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Bankruptcy Headlines

Small Business Bankruptcy Law Rolls Out With New Trustees

The U.S. Trustee Program has some 250 new trustees at the ready to assist with small business cases as a change in bankruptcy law intended to make it easier for smaller companies to reorganize goes into effect, Bloomberg Law reported. The Small Business Reorganization Act of 2019, signed into law in August, adds a subchapter to the bankruptcy code’s chapter 11 to cut the legal costs incurred by qualifying small corporate debtors, defined as those with about $2.7 million of debt or less. It also expedites the restructuring process and allows owners of the bankrupt company to retain a stake.“The SBRA represents an innovative effort to expedite and reduce the cost of bankruptcy for small business debtors to reorganize their debts and save their businesses,” said USTP Director Cliff White. “The USTP has spent the past six months preparing for its implementation and is committed to ensuring that the law is carried out as intended.” In addition to the selection of the new subchapter V trustees, the USTP developed a comprehensive manual and handbook to guide staff and subchapter V trustees in carrying out their new SBRA responsibilities; provided extensive training to staff, subchapter V trustees, bankruptcy professionals, and others interested in the new law; and coordinated with the bankruptcy courts on administrative issues to ensure a successful implementation. Click here to read the USTP's press release. 

For news, analysis and events related to SBRA, be sure to visit ABI’s SBRA Resources webpage.

Harrisburg Catholic Diocese Declares Bankruptcy Under Weight of Clergy Sex-Abuse Claims

The Roman Catholic Diocese of Harrisburg, Pa., filed for bankruptcy yesterday, becoming the first diocese in the state to seek protection from financial claims in the aftermath of a 2018 grand jury report that revealed decades of sexual abuse and cover-up by the church’s top leaders, the Philadelphia Inquirer reported. And, said a lawyer for the diocese, it’s not likely to be the last. Citing the fallout from that probe and recent court decisions that opened new avenues for some victims with time-barred claims to sue, attorney Matt Haverstick said that Harrisburg, like each of the state’s eight other Catholic dioceses, faces the prospect of crushing court judgments that it will be unable to pay. “There is no capacity to take that kind of exposure,” Haverstick said. “I think this is really the beginning — not just in Pennsylvania but across the country — of a wave of reorganizations spawned by … the economics of trying to maintain an organization in the face of catastrophic litigation.” With its filing yesterday, the Harrisburg Diocese joins more than two dozen others across the United States that have sought similar bankruptcy protections since the clergy sex-abuse scandal first exploded in Boston 18 years ago. The move comes six months after Bishop Ronald W. Gainer announced that the Harrisburg church had paid out $12.5 million in settlements with more than 100 accusers through an independently run victim compensation fund.

Boys Scouts’ Accusers Want Abuse Details Revealed in Bankruptcy

As the Boy Scouts of America hurries to emerge from bankruptcy and put allegations of sexual abuse to rest, lawyers for victims want the organization’s “dark side” revealed in its bankruptcy proceedings, the Wall Street Journal reported. With billions of dollars worth of land, buildings, cash and investments to protect, the Boy Scouts appeared for the first time yesterday before the U.S. Bankruptcy Court in Wilmington, where a lawyer for the organization, Jessica Boelter, said that it recognized the harm endured by victims of childhood sexual abuse. The bankruptcy filing is designed to resolve allegations of sexual abuse in 275 existing lawsuits and from thousands of more people who haven’t filed papers in court. “We need to move through this bankruptcy as quickly as possible,” Boelter said in court. Lawyers for abuse victims said they are looking to the bankruptcy process as a way to find out more about circumstances surrounding allegations of widespread abuse of boys as young as 5 years old by scoutmasters and others connected to the organization. “We’re not here because the Boy Scouts do a great job at taking care of boys or training boys,” said James Stang, a lawyer for sexual-abuse survivors. “There’s a very dark side to their history.” He said the 10 law firms he advises are representing “probably more than 2,700 men” combined, some of which are elderly, sick or have pressing psychological counseling needs.”

