Bankruptcy Case Updates

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.

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.

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…

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.

In a 16 page opinion released January 28, 2016 in the Casino Caribbean, et al. v. Money Centers of America adversary proceeding (Bank. D. Del. Adv. No. 14-50437), Judge Christopher S. Sontchi of the Delaware Bankruptcy Court granted the motion of Quapaw Casino to intervene in the adversary proceeding.  Judge Sontchi’s opinion is available here (the “Opinion”).

Plaintiffs in the adversary proceeding had obtained a court order requiring the Debtors’ to maintain a cash balance of $900,000 or more, in order to compensate the Plaintiffs if it should be determined that the Debtors were holding funds as a ‘mere conduit’ to which the Plaintiffs were entitled.  Opinion at *2.  Quapaw claimed that the Debtors were likewise holding funds to which it was entitled, and moved to intervene in the adversary proceeding, in order to obtain the same relief.  Plaintiffs opposed the motion, fearing that the set-aside funds would be insufficient to compensate them and Quapaw.  Opinion at *2.

The Debtors had entered into an agreement with Quapaw to provide ATM and other cash advance services to Quapaw’s customers, and that any funds advanced to a customer by Quapaw would be reimbursed by the Debtors.  Quapaw is listed on the Debtors’ schedules and filed a proof of claim for $502,018.  Opinion at *4.

The adversary complaint was filed on July 7, 2014.  Quapaw filed its motion to intervene on January 21, 2015.  As of that time, the Debtors had not yet filed an answer in the adversary proceeding.  Pursuant to Fed. R. Civ. P. 24(a) “A movant has an unconditional right to intervene when its motion is timely filed and either (A) a federal statute grants an unconditional right to intervene or (B) the movant claims an interest that is related to the property or transaction that is the subject of the adversary proceeding and disposing of the proceeding impairs or impedes the movant’s ability to protect its interest as a practical matter, unless the parties adequately represent that interest.”  Opinion at *7.  Ultimately, Judge Sontchi found that Quapaw satisfied this requirement.  Opinion at *8.

Judge Sontchi then examined the case under the permissive intervention standard of Fed. R. Civ. P. 24(b), finding that Quapaw also satisfied those requirements.  Opinion at *16.

As this Opinion illustrates, it is difficult to prevent another party from following the path you create and obtaining the same relief, when their claims are practically identical to your own.  In cases like this one, where a finite quantity of funds are available, it may be worth your time to investigate whether your relief would be diminished if another party received identical treatment.  If it would, then you may want to spend a bit more time investigating whether those similarly situated parties exist and take them into account in the relief you seek.

The Court held that QCA had a right to intervene under both Fed. R. Civ. P. 24(a)(1) and (a)(2), and that permissive intervention was warranted under Fed. R. Civ. P. 24(b)(1)(B).  Rule 24(a) has 4 requirements,

 

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.

On January 26, 2016, the Delaware Bankruptcy Court denied Debtors Noble Logistics Inc., et al.’s (“Debtors” or “Noble Logistics”) motion for summary judgment on their objections to the claims filed by Richard Maximo individually, and on behalf of the Putative Class.  The claims were filed in the amounts of $188,014.13, and $61,292,607.17, respectively (the “Maximo Claims”). A link to the opinion can be found here.

The Maximo Claims are based upon a complaint alleging that Maximo and other members of the Putative Classes were working or had previously worked for Aspen (one of the Debtors’ affiliates) as “Delivery Drivers.” It further alleges that Maximo and other class members were mischaracterized as “independent contractors” by Aspen, and, therefore, were deprived of “premium overtime compensation,” minimum wages, and other protections and benefits to which they would have been entitled if treated as traditional employees.  Maximo asserts Aspen committed multiple violations of the California Labor Code and the California Business and Professions Code.

The Court walked through the analysis of explaining the shifting burdens of proof both on a summary judgment motion, and for establishing proofs of claim in general.  The Court found that genuine issues of material fact clearly existed regarding the Maximo Claims:

[I]ncluding whether the Class members had the right to control and the discretion as to the manner of performance of their services, whether the Class members could complete the route without the Debtors’ direction or supervision, what skills were required, the length of time for which the services were performed, and whether the work was part of the Debtors’ regular business, among other things. Based on the record before the Court, it would be impossible to make such factual determination without developing the evidentiary record.

Accordingly, the Court denied Debtors’ motion for summary judgment as to the Maximo Claims, without prejudice.

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.

The Affirmative Insurance Holdings, Inc. Section 341 meeting has been continued to December 14, 2015, at 1:00 p.m. at J. Caleb Boggs Federal Building, 844 King St., Room 2112, Wilmington, Delaware.  For a prior post on this bankruptcy proceeding, click here.

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.

In the Fresh & Easy, LLC bankruptcy proceeding, a Section 341 Meeting of Creditors has been scheduled for Thursday, December 3, 2015 at 10:00 a.m. (ET) at the J. Caleb Boggs Federal Court House, 844 N. King Street, Fifth Fl., Wilmington, DE 19801.

One way in which 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.

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.

In the Wire Company Holdings, Inc. bankruptcy proceeding (Delaware Bankruptcy Case No. 15-12097-LSS), the U.S. Trustee has scheduled a Section 341 Meeting of Creditors for November 17, 2015 at 1:00 p.m. (ET) at the J. Caleb Boggs Federal Building, 844 King Street, Room 5209, Wilmington, DE 19801.

The Section 341 Meeting of Creditors allows creditors 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.

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

  • The nature and scope of a debtor’s assets and liabilities;
  • The amount of accounts receivable and accounts payable;
  • The extent that the debtor is able to repay its creditors;
  • Whether insurance remains active;
  • The condition and location of goods received in the 20-45 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.

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 or at cneff@foxrothschild.com.