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On May 24, 2012, Judge McMahon of the United States District Court for the Southern District of New York rendered a decision in the Coudert Brothers, LLP bankruptcy case holding that, in the absence of a partnership agreement provision to the contrary, upon dissolution of a law firm partnership, unfinished business, specifically hourly billed client representations still in progress, constitutes an asset of the partnership and partners who took that business with them to other law firms, and those other law firms, must account for the profits realized in finishing that work.  Further, in calculating the profit realized from work in progress, the partners who complete the work at another law firm would not be entitled to compensation.

Read More from: SCG Bankruptcy Blog

8 years 1 month ago
Yesterday marked an active day on the corporate governance front. First, the U.K. Government announced “a far reaching package of reform to strengthen the hand of shareholders to challenge excessive pay.” The hallmark of this package is a binding shareholder vote on prospective compensation and exit payments. Other elements include a continued shareholder advisory say-on-pay vote, as well as enhanced disclosure regarding actual amounts of remuneration paid during the prior year. Second, the SEC finalized its rule requiring listing standards for compensation committees and their advisers, as required by the Dodd-Frank Act. The final rules largely adopt the SEC’s proposed approach, which in turn closely follows the original statutory language. However, there are a few changes, such as narrowing the disclosure requirement regarding compensation consultants, which many had complained as overly extensive. In any event, there is much more to come, as the exchanges must now propose listing standards on several key elements within 90 days of the SEC rule’s publication in the Federal Register, and it is conceivable that they may expand beyond the limited statutory language. There may also be practical implications for companies in terms of possible committee charter amendments and procedures for the committee to consider adviser independence and consultant conflicts. We will be summarizing both developments in further detail, but wanted to alert our readers in the interest of time.
8 years 1 month ago
Richmond, VA-based Suntrust Mortgage will pay out $21 million to more than 20,000 African-American and Hispanic home loan borrowers to settle a federal government suit charging discriminatory mortgage pricing from 2005 to 2009. The lawsuit charged Suntrust with violating the Fair Housing Act and Equal Credit Opportunity Act. This settlement comes on the heels of a settlement last December by Countrywide Financial Corp. and subsidiaries for $335 million for similar loans made between 2004 and 2008. Currently under investigation by the Department of Justice is Wells Fargo & Co. "At the core (of the suit) is a simple story: If you are African-American or Latino, you likely paid more for a SunTrust loan than equally or similarly qualified white borrowers," Thomas E. Perez, assistant U.S. attorney general for the civil rights division, told the Richmond Times-Dispatch in a May 31, 2011conference call. "You paid what amounted to a racial surtax," ranging from hundreds to thousands of dollars per borrower," he told the newspaper.
8 years 1 month ago
Richmond, VA-based Suntrust Mortgage will pay out $21 million to more than 20,000 African-American and Hispanic home loan borrowers to settle a federal government suit charging discriminatory mortgage pricing from 2005 to 2009. The lawsuit charged Suntrust with violating the Fair Housing Act and Equal Credit Opportunity Act. This settlement comes on the heels of a settlement last December by Countrywide Financial Corp. and subsidiaries for $335 million for similar loans made between 2004 and 2008. Currently under investigation by the Department of Justice is Wells Fargo & Co. "At the core (of the suit) is a simple story: If you are African-American or Latino, you likely paid more for a SunTrust loan than equally or similarly qualified white borrowers," Thomas E. Perez, assistant U.S. attorney general for the civil rights division, told the Richmond Times-Dispatch in a May 31, 2011conference call. "You paid what amounted to a racial surtax," ranging from hundreds to thousands of dollars per borrower," he told the newspaper.
8 years 1 month ago
A recent article in the New York Times Dealbook explains how investors have succeeded in causing illiquid funds that have refused to honor redemption requests - sometimes referred to as "zombie funds" - to pay up or be liquidated.

Word among Caribbean insolvency practitioners is that many of the funds registered in Cayman that have ceased honoring redemption requests have done so because the funds are invested in Ponzi schemes; the notion is that the funds are hiding this by continuing to operate while not paying out investors.  Hmm.

