Bankruptcy Case Updates

On her The Bottom Line 11 blog, Fox partner Mette Kurth discussed the recent bankruptcy filing of mechanical systems startup Fallbrook Technologies:

Cross section of an automatic transmission.Texas-based Fallbrook Technologies has filed for chapter 11 protection. The committee formation meeting will take place on March 9, 2018 at 10:00 a.m. in Wilmington, Delaware. The formation notice is available here.

World Domination, One Gear At a Time

Fallbrook develops and manufactures the NuVinci continuously variable transmission systems. What is that, you ask? It makes stuff more efficient. So the company’s mission can be summed up as achieving world domination by creating a better mousetrap. Or as it says, setting the new global standard for managing mechanical and electro-mechanical power systems.

And it will do this by “transforming gears to (NuVinci) spheres.” That is, by using a set of rotating and tilting spheres between the input and output components of a transmission. If you have a degree in engineering, perhaps this brings something to mind. For the rest of us, the company has provided a helpful illustration.

Cool! Fallbrook’s system is now commercially available for bicycles and e-bikes. And, Fallbrook says, its technology has exciting applications in machinery, vehicles, and other equipment.

The company has two divisions.

– Its Enviolo-branded bicycle division, which was formed to demonstrate mass market viability and to continue to develop the NuVinci technology.
– Its licensing division, which provides NuVinci technology to “industry leaders” such as Allison Transmission, Dana Limited, TEAM Industries and Conti Temic microelectronics.

To read Mette’s full viewpoint on the filing, please visit her blog.

On her The Bottom Line 11 blog, Fox partner Mette Kurth discussed the recent bankruptcy filing of health care provider HCR ManorCare:

Court Pillars
Copyright: bbourdages / 123RF Stock Photo

HCR ManorCare, Inc. commenced a chapter 11 bankruptcy case on March 4, 2018. It accompanied the filing with a “prepackaged” chapter 11 plan. The company has requested a hearing to approve that plan on April 12, 2018.

The debtor, through its operating subsidiaries, is a Toledo-based provider of short-term, post-hospital services and long-term care. Its operating subsidiaries have not filed for bankruptcy protection.

To read Mette’s full viewpoint on the filing, please visit her blog.

On her The Bottom Line 11 blog, Fox partner Mette Kurth discussed the recent bankruptcy filing of regional supermarket chain Tops Markets:

Woman grocery shopping in a supermarketRegional grocery chains continue to struggle as Supermarket chain Tops Markets filed for bankruptcy protection in Manhattan yesterday. (Is the re-pocalypse heading for your local grocer?  Learn more here.)

The Company

Tops operates 169 full-service supermarkets, 168 under the Tops trade name and one under Orchard Fresh. And franchisees operate five more. The markets are focused on key regions in upstate New York, Northern Pennsylvania, and Vermont.

Tops’ Bankruptcy Objectives

The company has identified three core objectives: reducing its debt, renegotiating or cancelling leases and supply agreements, and negotiating with its labor unions.

Tops hopes to complete its bankruptcy process in roughly six months. During its first three months, it plans to focus on creditor negotiations. Then, if all goes well, it will implement its negotiated plan. Towards that end, it has agreed to some milestones:

– April 2, 2018: Entry of final orders approving its financing;

– May 7, 2018: Execution of a restructuring support agreement with key lenders;

– July 21, 2018: Filing of a disclosure statement and solicitation of a plan acceptable to its key lenders, with confirmation 60 days thereafter.

As a further update, the formation meeting has been set for March 6. To read Mette’s full viewpoint on the filing, please visit her blog.

On May 17th, Tidewater, Inc. and its affiliated debtors (“Tidewater” or “Debtors”) filed for chapter 11 protection in the United States Bankruptcy Court for the District of Delaware.

On the same day, the Court entered an Interim Utilities Order (click here), which among other things sets forth deadlines for utility providers to object to the proposed adequate assurance procedures or the amount of adequate assurance.  The proposed Interim Utilities Order establishes the proposed amount of adequate assurance of payment to each utility provider of the Debtors under Section 366 of the Bankruptcy Code.  The adequate assurance amount proposed by the Debtors represents the average amount owed to such utility provider over a two-week period.

Any Tidewater utility provider looking to object to the proposed adequate assurance amount or the procedures should act quickly.  By way of brief background, Section 366 of the Bankruptcy Code was enacted to balance a debtor’s need for utility services from a provider that holds a monopoly of such services, with the need of the utility to ensure for it and its rate payers that it receives payment for providing these essential services.  See In re Hanratty, 907 F.2d 1418, 1424 (3d Cir. 1990). The amount of adequate assurance required is made on a case-by-case determination and, in making such a determination, it is appropriate for the Court to consider “the length of time necessary for the utility to effect termination once one billing cycle is missed.”  In re: Begley, 760 F.2d 46, 49 (3d Cir. 1985).

