Bankruptcy Headlines

February Bankruptcy Filings Decrease 13 Percent from Previous Year, Increase 10 Percent from January

Total U.S. bankruptcy filings decreased 13 percent in February from the same period last year, according to data provided by Epiq Systems, Inc. Bankruptcy filings totaled 65,002 in February 2015, down from the February 2014 total of 72,267. Consumer filings declined 10 percent in February 2015 to 62,740 from the February 2014 consumer filing total of 69,403. In addition, total commercial filings in February 2015 decreased to 2,262, representing a 21 percent decline from the 2,864 business filings recorded in February 2014. Total commercial chapter 11 filings were down 25 percent as February 2015’s commercial chapter 11 filings decreased to 363 from February 2014’s 484 filings.

Caesars' Operating Unit Files Bankruptcy Exit Plan

The operating unit of casino company Caesars Entertainment Corp. unveiled its plan to cut $10 billion of debt and to exit Chapter 11 in a bankruptcy court filing on Monday, Reuters reported yesterday. The plan formalized a proposal negotiated with senior creditors prior to the casino operator's January bankruptcy filing. It must be approved by Bankruptcy Judge Benjamin Goldgar in Chicago and by creditors, a process that can easily take a year or more. Under the proposed plan, the bankrupt unit would be split into an operating company that runs 38 casinos in 14 states and a property company that owns the real estate.

Argentina Says Creditors Filed $7-8 Billion More Claims in Debt Battle

Argentina's economy minister said yesterday that "me-too" investors who want compensation for debt owed since the country's 2002 default have lodged claims for between $7 billion and $8 billion in the hope of gaining from its legal battle with other holdouts, Reuters reported yesterday. A U.S. judge ordered Argentina in 2012 to pay a group of hedge funds that did not participate in its 2005 and 2010 debt restructuring, including Elliott Management Corp.'s NML Capital Ltd. and Aurelius Capital Management, $1.33 billion plus interest. Argentina refused to pay, calling the creditors "vulture funds" for seeking to pick clean the carcass of Latin America's third-largest economy after its devastating 2002 default on $100 billion in debt. The country now says it wants to reach a deal, after its legal battle with the holdouts pushed it into default on its restructured debt in July. But it wants to settle claims from all creditors who refused the swaps at the same time. U.S. District Judge Thomas Griesa in New York said that he would deal with "me too" claims filed by March 2 on the same schedule as those of the hedge funds. "Those who presented new claims to Griesa worth $7 or $8 billion are also vultures," Economy Minister Axel Kicillof said yesterday.

Commentary: Congress Continues to Consider Bankruptcy Forum Shopping Proposals

Currently, businesses can file for bankruptcy in one of three venues: where the business is incorporated (likely Delaware), where its principal assets are located, or where its headquarters are located, according to a commentary in The Hill. A related rule permits a parent company to file where a subsidiary has previously declared bankruptcy. Under this provision, some insolvent businesses will deliberately put a subsidiary into bankruptcy in one location, often New York or Delaware, to satisfy the venue requirements for itself. The debate of where the company should file is not new according to the commentary: Prior to 1987, a business filing for bankruptcy was required to do so either where its principal place of business was located, or where its assets were located. Going back to at least the late 1990s, Congress has wrestled with whether the bankruptcy venue rules could be misused in some way and should be changed. Based on prior legislative efforts, Congress will not likely changes the rules, according to the commentary. However, the new Majority Whip was once very active on this issue, and there are serious arguments made by the proponents of venue reform.

Oil and Gas Contractor Cal Dive Files for Bankruptcy

Offshore oil and gas contractor Cal Dive International Inc. said that the company and its U.S. subsidiaries filed for voluntary bankruptcy protection, Reuters reported yesterday. Cal Dive's foreign units have not sought bankruptcy protection and will continue to operate outside of any reorganization proceedings, the company said yesterday. Cal Dive has been hurt by the slump in crude prices as oil and gas producers slash their capital spending budgets. U.S. crude prices have more than halved since June. "With our current capital structure, we are no longer able to financially withstand the industry downturn," Chief Executive Quinn Hebert said. Cal Dive said it would sell non-core assets and reorganize or sell as a going concern its core sub-sea contracting business. The Houston-based company said that it received a commitment for up to $120 million in debtor-in-possession financing from its current first-lien lenders led by Bank of America. Read more.