Commentary: Boy Scouts' Bankruptcy Is a Troubling Use of Chapter 11*

The Boy Scouts of America filed for chapter 11 amid sexual abuse lawsuits it is facing. On one level, the victims get some compensation while the organization gets legal clarity and finality. Yet on closer examination, it is troubling about using laws designed to resolve business meltdowns to address the social ills caused by nonprofit entities that are meant to do good, but have done harm, according to a Bloomberg commentary. The lawsuits against the Scouts, like the sexual abuse lawsuits against the Catholic Church and Gymnastics USA, are about our collective assignment of moral blame, and about what can be done for victims who can never be made whole by mere monetary compensation. Unlike chapter 7 bankruptcy, which essentially puts an end to a bankrupt corporation and liquidates its assets, chapter 11 is meant to save a corporation. As applied to for-profit corporations that have caused what are sometimes called mass torts — injuring many people through a common cause or pattern of behavior — chapter 11 still makes a kind of economic sense. The U.S. tort system assigns a monetary value to the injuries that people have suffered. Those who’ve been injured then effectively become creditors of the company. Because the company doesn’t have enough money to pay both the victims and its other creditors, we allow it to reorganize. As a mechanism necessary to make the system work, we impose on tort victims some of the same limits that bankruptcy imposes on other kinds of creditors. They have to file their claims by a certain date and agree to a system for determining what they will get. When it comes to nonprofits organized to provide public goods, like scouting or religion or gymnastics, this model makes much less sense, according to the commentary. These aren’t organizations whose future operations will make profits that would go to compensate victims. Read the full commentary

*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

Puerto Rico Government Objects to Moving Forward with New Debt Plan

The government of bankrupt Puerto Rico told a federal judge yesterday that its opposition to a plan announced earlier this month to restructure more than $85 billion of its debt should put the brakes on a confirmation process, Reuters reported. The U.S. commonwealth’s federally created financial oversight board had asked Judge Laura Taylor Swain to approve a schedule that would culminate with a confirmation hearing on a so-called plan of adjustment for Puerto Rico’s core government debt and pension obligations starting in October. The scheduling motion followed the board’s Feb. 9 announcement that it had reached a deal with an expanded group of bondholders to reduce $35 billion of bonds and claims to about $11 billion, moving Puerto Rico closer to exiting bankruptcy, which began in 2017. But Puerto Rico Governor Wanda Vazquez objected to the deal’s enhanced recoveries for some bondholders, while certain government retirees would still face the same pension cuts called for in an earlier plan the board announced in September. In a court filing on Wednesday, Puerto Rico’s fiscal agency said the revised plan of adjustment, which the board has not yet filed in court, was “unconfirmable.”

Forever 21’s New Owners in Talks to Keep Most U.S. Stores Open

Forever 21 Inc.’s new owners plan to keep most of the fast-fashion chain’s U.S. stores open under a new chief executive in the coming weeks when the company emerges from bankruptcy, Bloomberg News reported. Owners Authentic Brands Group, Simon Property Group Inc. and Brookfield Property Partners are talking with other landlords about keeping as many of the 448 U.S. stores in business as possible, Authentic CEO Jamie Salter said in an interview. Forever 21 is interviewing three CEO candidates and will name a new one soon, Salter said. Forever 21 filed for bankruptcy in September after struggling with large, expensive locations and losses in some international markets, while dealing with the effects of the same online competition that has forced U.S. retailers to close thousands of stores in recent years. The new owners agreed to pay $81 million and assume certain liabilities as part of the purchase. The company is planning to launch or expand wholesale lines in jewelry, footwear and handbags, Salter said. It’s also planning to expand the Riley Rose beauty brand. Salter envisions “multiple” collaborations with other brands, both his own and outside ABG.

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