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.

The Spanish renewable energy solar company giant, Abengoa SA and its American affiliates, have filed for bankruptcy protection before the U.S. Bankruptcy Court for the District of Delaware.  The Spanish energy company continues talks with its banks and bondholders to agree on its plan to restructure billions of dollars in debt.


Abengoa is one of the world’s top builders of power lines transporting energy across Latin America and a top engineering and construction business, making large renewable-energy power plants in places from Kansas to the United Kingdom.

Additionally, on March 28, 2016, Abengoa S.A., the parent company of the debtors, and approximately twenty affiliated Spanish companies (the “Chapter 15 Debtors”), filed petitions for relief under chapter 15 of the Bankruptcy Code in this Court.

Debtors’ Utilities Motion

The furnishing of utilities to the Abengoa Debtors will become an issue of import in this case.  According to the Declaration of William H. Runge, III in support of the Abengoa Debtors’ first day pleadings:

Uninterrupted Utility Services are essential to the Debtors’ business operations during the pendency of these cases. Should any Utility Company alter, refuse or discontinue service, even for a brief period, the Debtors’ business operations could be severely disrupted, and such disruption would jeopardize the Debtors’ efforts. It is essential that the Utility Services continue uninterrupted.

Along these lines, at the first day hearing, the Debtors obtained an interim utilities order, which among other things approved: (i) the Debtors’ proposed form of adequate assurance, (ii) establishing procedures for resolving objections by utility companies, (iii) prohibiting utility companies from disconnecting service, and (iv) scheduling a final hearing.

Under the interim utilities order, a final hearing on the Debtors’ utility motion is April 27th at 10:00 a.m., and the objection deadline is 7 days prior.

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 a recent decision in the Distributed Energy Systems bankruptcy ("DES" or "Debtors"),  the Honorable Kevin Gross of the United States Bankruptcy Court for the District of Delaware provided a concise discussion of what is required for a debtor to assume and assign an executory contract.  DES filed a motion seeking to assume and assign contracts with ePower and Vestas Wind Systems to CB Wind Acquisition Corp ("CB Wind").  CB Wind previously purchased all of Debtors’ assets. Due to what Debtors’ termed a "scrivener’s error,"  the ePower and Vestas contracts were not included in the schedules to the original asset purchase agreement.

ePower objected to the assumption of its contract on several grounds.  First, ePower argued that DES failed to prove CB Wind could provide adequate assurance of future performance.  Next,  ePower claimed that its contract was not an executory contract and therefore not subject to assumption and assignment under section 365 of the Bankruptcy Code.  Finally,  ePower argued that Debtors’ failure to include its contract in the sale motion evidenced its original intent to reject the agreement. 

Continue Reading Distributed Energy Decision Provides Analysis of Adequate Assurance and Executory Versus Non-Executory Contracts


When a company files for bankruptcy, often it will reject some or all of its commercial leases. Alternatively, some debtors in bankruptcy choose to assume and assign their leases to third parties. By assigning its lease, the debtor is in essence selling its lease to the highest bidder. Large retailers who file for bankruptcy have the potential to generate substantial revenue through the assumption and assignment of leases.

History Behind Preferential
Treatment For Shopping Centers

Years ago, Congress recognized the potential risks landlords faced should a debtor in bankruptcy have broad discretion to assign leases. To address this concern, Congress included language in the Bankruptcy Code requiring a debtor to provide a landlord with “adequate assurance of future performance” that the party receiving the lease performs according to the terms of the lease.

In 1978, Congress increased the protections governing the assignment of shopping center leases. The 1978 revisions to the Bankruptcy Code were intended to not only protect the owners of shopping centers, but also protect the remaining tenants within a shopping center once a tenant files for bankruptcy. Congress had three primary concerns when a tenant in a shopping center filed for bankruptcy:

1. Reduce any hardship imposed on the landlord and tenant due to
a vacancy, or reduction in operation, due to the assignment of the
lease to a third party;

2. Increase the likelihood that the owner of the shopping center
receives rental payments for rent arising before and after the
assignment of the lease, and,

3. Insure that the tenant mix is not disturbed by the assignment
of the lease to a third party.

Heightened Protections
Provided To Shopping Centers

Under the Bankruptcy Code, before a tenant in a shopping center lease can assign the lease to a third party, the party acquiring the assigned lease must provide proof of its ability to pay rent and that the percentage rent due under the lease will not decline substantially. Further, the assignment of the lease cannot result in a breach of radius, location, use or exclusivity provisions in the lease, nor can the assignment disrupt the current tenant mix.

These additional requirements provide shopping center landlord’s with greater protection than other non-shopping center landlords who have a tenant in bankruptcy. In essence, the protections increase the likelihood that the terms and intent of the lease are satisfied. Equally important, the heightened protections for shopping center leases increase the likelihood that a landlord will receive payment under the lease. Interestingly, when amending the Bankruptcy Code, Congress chose not to define what constitutes a “shopping center.” Instead, courts must decide on a case-by-case basis after considering the facts presented.

What is a Shopping Center?

With Congress unwilling to define what constitutes a shopping center under the Bankruptcy Code, Courts have stepped in and applied a broad definition. Some of the factors that support a finding that a property is a shopping center include (i.) whether the leases are held by a single landlord; (ii.) the existence of a common parking area; (iii.) the existence of percentage rent provisions in the lease; and, (iv.) the inclusion of tenant mix requirements in the lease.

Notice that aside from a common parking area, the physical attributes of the property are not determinative of whether a property is a shopping center. Courts reject the idea that the physical features of a property determine whether the landlord will receive the additional protections afforded to shopping center leases. Instead, the intent of the parties, as expressed through the terms of the lease (i.e. the inclusion of percentage rent, joint waste removal, etc.) determine whether the lease is a shopping center lease.

Ways Landlords Can Receive The
Added Protections of “Shopping Center” Leases

Before a debtor can assign its lease, it must file a motion with the court seeking authority to assume and assign the lease. Once a landlord learns that its tenant intends to assign its lease, it should make sure that the party purchasing the lease can provide “adequate assurance” that the new tenant can satisfy the terms of the lease. If a landlord does not receive adequate assurance, it should consider filing an objection to the proposed assignment. Landlords whose lease satisfies some of the criteria of a “shopping center” should assert their rights to greater protection under the Bankruptcy Code. Doing so will improve the likelihood that the terms of the lease are met.