Per the interim order, a final hearing on the Debtors’ utilities motion has been scheduled for June 14, 2017 at 10:00 a.m.  Objections to the proposed final order must be filed on or before June 7th at 4:00 p.m.  This bankruptcy case is pending before Judge Brendan L. Shannon.

Carl D. Neff is a partner 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.

In the Limitless Mobile, LLC bankruptcy proceeding (Delaware Bankruptcy Case No. 16-12685), a formation meeting has been scheduled for December 16, 2016 at 10:00 a.m. (ET) at the J. Caleb Boggs Federal Building, 844 King Street, Room 3209, 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.  Unsecured creditors interested in being considered for committee membership must complete a questionnaire and return it to the U.S. Trustee no later than December 14, 2016.

One way in which creditors can assert their interests is to attend the Formation Meeting and become a part of the official committee of unsecured creditors.  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.

Since the Limitless Mobile bankruptcy was filed earlier this month, the Delaware Bankruptcy Court has had an opportunity to consider and rule on many of the debtor’s initial motions.  On December 8th, the Bankruptcy Court entered the following orders:

12/08/2016  

31
(6 pgs)

Order Approving Retention And Appointment of Rust Consulting/Omni Bankruptcy as Claims And Noticing Agent (Related Doc # 4)(related document(s)4) Order Signed on 12/8/2016. (JohnstonJ, Julie) (Entered: 12/08/2016)
12/08/2016  

32
(4 pgs)

Order (INTERIM) (I)Authorizing The Debtor to Maintain And Renew Prepetition Insurance Policies And Pay All Obligations in Respect Thereof And (II)Granting Related Relief (Related Doc # 5)(related document(s)5) Order Signed on 12/8/2016. (JohnstonJ, Julie) (Entered: 12/08/2016)
12/08/2016  

33
(4 pgs)

Order (INTERIM) (I)Authorizing The Debtor To Pay Certain Prepetition Taxes And (II)Granting Related Relief (Related Doc # 6)(related document(s)6) Order Signed on 12/8/2016. (JohnstonJ, Julie) (Entered: 12/08/2016)
12/08/2016  

34
(7 pgs; 2 docs)

Order (INTERIM) (I)Approving Debtor’s Adequate Assurance of Payment To Utility Companies, (II)Establishing Procedures For Resolving Objections By Utility Companies, And (III)Prohibiting Utility Companies From Altering, Refusing, or Discontinuing Service And (IV)Setting A Final Hearing. (Related Doc # 7)(related document(s)7) Order Signed on 12/8/2016. (JohnstonJ, Julie) Additional attachment(s) added on 12/8/2016 (JohnstonJ, Julie). (Entered: 12/08/2016)
12/08/2016  

35
(6 pgs)

Order (INTERIM) (I)Approving Continued Use of Existing Cash Management System And Bank Accounts; (II)Waiving Certain United States Trustee Requirements; And (III)Granting Related Relief (Related Doc # 8)(related document(s)8) Order Signed on 12/8/2016. (JohnstonJ, Julie) (Entered: 12/08/2016)
12/08/2016  

36
(3 pgs)

Order (I)Authorizing Debtor To Honor or Pay Certain Prepetition Obligations To Customers And (II)Authorizing And Directing Financial Institutions To Honor And Process Checks And Transfers Related To Such Relief (Related Doc # 9)(related document(s)9) Order Signed on 12/8/2016. (JohnstonJ, Julie) (Entered: 12/08/2016)
12/08/2016  

37
(11 pgs; 2 docs)

Order (INTERIM) (A)Authorizing The Debtor To Use Cash Collateral of Existing Secured Lenders And Granting Adequate Protection For Use And (B)Prescribing The Form And Manner of Notice And Setting The Time For The Final Hearing (Related Doc # 19)(related document(s)19) Order Signed on 12/8/2016. (Attachments: # 1 Exhibit 1) (JohnstonJ, Julie) (Entered: 12/08/2016)
12/08/2016  

38
(47 pgs; 2 docs)

Order (INTERIM) (I)Authorizing Debtor To Obtain Postpetition Financing,(II)Granting Administrative Priority Claims To DIP Lender, And (III)Scheduling Final Hearing (Related Doc # 20) Order Signed on 12/8/2016.(Attachments: # 1 Agreement) (JohnstonJ, Julie) (Entered: 12/08/2016)
12/08/2016  

39
(2 pgs)

Order Granting Motion of Debtor To Pay Certain Pre-Petition Payroll, Severance, Employee Benefit And Contractor Wage Expenses. (Related Doc # 22)(related document(s)22) Order Signed on 12/8/2016. (JohnstonJ, Julie) (Entered: 12/08/2016)

The Limitless Mobile bankruptcy is before the Honorable Kevin J. Carey.  Limitless Mobile is represented by the law firm of Dilworth Paxson LLP.