As the article explains, zombie funds can be liquidated on an involuntary basis under a theory of loss of substratum: Under English law, “loss of substratum” refers to a situation in which a business can no longer carry out its intended operations or services in accordance with its governing documents. In simplest terms, think of a baker who has lost his oven, or a taxi driver without a driver’s license — or a hedge fund holding mostly illiquid assets and no additional capital to put to work for its investors. . . .  With the assistance of legal and financial advisers, investors can leverage their rights to audit a hedge fund’s books and records, independently value portfolio assets and, in extreme cases, force a liquidation to recover assets.

I welcome related inquiries.

Read More from: The COMI

8 years 1 month ago
The docket in Dewey & LeBoeuf's Chapter 11 proceedings is starting to look like the classic Star Trek episode, The Trouble with Tribbles.

Tribbles are little furry animals that purr a sound so relaxing that even Vulcans find it soothing.  As wikipedia explains: The "trouble" with the tribbles is that they reproduce far too quickly and are capable of eating a planet barren if their breeding is not controlled; in the words of Chief Medical Officer Dr. McCoy, "they are born pregnant" and threaten to consume all the onboard supplies.

The Dewey docket invokes memories of this episode because it is riddled with retention applications seeking to employ professionals to work on the case.  Yesterday, a motion was filed for an order establishing procedures for interim compensation, and then several motions were filed on behalf of a variety of professionals whose services are purportedly needed to clean up the mess Dewey left behind when it collapsed.

Read More from: The COMI

8 years 1 month ago
Harvey Forman  MathewRotenberg Scott Budzenski 

Read More from: Bankruptcy Law Watch

8 years 1 month ago
Being an election year, it’s no surprise that the most prolific type of shareholder proposal this season asked for disclosure and oversight of political contributions and lobbying expenses.  ISS reports that over 100 such proposals were filed. The proposal generally averages far less than overwhelming support, not even 30% as of the end of May.  However, WellCare recently became the first company in 2012 to receive 53% in favor of the proposal (without counting abstentions), an increase from 43% in the prior year.  Similar proposals also received more than 40% support at five other companies, including Coventry Health Care Inc. (49%) and Anadarko Petroleum Corp. (47%).
8 years 1 month ago
A lot has already been written about the controversy surrounding Chesapeake's governance and its annual meeting taking place today, but since it is unusual for shareholders to litigate in order to delay an annual meeting with routine ballot items, the court order on the preliminary injunction request gives some insight on the standard. Chesapeake originally filed a preliminary proxy on April 20th that included information regarding the CEO's now well-known interest in certain company transactions and related loans. The SEC conducted a review of the proxy after media inquiry highlighted those transactions. The company issued a final version to shareholders on May 11th. Plaintiffs later asserted that defendants failed to disclose material information necessary to allow shareholders to cast a fully informed vote and asked the Court to enjoin the meeting until the disclosure is revised. The plaintiffs alleged that the voting items impacted by the lack of disclosure include the re-election of two directors, an amendment to the equity plan and the approval of the performance goals for a new cash-based plan. The plaintiffs did not reference the advisory vote on executive compensation.
8 years 2 months ago
Regina StangoKelbon Last week the Supreme Court decided a split in the circuits in an important decision for lenders.  Previously, I reported that the Third Circuit and the Fifth Circuit in Philadelphia Newspapers LLC and In re Pacific Lumber, Co., respectively, denied a secured creditor the right to credit bid its debt when the creditor’s collateral was being sold under a plan if the plan otherwise provided the creditor with the “indubitable equivalent” of its secured claims.  The Seventh Circuit, on the other hand, in consolidated appeals involving River Road Hotel Partners, LLC and the RadLAX cases, held that a secured creditor cannot be deprived of its right to credit bid at a sale conducted under a plan of reorganization.  The Supreme Court in RadLAX Gateway Hotel, LLC and RadLAX Gateway Deck, LLC unanimously held that the debtor’s chapter 11 plan could not be confirmed where the plan provided for the sale of the bank’s collateral free and clear of the bank’s lien but did not permit the bank to credit bid at the sale.

