Delaware Bankruptcy Litigation : Delaware Bankruptcy Lawyer & Attorney : Fox Rothschild Law Firm : Financial Restructuring & Bankruptcy Litigation

The Chapter 7 Trustees in the Pope & Talbot and Specialty Motors bankruptcies recently filed hundreds of complaints in the United States Bankruptcy Court for the District of Delaware.  George Miller is the Chapter 7 Trustee in the Pope & Talbot bankruptcy while Jeoffrey Burtch is the Trustee in the Specialty Motors (aka "Von Weise Inc.") bankruptcy.  Both groups of complaints seek the avoidance and recovery of alleged preferential transfers from various creditors of the debtors. 

The adversary actions filed in both Pope and Specialty Motors are before the Honorable Christopher S. Sontchi.  In prior preference actions, Judge Sontchi entered scheduling orders similar to the form scheduling order attached here.  A copy of Judge Sontchi's Chamber Procedures are attached here.

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Jason Cornell is a bankruptcy attorney at the law firm Fox Rothschild LLP in Wilmington, Delaware.  If you have questions regarding a Delaware bankruptcy proceeding,  you can reach Jason at 302 427 5512, or jcornell@foxrothschild.com.

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Introduction

Judge Kevin J. Carey, Chief Judge of the Delaware Bankruptcy Court, issued a decision recently in the S-Tran Holdings bankruptcy that addresses whether letters of credit constitute property of the bankruptcy estate.  The Court's decision in S-Tran Holdings is worth review as letters of credit are a common part of a debtor's pre and post-petition financing.  Recent decisions hold that certain components of letters of credit (such as the proceeds drawn from the letter of credit) are estate property, while other components (like the collateral pledged for the letter of credit) are not estate property.  S-Tran explains why.  (A copy of the decision in S-Tran is available here).

Background

The debtor in S-Tran sued its insurer in an effort to recover the proceeds from a letter of credit and a cash deposit, both held by the insurer.  In order for the insurer to provide coverage to S-Tran, S-Tran had to provide a $477,000 cash deposit and letters of credit totaling $3.5 million.  A week prior to S-Tran's bankruptcy filing, the debtor's insurer drew on portions of the letter of credit to pay third parties and placed the remaining proceeds from the letter of credit in a loss reserve account.  After filing for bankruptcy, S-Tran demanded the insurer return the proceeds from the letters of credit, however, the insurer refused.

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Introduction

Accuride Corporation, the Indiana-based manufacturer of heavy and medium-duty wheels, filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware on October 8, 2009.  According to Accuride's Declaration in Support of First Day Motions, the company filed for bankruptcy in order to reduce its debt through confirmation of a pre-arranged restructuring plan.  Specifically, Accuride seeks approval of a plan of reorganization that (i) extends the maturity date on its loans to 2013;  (ii) cancels notes in exchange for 98% of the common stock of reorganized Accuride;  (iii) offers new senior secured notes worth $140 million; and, (iv) provides current stockholders with 2% of the stock issued for reorganized Accuride.

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Introduction

In recent months, bankruptcy auctions went forward in two different bankruptcy proceedings that illustrate the extent to which auctions can vary both procedurally and substantively. One auction involved the sale of a single asset and lasted less than an hour, while the second auction involved the sale of the debtor's entire business and lasted over the course of several days.  This post is intended to provide a brief "compare and contrast" of these two auctions in an effort to provide insight into a process that is a common component of corporate bankruptcies.

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Samsonite Corporation, one of the world's largest luggage manufacturers, filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware on September 2, 2009.  According to Samsonite's Declaration in Support of First Day Motions, the company "does not anticipate that any of its customers or suppliers will be materially affected by this [bankruptcy] filing."  While this is good news for Samsonite's customers, the outcome for the company's landlords is less certain.

As stated in its Declaration, Samsonite leases 173 retail stores in 38 states.  Due to a sudden drop in consumer demand for travel products, Samsonite experienced a significant reduction in its cash flow.  As a result, the company engaged in a restructuring process that culminated in the filing of its bankruptcy petition in Delaware.  Through bankruptcy, Samsonite intends to reject up to 84 leases for those stores the company deems unprofitable. 

Landlords dealing with commercial tenants in bankruptcy face a host of issues, including administrative rent, rejection damages and adequate assurance.  A previous post on this blog titled "Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy" provides a good introduction to the issues that confront a landlord when a commercial tenant files for bankruptcy.  Judge Peter J. Walsh, a former Chief Judge of the Delaware Bankruptcy Court, recently issued an opinion in the Sportsman's Warehouse bankruptcy that provides a very helpful understanding of how bankruptcy courts approach claims for administrative rent and taxes that arise under a lease.  Landlords in Samsonite may find Judge Walsh's decision particularly relevant as Judge Walsh is also the judge presiding over the Samsonite bankruptcy.  