 

For further analysis of oil and gas insolvencies, be sure to pick up a copy of ABI’s When Gushers Go Dry: The Essentials of Oil & Gas Bankruptcy

They’re Rare and They’re Exceptional: Fee Enhancement Authorization by Bankruptcy Courts

By: Adrianna R. Grancio

St. John’s Law Student

American Bankruptcy Institute Law Review Staff


Recently, in In re Asarco,[i] the Fifth Circuit held that a bankruptcy court did not abuse its discretion in authorizing fee enhancements to two law firms representing a chapter 11 debtor in connection with their remarkably successful fraudulent transfer litigation.[ii] The Fifth Circuit also agreed with the lower court decision in rejecting compensation for the defense of fee applications[iii]. In In re Asarco, Baker Botts L.L.P. (“Baker Botts”) and Jordan, Hyden, Womble, Culbreth & Holzer, P.C. (“Jordan Hyden”) served as debtor’s counsel to the chapter 11 debtor and helped the debtor confirm a plan that paid creditors in full[iv]. In connection with that representation, Baker Botts and Jorden Hyden successfully prosecuted complex fraudulent transfer claims against the debtor’s parent corporation resulting in an unprecedented judgment valued at between $7 and $10 billion.[v] While Baker Botts and Jordan Hyden were compensated pursuant to section 330(a) of the Bankruptcy Code, the bankruptcy court authorized a twenty percent fee enhancement for Baker Botts and a ten percent fee enhancement for Jordan Hyden.[vi] The bankruptcy court based the authorization of the fee enhancements on the “rare and exceptional” performance of the firms in successfully prosecuting a multi-billion dollar fraudulent conveyance action and the fact that the rates charged by Baker Botts were roughly twenty percent below market rate.[vii] On appeal to the district court, the fee enhancements were affirmed.[viii] After the parent corporation appealed again, the Fifth Circuit affirmed the lower court’s authorization of the fee enhancements.[ix] Further, the Fifth Circuit, ruling in line with the Eleventh Circuit[x] held that based on the plain meaning reading of Section 330(a) compensation for the cost counsel or professionals incur in defending fee applications is not permissible.

The Nature of a Parent-Subsidiary Relationship Determines How to Allocate a Refund in a Tax Sharing Agreement

By: Samuel Cushner

St. John’s Law Student

American Bankruptcy Institute Law Review Staff


Recently, in FDIC v. AmFin Financial Corp.,[i] the Sixth Circuit held that a tax sharing agreement between a bank holding company and its subsidiary was ambiguous as to the ownership of an income tax refund and that the district court erred in refusing to consider extrinsic evidence concerning the parties’ intent as to the ownership of the funds.[ii] In 2009, the bank holding company filed for chapter 11 bankruptcy protection.[iii] As a result, the Office of Thrift Supervision closed the bank holding company’s bank subsidiary and placed it into FDIC receivership.[iv] Later on, the bank holding company filed a consolidated 2008 federal tax return on behalf of itself and its affiliates showing a total net operating loss of $805 million, with the bank subsidiary’s losses accounting for $767 million of that total.[v] After the IRS issued a refund of approximately $195 million to the parent company, the FDIC claimed[vi] that over $170 million of that refund belonged to the bank subsidiary. Finding that the tax sharing agreement was unambiguous, the United States District Court for the Northern District of Ohio concluded that the tax sharing agreement created a debtor-creditor relationship with respect to tax refunds between the parent and its affiliates, including the subsidiary, and thus, the parent owned the refund.[vii] The Sixth Circuit reversed and remanded to the district court to determine whether the tax sharing agreement created either a debtor creditor relationship or a trust or agency relationship under Ohio law with respect to the tax refunds.

