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U.S. Trustee Program Reaches $5 Million Settlement with Citibank to Protect Debtors in Bankruptcy

The Department of Justice’s U.S. Trustee Program (USTP) has entered into a national settlement agreement with Citibank N.A. (Citibank), Department Stores National Bank (DSNB) (collectively Citi), and FDS Bank requiring Citi to pay $5 million to remediate robo-signed proofs of claim filed in consumer bankruptcy cases in connection with more than 71,000 Macy’s-branded credit card accounts, Director Cliff White of the Executive Office for U.S. Trustees announced yesterday. The proposed settlement has been filed in the U.S. Bankruptcy Court for the Northern District of Georgia, where it is subject to court approval. In the settlement, Citi acknowledges that its affiliate DSNB issued Macy’s-branded consumer credit card accounts. FDS Bank was responsible for account servicing activities and contracted certain bankruptcy-related services to vendors. Between 2012 and 2015, tens of thousands of proofs of claim were filed in bankruptcy cases across the country on DSNB’s behalf. These proofs of claim were improperly signed, under the penalty of perjury, by employees of a third-party vendor who had not reviewed and/or lacked knowledge of the contents of the proofs of claim. In some cases, the electronic credentials of the vendor’s employees were used to file claims where the employee did not review the claim. These improper practices were identified when Citibank took over the servicing of the accounts in late 2015 from the third parties. Citi self-reported the errors to the USTP. Click here to read the court filing. 

Sears CEO Pushes a Rescue Plan to Avoid Bankruptcy

Warning that Sears Holdings Corp. is running out of time and money, CEO Edward Lampert is making his biggest push yet to restructure the retailer to avoid a bankruptcy filing, as a debt payment looms next month, the Wall Street Journal reported. Lampert, who is also Sears’s chairman, controlling shareholder and biggest creditor, wants creditors to restructure about $1.1 billion of debt coming due in 2019 and 2020, according to a proposal made public yesterday. The proposal also calls on the Sears board to sell another $1.5 billion of real estate and divest some $1.75 billion of assets, including Sears Home Services and the Kenmore appliance brand, which he has offered $400 million to buy himself. The restructuring plan, if approved by the board and creditors, would reduce Sears’s roughly $5.5 billion in debt to about $1.24 billion, if all proceeds were spent on paying down debts, according a securities filing Monday by ESL Investments Inc., Lampert’s hedge fund. “Sears now faces significant near-term liquidity constraints,” the filing states, including a $134 million payment due Oct. 15, which isn’t part of the proposed restructuring. Sears said it had received ESL’s proposal and the board had asked its legal and financial advisers to work closely with ESL and other stakeholders to pursue “liability management transactions” similar to what ESL has proposed.

Fight Emerges over Whether Harvey Weinstein’s Studio Will Pay Him in Bankruptcy

Harvey Weinstein says his former film studio, which collapsed into bankruptcy after multiple women accused him of sexual assault, owes him money, WSJ Pro Bankruptcy reported. Weinstein’s lawyers say Weinstein Co., the studio he co-founded, owes him missed payments for film and television productions he financed before the entertainment company filed for chapter 11, according to papers and email correspondence filed last week in the U.S. Bankruptcy Court in Delaware. Weinstein Co.’s assets were sold in July to private-equity firm Lantern Capital Partners for $289 million. Lawyers in charge of liquidating Weinstein Co. are now negotiating a plan to repay creditors, a group that includes vendors that did business with the company and women who have pending lawsuits accusing the studio of covering up Weinstein’s alleged sexual misconduct.

Fluor Sues Westinghouse over Scrapped Nuclear Plant

The remnants of nuclear plant builder Westinghouse Electric Co. are facing off against engineering and construction giant Fluor Corp.’s demands for legal costs and a quarter-billion dollars in damages surrounding a failed revival of the U.S. nuclear industry, WSJ Pro Bankruptcy reported. Fluor filed a bankruptcy court lawsuit on Friday against the entity formed to wind down Westinghouse’s affairs and distribute the proceeds from its $4.6 billion sale to Brookfield Business Partners LP. Westinghouse hired Fluor as a subcontractor on deals to build new nuclear reactors in South Carolina and Georgia, but the projects ran into trouble with cost overruns and delays. The South Carolina project was scrapped after Westinghouse entered bankruptcy protection last year. Whether the Georgia project can continue will be decided this week when its co-owners take a vote to decide the plant’s fate. Fluor’s bankruptcy claims stem in part from fees linked to the termination of those subcontracts. Westinghouse previously objected to the bulk of those claims, saying the law and the contractual language don’t support the requested payments.

New Tariffs Bring New Headaches on Top of Higher Costs

The 10 percent levy on the declared value of goods U.S. importers buy from Chinese suppliers will add new complications, along with higher costs, as buyers and sellers across trans-Pacific supply chains complete the nuts-and-bolts of how and when the new tariffs are handled, the Wall Street Journal reported. Customs brokers said that they were working overtime in the days leading up to the new tariff deadline, filing entry paperwork for shipments from China and hoping those electronic filings would be processed before the midnight cutoff. “This is all done electronically and has been for years,” said Marianne Rowden, president of the American Association of Exporters and Importers. Once the tariffs go into effect, the funds are withdrawn directly from the importer’s bank account as soon as the products enter U.S. commerce. Rowden said that shippers were working to get their goods on ships and planes as quickly as possible before the tariffs were imposed, and pushed their customs brokers to file the necessary paperwork. In many cases, if the paperwork has been filed, goods might be considered to be in U.S. commerce even before the vessels they are traveling on have reached U.S. ports, Rowden said. Read more. (Subscription required.) 

Don't miss the "What Effect Will Trade Wars Have on Industries and Restructurings?" session at the 2018 International Insolvency Symposium in Milan on Oct. 18. Register here. 

Trump's Trade War Curbing CEO Confidence, Business Roundtable Says

Optimism at the top levels of American businesses dipped in the three months through September, with fewer executives planning to hire workers and build new plants as President Trump's trade war bites into profits, the Washington Examiner reported. About 56 percent of the corporate leaders in a Business Roundtable survey expected to expand payrolls, down 2 points from the spring quarter, while the 55 percent forecasting new capital spending fell six points. The overall CEO Economic Outlook Index dipped 1.8 points to 109.3, still well above its historical average of 81.6, according to the organization, which represents 200 of the largest U.S. companies. The index uses a scale of -50 to 150, with any reading above 50 indicating economic expansion, and gauges sentiment at businesses that, together, employ nearly 15 million people and account for more than 27 percent of U.S. stock market value.
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