reach John at (302) 622-4263 or at jbird@foxrothschild.com.

The Challenge of Pro Se Litigants

Posted in Opinions

In a fact-heavy 16 page opinion issued by Judge Shannon on March 2, 2015, we get a clear picture of the challenge faced by litigants when opposing aggressive pro-se litigants.  In Bishop v. Fannie Mae, Adv. Pro. No. 12-50912, the pro-se plaintiff was a chapter 13 debtor who was attempting to secure relief from his mortgage by bringing suit against Fannie Mae.  As reflected in the 5 pages of background, the plaintiffs raised litigation against Fannie Mae in multiple Delaware courts and at the time Judge Shannon’s opinion was issued, had lived in their home without having made a mortgage payment in over 6 years.  The Opinion can be read here. Continue Reading

What are the landlord’s rights when the tenant assumes and assigns the lease to a third-party?

Posted in Commercial Landlords

In conjunction with assuming the lease,  the Bankruptcy Code allows the debtor-tenant to assign the lease to a third party.  The party who is assigned the lease must provide the landlord with adequate assurance that it can meet the financial obligations of the lease.  If the party who is assuming the lease cannot provide the landlord with adequate assurance,  the landlord has cause to object to the assignment.

Bankruptcy courts often apply the “business judgment” standard when considering whether to allow a tenant to assume and assign a lease. Under this standard, debtor-tenants are permitted to assign a lease provided it can show the transfer of the lease is a reasonable business decision.  Although courts provide debtor-tenants with broad discretion on the decision of whether to assume and assign a lease, the debtor-tenant must still demonstrate the assigned party’s ability to cure defaults under the lease and make future payments.

Carl D. Neff is a bankruptcy attorney with the law firm of Fox Rothschild LLP.  Carl is admitted in Delaware and regularly practices before the United States Bankruptcy Court for the District of Delaware. You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.