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Jason Cornell is a bankruptcy attorney with Fox Rothschild LLP in Wilmington, Delaware.  If you have questions regarding this or any other Delaware bankruptcy proceeding, you may contact Jason at 302 427-5512, or jcornell@foxrothschild.com.

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Introduction

Barzel Industries, the Massachusetts-based metal manufacturer, filed for bankruptcy on September 14, 2009, in the United States Bankruptcy Court for the District of Delaware.  One of the initial documents Barzel filed with the Bankruptcy Court is a Declaration in Support of First Day Pleadings (the "Declaration").  According to the Declaration, as of the petition date Barzel has 600 employees working at 15 different manufacturing and distribution facilities in the U.S. and Canada.

Events Leading to Bankruptcy

According to the Declaration, Barzel's bankruptcy was the result of operating losses that began in 2008 and continued in to 2009.  Barzel ties its losses directly to the "current global economic recession and credit crisis, and the resulting dramatic downturn in the automotive, transportation, manufacturing and construction industries in the United States and Canada."  These industries account for much of Barzel's business.  Barzel's problems worsened following a drop in the price of steel.  With prices and demand both down, Barzel sought to reduce expenses and improve its operations by closing 6 facilities and reducing its workforce by 350 employees.

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Introduction

In June of last year, retailer Whitehall Jewelers filed for Bankruptcy in the United States Bankruptcy Court for the District of Delaware.  Last month, 14 months after filing for bankruptcy, Whitehall filed over 90 adversary actions in Delaware seeking to recovery payments the company made to various creditors during the 90 days prior to its filing for bankruptcy. 

Debtors in bankruptcy (or their assignee) routinely seek to recover what they allege are "avoidable transfers" from the creditors who received payments as the debtor slides into bankruptcy.  While "ordinary course of business" and "new value" are core defenses frequently relied upon by defendants in a preference action, there are less common defenses that should not be overlooked. 

This post will look briefly at the "mere conduit" defense.  Although the mere conduit defense is not always available to certain creditors, it is helpful to have an understanding of how the mere conduit defense has been applied by bankruptcy courts in both the District of Delaware and other jurisdictions. 

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Introduction

Less than two years after its formation, credit card processor, Cynergy Data, filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  According to Cynergy's Declaration in Support of Chapter 11 Petitions and First Day Motions,  the company processes over $10 billion in credit payments over a twelve month period.  Cynergy's card volume is the result of transactions with over 80,000 merchants.

Cynergy filed for bankruptcy in order to receive bankruptcy court approval of the sale of substantially all of its assets to the ComVest Group under section 363 of the United States Bankruptcy Code.  Cynergy and ComVest entered into an asset purchase agreement following an auction process wherein Cynergy contacted over 48 different parties that might have an interest in purchasing its assets.  In response to its marketing efforts, 24 parties executed confidentiality agreements allowing them to review Cynergy's books and records in order to submit a bid.  Three final offers were submitted and ComVest and Cynergy executed an asset purchase agreement on August 26, 2009.

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 Introduction

Freedom Communications Holdings, the Orange County, California newspaper publisher, filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware on September 1, 2009.  (You can review a copy of Freedom's Petition for Bankruptcy here.)  According to the Declaration of Freedom's Chief Financial Officer, the company's decision to file for bankruptcy was based on several factors, most notably the continual decline of advertising revenues in the newspaper industry and increased competition in web-based advertising. 

In September of 2008, Freedom defaulted under is prepetition credit agreement with its lenders.  Although the lenders agreed to several loan amendments, Freedom eventually realized that an out-of-court workout would not resolve its financial problems.  Besides declining ad revenue, Freedom's finances were further weakened by the settlement of a class action brought by various newspaper carriers.  Pursuant to the terms of the class action settlement, Freedom was obligated to pay over $28 million into an escrow account to fund the settlement.  The terms of the settlement agreement provided that the class action settlement would not become final until September 14, 2009.  By filing for bankruptcy before September 14th, Freedom contends that the "settlement funds have become property of the chapter 11 estate and, therefore, are subject to immediate return to the [company]."  (More information regarding the reasons behind Freedom's decision to file for bankruptcy are available in Freedom's Declaration in Support of Chapter 11 Petitions and First Day Pleadings)

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