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

It isn’t only the athletic-wear retailers going through bankruptcy (Sports Authority and Golfsmith), but retailers on the other end of the athletic spectrum – think t.v. and tobacco.

Delivery Agent, a company which has developed technology focused on allowing television watchers to easily purchase any items they see in a television show or advertisement, has filed for bankruptcy protection in Delaware.  Its formation meeting is scheduled for September 29, 2016 at 10:00 a.m. at the The Double Tree Hotel, 700 King Street, Salon C, Wilmington, DE 19801.  Until the Formation Meeting occurs, a copy of the Notice will be available here.  In its first day pleadings, Delivery Agent has represented that it intends to sell all of its assets, and divide the sales proceeds among its creditors.

The second case with a formation meeting scheduled for this week is NJOY, Inc.  NJOY is a producer and seller of e-cigarettes.  Its formation meeting is scheduled for September 27, 2016 at 2:00 p.m. at the Office of the United States Trustee, 844 King Street, Room 2112, Wilmington, DE 19801.  Until the Formation Meeting occurs, a copy of the Notice will be available here.  Like Delivery Agent, NJOY has represented that it intends to sell its assets and divide the sales proceeds among its creditors.

As prior posts on this blog have stated, a Creditors’ Committee (which will be created at each of these formation meetings) is the best vehicle for an unsecured creditor to have an influence on a bankruptcy.  Counsel for the Creditors Committee attends every hearing in a case and works to increase recoveries for the unsecured creditors – all at the direction of the members of the Committee.  If you are a creditor of either of these companies and want to discuss how membership in the Committee may affect you, feel free to give us a call.

Recently on June 6, 2016, the Delaware Bankruptcy Court considered a motion to dismiss the Intervention Energy Holdings, LLC, et al. bankruptcy proceeding.  On May 20, 2016, Intervention Energy Holding, LLC (“IE Holdings”) and Intervention Energy, LLC (“IE”) filed a voluntary chapter 11 bankruptcy petition in the United States Bankruptcy Court for the District of Delaware (the “Voluntary Petition”).  For a link to a post summarizing the bankruptcy filing, click here.

Background

On May 24, 2016, EIG Energy Fund XV-A, L.P. filed a motion to dismiss asserting that IE Holdings was not authorized to file the Voluntary Petition. EIG argues that, absent its consent to commence a chapter 11 case, IE Holdings lacked authority to file the Voluntary Petition under the Intervention Energy Holdings, LLC Second Amended and Restated Limited Liability Company Agreement (the “Operating Agreement”) (D.I. 27, Ex. H), which requires “approval of all Common Members . . . [to] commence a voluntary case under any bankruptcy”.

On January 6, 2012, the Debtors and EIG entered into a Note Purchase Agreement (the “Note Purchase Agreement”), whereby EIG provided up to $200 million in senior secured notes (the “Secured Notes”).  EIG and the Debtors then entered into a string of amendments to the Note Purchase Agreement.  The parties then entered into a forbearance agreement on Dec. 28, 2015, and on the same date, IE Holdings enacted Amendment No. 1 to the Intervention Energy Holdings, LLC Second Amended and Restated Limited Liability Company Agreement (the “Amendment”) to include the unanimous consent requirement to file bankruptcy (the “Consent Provision”). To give effect to the Consent Provision, IE Holdings then issued a single common unit to EIG for a common capital contribution of $1.00, making EIG a common member.  But for the Amendment, IE Holdings would have been authorized to file for bankruptcy.

Analysis

In denying EIG’s motion to dismiss in part, Judge Carey stated:

A provision in a limited liability company governance document obtained by contract, the sole purpose and effect of which is to place into the hands of a single, minority equity holder the ultimate authority to eviscerate the right of that entity to seek federal bankruptcy relief, and the nature and substance of whose primary relationship with the debtor is that of creditor—not equity holder—and which owes no duty to anyone but itself in connection with an LLC’s decision to seek federal bankruptcy relief, is tantamount to an absolute waiver of that right, and, even if arguably permitted by state law, is void as contrary to federal public policy.

