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Telecommunications Company Avaya Files for Bankruptcy

Telecommunications company Avaya Inc. filed for chapter 11 protection yesterday to reduce its debt load of about $6.3 billion but said that it would not sell its call center business, which it had tried to do last year, Reuters reported. The bankruptcy underscores the challenges telecommunications companies face as they transition to software and services from hardware. Early last year, Avaya had planned to sell its call center business but did not reach a deal with buyout firm Clayton, Dubilier & Rice LLC, which had been in the lead to acquire it for about $4 billion. Avaya said that it must focus on its debt and that a sale of the call center would not maximize value for its customers or creditors. It is still negotiating deals to sell parts of its business. The company is hashing out terms of a restructuring deal with creditors. The original goal was to have one in place before bankruptcy, but an agreement was not reached. Avaya said an affiliate of Citigroup Inc. would provide a $725 million loan for up to a year to fund its operations during the reorganization.

Bankruptcy Judge Denies Request for Peabody Equity Committee

A U.S. bankruptcy judge yesterday denied a request by Peabody Energy Corp. shareholders to order the appointment of an official equity committee in the coal miner's chapter 11 restructuring, crushing hopes of a recovery for investors, Reuters reported. Shareholders led by hedge fund Mangrove Partners had urged the creation of an official committee, which would receive money from Peabody for lawyers and advisers and could help craft a reorganization plan. At a hearing in St. Louis, Mangrove cited several paths for a potential recovery for Peabody shareholders given a rise in coal prices. In rejecting the request, U.S. Bankruptcy Judge Barry Schermer asked why more money should be spent on legal fees when unsecured creditors such as Aurelius Capital Management and Elliott Management accept that they will not be paid in full. The two funds, among the most litigious on Wall Street, spent years battling Argentina in U.S. courts over the country's 2001 default. Peabody hopes to exit bankruptcy in April, a year after filing for bankruptcy, with a plan to cut $5 billion of debt and raise capital from creditors with a $750 million private placement and a $750 million rights offering. Peabody shares will be canceled and replaced with new stock which will be owned by creditors, the majority of which support the reorganization plan.

Puerto Rico Oversight Board Favors More Time for Restructuring Talks

Puerto Rico's federal oversight board said on Wednesday that it was willing to extend key deadlines that would give the debt-laden U.S. territory's government more time to negotiate restructuring deals with holders of its roughly $70 billion in bonds, Reuters reported. In a letter to Governor Ricardo Rossello, the oversight board said it "is favorably inclined" to grant the governor's request to extend to May 1 from Feb. 15 a freeze on litigation from creditors over missed debt payments. It also said that it favored extending until Feb. 28 from Jan. 15 a deadline for Rossello to submit a fiscal turnaround plan for the island. Both requests will be taken up formally "later this month," the board said, and would be conditioned on the government agreeing to turn over more information about its financial picture and not to take on more short-term liquidity loans. The board said Rossello's fiscal plan should aim to generate $4.5 billion annually in new revenues or savings through fiscal 2019. It laid out specific areas the plan should address, including shrinking the size of the government, pension reform and spending reductions in higher education and health care.

CFPB: TCF National Bank Tricked Customers on Overdraft Fees

The Consumer Financial Protection Bureau (CFPB) accused Minnesota-based TCF National Bank of tricking thousands of customers into accepting overdraft fees with such aggressiveness that the practice ended up as the name of the former CEO's pleasure boat, USA Today reported today. The CFPB filed a lawsuit yesterday against TCF, seeking penalties and compensation on behalf of consumers. The bank denies allegations that it took advantage of customers. The agency, which filed the lawsuit on the final full day of the Obama administration, said that the matter bears similarity to the scandal involving Wells Fargo, whose employees earned incentives for opening fake accounts. CFPB said that TCF executives were thrilled with the revenue they generated through overdraft fees. The bank's chairman, Bill Cooper, also the former CEO, threw parties aboard his boat, dubbed the Overdraft, for the bank's leaders to celebrate their success. The agency said TCF's 66 percent opt-in rate for overdraft fees was more than three times higher than the industry average. TCF said it hopes to reach "an appropriate resolution" but plans to "vigorously defend" itself. The bank, which has more than $21 billion in assets, has about 360 retail branches in Minnesota, Wisconsin, Illinois, Michigan, Colorado, Arizona and South Dakota.

Ex-Sentinel Chief Loses Bid to Void Conviction, 14-year Prison Term

A federal appeals court rejected former Sentinel Management Group Inc. chief Eric Bloom's bid to void his conviction and 14-year prison sentence over an estimated $666 million fraud that led to the demise of his suburban Chicago firm and a big writedown for Bank of New York Mellon Corp., Reuters reported. The U.S. Court of Appeals for the Seventh Circuit in Chicago yesterday disagreed with Bloom's contentions that a lack of evidence, prosecutorial misconduct and errors by the trial judge tainted the conviction, and that the sentence was too long because the judge miscalculated the alleged loss. "We are extremely disappointed by the opinion and plan to seek rehearing," Bloom's lawyer Len Goodman said. Bloom had been appealing his March 2014 jury conviction on 19 fraud counts. Prosecutors said Bloom misappropriated assets belonging to dozens of clients, including futures commission merchants, commodity pools and hedge funds, to fund a risky "house" trading portfolio, and concealed mounting liquidity problems that culminated in Sentinel's August 2007 bankruptcy. Read more.

For a further analysis of commercial fraud, make sure to pick up a copy of ABI’s Fraud and Forensics: Piercing Through the Deception in a Commercial Fraud Case

Navient Faces Enforcement Action from CFPB

Navient Corp., the largest servicer of student loans in the U.S., was sued by a U.S. regulator over allegations that the company “systematically” cheated borrowers, Bloomberg News reported yesterday. Navient, formerly part of Sallie Mae, failed to properly service private and federal loans, provided incorrect information to borrowers, improperly processed payments and didn’t respond to complaints, the Consumer Financial Protection Bureau said in a statement Wednesday announcing the lawsuit. “For years, Navient failed consumers who counted on the company to help give them a fair chance to pay back their student loans,” CFPB Director Richard Cordray said in the statement. Navient said in a statement that the allegations are “unfounded” and that it rejected an ultimatum from the consumer agency to settle before the presidential inauguration of Donald Trump. Navient said the suit’s timing “reflects their political motivations.”


Not My Client, Not My Problem. The Duty of Attorney’s to Non-Clients

By: Daniel Quinn

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

In 2015, the United States Court of Appeals for the Second Circuit found that attorneys at May-er Brown, LLP had inadvertently terminated certain liens granted by General Motors (“GM”) in favor of J.P. Morgan Chase (“JPM”). GM repaid the Term Loan agreement in full in accordance with the bankruptcy court order and therefore made the retirement plaintiffs and Term Loan members subject to clawback provisions under the Bankruptcy Code. The members of the Term Loan agreement and retirement plaintiffs filed a lawsuit against Mayer Brown, the law firm responsible for the erroneous termination of liens, for negligent mis-representation and legal malpractice in the United States District Court of Northern District of Illinois.