Bankruptcy Attorneys Potentially Face Sanctions for Failure to Reasonably Investigate the Accuracy of Bankruptcy Petitions Prior to Filing

By: Nancy Bello

St. John’s Law Student

American Bankruptcy Institute Law Review Staff


Recently, in In re Parikh,[i] a bankruptcy court imposed sanctions pursuant to Rule 9011 of the Federal Rules of Bankruptcy Procedure against a debtor’s attorney who signed a chapter 7 petition that contained incomplete and incorrect information that was clearly refuted by the debtor’s previous chapter 13 petition.[ii] In Parikh, the debtor initially filed under chapter 13 of the Bankruptcy Code.[iii] Subsequently, the debtor’s chapter 13 case was dismissed for the debtor’s failure to produce documents.[iv] The debtor then filed a second bankruptcy case under chapter 7 of the Bankruptcy Code in order to stop a judgment creditor’s enforcement action in state court.[v] Although the debtor’s chapter 7 attorney could access the chapter 13 petition and schedules on PACER, there were several discrepancies between the information provided in the petition and schedules in the chapter 13 case in comparison to the information contained in the petition and schedules in the chapter 7 case.[vi] For example, the Schedule H to the chapter 13 petition indicated there were co-debtors, while the Schedule H to the chapter 7 petition did not.[vii] Further, the chapter 13 petition reflected monthly payments on the debtor’s first mortgage of $823.73, while the chapter 7 petition reflected a monthly first mortgage payment of $1,700.[viii] In addition, the chapter 7 petition failed to reveal a Citibank bank account, which the debtor disclosed in the chapter 13 petition.[ix] Subsequently, the judgment creditor commenced an adversary proceeding seeking to dismiss the chapter 7 petition as a bad faith filing, or alternatively, to deny the debtor’s discharge.[x] While the bankruptcy court refused to dismiss the case, the court did enter an order denying the debtor’s discharge.[xi] Shortly after the court entered that order, the judgment creditor moved for sanctions against the debtor and the debtor’s attorney pursuant to Rule 9011, § 707(b)(4)(C) and (D), 11 U.S.C. § 105, 28 U.S.C. § 1920, 28 U.S.C. § 1927, and the court’s inherent powers.[xii] The bankruptcy court initially denied the sanctions motion.[xiii] On appeal, however, the district court remanded the matter for further findings.[xiv] On remand, the bankruptcy court found that the debtor’s chapter 7 attorney’s conduct was sanctionable pursuant to Rule 9011(b)(3) as to the attorney and his firm.[xv] The bankruptcy court declined to impose monetary sanction; instead, the court determined that publication of its decision was an appropriate sanction against the chapter 7 attorney and his firm.[xvi]

Uncertainty Remains as to How a Rejected Trademark License Agreement will be Treated in the Eighth Circuit

By: Crystal Lawson

St. John’s Law Student

American Bankruptcy Institute Law Review Staff


In In re Interstate Bakeries Corp.,[i] the United States Court of Appeals for the Eighth Circuit recently held that a trademark license agreement was not an executory contract because it was part of a larger, integrated sale agreement that had been substantially performed by both parties.[ii] Accordingly, since the debtor could not reject the agreement, the Eighth Circuit did not determine whether the rejection of a trademark-licensing agreement necessarily terminates the licensee’s rights in the trademark.[iii] In 1996, Interstate Brands Corp (“IBC”), a subsidiary of Interstate Bakeries Corporation (“Interstate Bakeries”), transferred two of its brands and certain related assets to Lewis Brothers Bakeries (“LBB”) pursuant to an antitrust judgment.[iv] In connection with the sale, the parties entered into an asset purchase agreement and a trademark license agreement.[v] In 2004, Interstate Bakeries and eight of its subsidiaries, including IBC, filed for bankruptcy under chapter 11 of the Bankruptcy Code.[vi] After Interstate Bakeries disclosed that it intended to assume the trademark license agreement, LBB commenced an adversary proceeding seeking a declaration that the agreement was not an executory contract under section 365(a) of the Bankruptcy Code and therefore, was not subject to assumption or rejection.[vii] Finding that both parties owed material obligations under the trademark license agreement, the bankruptcy court held that the agreement was executory.[viii] The district court affirmed that decision.[ix] The Eighth Circuit, however, reversed, holding that the trademark license agreement was not executory because it was part of a larger, integrated contract that had been substantially performed.[x]

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