A copy of Judge Carey’s June 6, 2016 decision can be found here. In addition, a newly-published Alert on the decision penned by my colleague Raymond Patella can be found on the Fox Rothschild website.

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.

Recently in the Abengoa SA bankruptcy proceeding (click here to review prior post), the United States Bankruptcy Court for the District of Delaware entered an order permitting Debtors to reject certain nonresidential real property leases (the “Rejection Order”).  Click here for a copy of the Rejection Order.

Through the order, the Debtors have received authorization from the Bankruptcy Court to reject various leases listed on Exhibit 1 to the Rejection Order.  Commercial landlords need to be on alert and pay close attention to this bankruptcy proceeding to ensure that their rights are protected in connection with the Debtors’ rejection of their leases, including being prepared to file a rejection damages claim.

Below is a link to a previous post titled “Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy.”  This link provides a brief summary of some of the issues landlords should consider when a commercial tenant files for bankruptcy.

Carl D. Neff is a partner 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.

As referenced in a prior post, on April 7th, Pacific Sunwear of California, Inc. (aka PacSun, aka Pacific Sunwear) filed for chapter 11 protection in the United States Bankruptcy Court for the District of Delaware.

On April 8th, the Court entered an Interim Utilities Order (click here), which among other things sets forth deadlines for utility providers to object to the proposed adequate assurance procedures or the amount of adequate assurance.  The exhibits to the Interim Utilities Order (click here), set forth a proposed final order which establishes the proposed amount of adequate assurance of payment to each utility provider of the Debtors under Section 366 of the Bankruptcy Code.  The adequate assurance amount proposed by the Debtors represents the average amount owed to such utility provider over a two-week period.

Any Pacific Sunwear utility provider looking to object to the proposed adequate assurance amount or the procedures should act quickly.  By way of brief background, Section 366 of the Bankruptcy Code was enacted to balance a debtor’s need for utility services from a provider that holds a monopoly of such services, with the need of the utility to ensure for it and its rate payers that it receives payment for providing these essential services.  See In re Hanratty, 907 F.2d 1418, 1424 (3d Cir. 1990). The amount of adequate assurance required is made on a case-by-case determination and, in making such a determination, it is appropriate for the Court to consider “the length of time necessary for the utility to effect termination once one billing cycle is missed.”  In re: Begley, 760 F.2d 46, 49 (3d Cir. 1985).

Per the interim order, a final hearing on the Debtors’ utilities motion has been scheduled for May 3, 2016 at 3:00 p.m.  Objections to the proposed final order must be filed on or before April 25th at 4:00 p.m.  This bankruptcy case is pending before Judge Laurie Selber Silverstein.

Carl D. Neff is a partner 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.

On March 15 and 16, 2016, the Debtors in the Sports Authority bankruptcy, Case No. 16-10527, filed approximately 161 adversary complaints against consignment vendors.  The purpose of these complaints is to determine the priority and validity of the consignment vendors’ claims of title and their claim to a security interest in the consigned goods.

For any vendors who failed to file a UCC-1 security statement within 30 days of sending goods to Sports Authority, this could prove to be a painful lesson.  According to the Debtors’ argument, the consignment vendors do not have title to the goods: “The retention or reservation of title by a seller of goods notwithstanding shipment or delivery to the buyer under § 2-401 is limited in effect to a reservation of a ‘security interest.’” Del. Code Ann. tit. 6, § 1-201(35).

If Judge Walrath agrees with this argument, then consignment vendors will have only a security interest, governed by the Uniform Commercial Code as enacted in Delaware and the principles of bankruptcy law.  Pursuant to the Post-Petition Financing order entered in these bankruptcies, the Debtors have given their DIP Lenders a first-lien security interest in all assets not otherwise encumbered by a perfected lien.  This means that for any shipments that were not properly perfected (by filing a UCC-1 statement within 30 days of shipment), the consignment vendors may not have a 1st priority lien.

The Debtors have argued that any attempts at perfection after the 30-day period provided by the UCC is considered a preferential transfer (if made within the 90 days preceding bankruptcy), and should thus be avoidable.

It’s a tricky situation for any vendors who allowed their diligence to wane over the course of a long relationship with Sports Authority.  Whether you are affected directly by this bankruptcy filing or not, you should use this as an opportunity to re-commit to filing UCC-1 financing statements regardless of how good your relationship is with a contract counter-party.  It’s not a matter of whether you trust your counterparty, its a matter of how much you trust their bankers and attorneys…