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American Apparel Said to Be Preparing Second Bankruptcy Filing

American Apparel Inc. is preparing for its second bankruptcy filing in as many years, capping a tumultuous stretch that included tumbling sales, red ink and a split with controversial founder Dov Charney, Bloomberg News reported today. The filing may come as soon as the next few weeks, and could help set the stage for a sale of the Los Angeles-based company by letting it exit leases and shutter part of the retail operation. Still, the plan isn’t yet final and could change as the holiday season approaches. The clothing maker only emerged from bankruptcy in February, when former bondholders — led by Monarch Alternative Capital — took over the company. A turnaround plan to return to American Apparel’s roots and focus on basic items like T-shirts and skirts didn’t improve results enough. The company also has hired restructuring firm Berkeley Research Group for guidance. Read more

Read more about the trend of large distressed retailers liquidating rather than reorganizing in “Why Are U.S. Retail Reorganizations So Hard?” in the October ABI Journal

TARP Official to Congress: Require CEOs to Confirm No Wrongdoing at Their Firms

A senior law enforcement official yesterday asked Congress to require chief executives on Wall Street and elsewhere to certify that they found “no criminal conduct or civil fraud in their organization,” the Wall Street Journal reported today. The proposal could have far-reaching effects if adopted. Under current rules, prosecutors often have a hard time proving intentional wrongdoing on the part of senior officials, who are several layers removed from misconduct of lower-level employees. “We have faced significant difficulties in proving criminal intent of senior officials in large organizations that are purposely designed to insulate top officials from knowing about crime or civil fraud,” said Christy Romero, special inspector general for the Troubled Asset Relief Program, which was set up in 2008 to stabilize the financial system. Romero offered the proposal in a quarterly report to Congress and said that Congress should “remove the insulation around Wall Street CEOs and other high-level officials” by requiring them to sign an “annual certification” that they have conducted due diligence and confirmed there are no issues of fraud throughout the company.

First NBC Bank’s Troubles Mount

After another day of sharp falls for its share price, First NBC Bank Holding said that it has hired investment banks Sandler O’Neill & Partners and Piper Jaffray and “is exploring all strategic options to advance the interests of the company’s shareholders,” the Wall Street Journal reported today. Shares of the troubled New Orleans-based bank fell about 18 percent on Tuesday after an investor who is both a holder of the firm’s debt and betting against its stock suggested that the bank should consider a pre-packaged bankruptcy filing. HoldCo Asset Management released a public letter on Tuesday suggesting that a pre-packed filing that would wipe out holders of First NBC’s common stock would be the best solution to its ongoing financial struggles. HoldCo said that its proposed bankruptcy plan, where it would also provide $30 million of new equity for the bank, would be a solution.

Bankruptcy Judge Ruling a "Blow" to Revel Owner

The ongoing saga of the former Revel casino in Atlantic City, N.J., continued this week as a bankruptcy judge made a ruling that could be a "blow" for owner and Florida developer Glenn Straub but a boon for one of its tenants, the Philadelphia Business Journal reported yesterday. Straub and his legal entity, Polo North Country Club Inc., have been in an ongoing legal battle with IDEA Boardwalk Inc., the club operator tenant at the former Revel, which is now known as Ten after a rebranding last month. IDEA been in litigation against Polo North since at least 2015 when a federal judge approved the casino's sale, and since at least 2013 with former parent company, Revel Entertainment Group, when it emerged from chapter 11 protection. Bankruptcy Judge Michael B. Kaplan recently told Straub and IDEA to take their ongoing battle to state court. On Oct. 21, Judge Kaplan ruled that IDEA could remain in possession of its leased space as long as it lived up to terms of the prior lease agreement with the casino, specifically its obligation to pay rent, according to Michael J. Viscount Jr. of Fox Rothschild LLP.

U.S. Judge: Abengoa Units Must Turn over Documents to Creditors

A U.S. judge on Tuesday ordered the bankrupt U.S. subsidiaries of renewable energy company Abengoa SA to disclose their dealings with their Spanish parent, which is accused of draining cash from the U.S. units, Reuters reported yesterday. Creditors of Abengoa Bioenergy US Holding LLC and Abeinsa Holding Inc., which both filed for bankruptcy this year, have said in court filings that the U.S. businesses were transferring cash and assets to the parent in Spain. The Seville-based parent obtained provisional support of more than 75 percent of creditors for a $10 billion debt-restructuring plan, averting what could have become Spain's largest-ever bankruptcy filing. However, creditor challenges to the U.S. chapter 11 proceedings could pose a threat to Abengoa's attempt to retain control of strategic U.S. engineering and renewable energy businesses. In the case of Abengoa's U.S. units, unsecured creditors (including some who helped finance construction of one of the world's largest solar facilities in the Mojave Desert) stand to recover only pennies on the dollar. In a ruling on Tuesday, Bankruptcy Judge Kevin J. Carey granted the unsecured creditors’ committee's request that the U.S. units hand over documents and communications on matters such as asset transfers and liabilities across Abengoa's businesses, which span more than 80 countries. Read more.

Learn about the key issues in cross-border energy company restructurings from a financial and legal perspective at ABI’s Cross-Border Insolvency Program on Nov. 14 in New York. Click here to register. 

Judge Rules that D.R. Horton Engaged in Deceptive Practices, Must Pay $16.3 Million

The nation’s largest homebuilder, D.R. Horton, engaged in deceptive practices that forced the bankruptcy of the homeowners’ association for Majorca Isles in Miami Gardens, The Real Deal (South Florida real estate news) reported yesterday. Following a three-day trial, Bankruptcy Judge A. Jay Cristol entered a judgment against D.R. Horton and its employees for $16.3 million in damages, including $12.5 million in punitive damages, and said the company violated Florida’s Deceptive and Unfair Trade Practices Act. Bankruptcy Trustee Barry E. Mukamal of KapilaMukamal, LLP, and his counsel John Arrastia of Genovese Joblove & Battista, worked for more than four years on the case, representing the Majorca Isles Master Association, a homeowners association created by D.R. Horton as part of the planned 681-unit community Majorca Isles in Miami Gardens. According to Mukamal, D.R. Horton appointed its employees as the board of directors of the Majorca Isles Master Association until the association was turned over to the homeowners. During that time, D.R. Horton allegedly did not make a serious effort to collect assessments from the unit owners, and because it had failed to keep useful financial records, was unable to identify whether units had paid or not. Instead, D.R. Horton allegedly shifted the collections from the master association to other condominium associations, in a breach of the directors’ breaches of duty and loyalty.