Read More from: Bankruptcy Law Watch

8 years 2 months ago
In the first win of its kind, a majority of shareholders at Nabors Industries voted in favor of a proposal for the right of shareholders owning 3% or more for at least three years to nominate directors on a company's ballot, for up to 25% of the board. The thresholds are the same as those previously adopted by the SEC, which was later struck down by the courts. The shareholder proposal was submitted by a group of New York City Pension Funds led by the City Comptroller of New York, and co-sponsored by similar funds in five other states. The company confirmed news reports that the proposal has passed, but has made no public announcement about the specific vote results. Nabors had been criticized for their executive compensation practices last year, which entitled the then-CEO to a cash bonus of 10% of any amount of the company’s cash flow that exceeded 10% of average shareholder equity. In addition, a $100 million award was triggered when the CEO relinquished his title but did not leave the company. The outcry resulted in a failed say-on-pay vote. The company also announced an SEC investigation into its disclosure of aircraft perks after the Wall Street Journal reported that flight logs showed many flights to the CEO's homes that did not appear to be reported in the proxy statement. 
8 years 2 months ago
In what Justice Scalia termed “an easy case,” the United States Supreme Court has ruled 8-0 that a debtor cannot strip a secured creditor’s right to credit bid under 11 U.S.C. § 1129(b)(2)(A)(ii).  RadLAX Gateway Hotel, LLC, et al. v. Amalgamated Bank, NO. 11-166. The Court granted certiorari in this case to resolve a split in the circuits between the Seventh Circuit, on one hand, and the Third and Fifth Circuits, on the other, as to the ability of a debtor to prevent a secured creditor from credit bidding at a sale pursuant to a plan of reorganization. Under clause (i) of 11 U.S.C. § 1129(b)(2)(A), the secured lender retains its lien on its collateral and receives deferred cash payments.  Clause (ii) provides for the sale of the collateral free and clear of a security interest so long as the secured creditor can credit bid at the sale.  Clause (iii), on the other hand, provides for confirmation so long as the secured creditor receives the “indubitable equivalent.”The Seventh Circuit had held that a debtor could not use clause (iii) to avoid the credit bidding requirements found in clause (ii).  In RadLAX, the debtor sought to confirm its plan through a sale to an insider group for an amount substantially below the secured lender’s debt.  RadLAX Gateway Hotel, LLC, et al. v. Amalgamated Bank, 651 F.3d 642 (7th Cir.

Read More from: SCG Bankruptcy Blog

8 years 2 months ago
This month, Congress finally passed the Temporary Bankruptcy Judgeship Extension Act of 2011 (H.R. 1021 and S. 1821) (the “Extension Act”) and on May 25, 2012, President Obama signed the Extension Act into law.  The law will go into effect on November 21, 2012.  This bill provides for the extension of thirty temporary bankruptcy judgeships in nineteen districts for five years.  The Extension Act was in response to what some commentators had deemed a “crisis” due to the expiration of temporary judgeships created in the wake of the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”).  These BAPCPA temporary judgeships expired five years after their creation and could not be filled after a judge in that district retires.  This led some observers to note that, in the coming years, the number of bankruptcy judges would decline by approximately 8%.

Read More from: SCG Bankruptcy Blog

8 years 2 months ago
Today marks the one year anniversary of The Center of Main Interest (The COMI).

Thanks to thousands of readers all over the World for contributing to the success of the mission of The COMI, which is to heighten transparency in the cross-border restructuring arena.

We are making progress!  And so that we can make more, I pose the following question:

Which opaque cross-border cases are of greatest interest to you??

Input is greatly appreciated, and will be reflected in posts made in the second half of 2012.

Kind regards,

Tally M. Wiener, Esq.
[email protected]

Read More from: The COMI

8 years 2 months ago
It is an unusual annual meeting where Justin Timberlake acts as the Master of Ceremonies and Taylor Swift, Celine Dion, Lionel Ritchie and others perform for over 14,000, mostly employees, in attendance. But the focus at Wal-Mart’s meeting was clouded by recent allegations of FCPA violations, as evidenced in the annual meeting results announced today.  Since slightly more than half of the shares are held by insiders, the opposition by more than 15% to the re-election of former CEO H. Lee Scott is not insignificant. ISS also recommended against current CEO Michael Duke, chairman Robson Walton and audit committee chair Christopher Williams, with those three directors receiving about 13% negative votes. Perhaps as a testament to ISS influence, the remaining directors emerged unscathed with at least 93% in support, even though CalPERS campaigned against the re-election of nine directors, the City Comptroller of New York targeted five directors and Glass Lewis also recommended against additional directors. 
8 years 2 months ago
The U.S. Chamber of Commerce recently sent a letter to the SEC asking the regulator to "monitor the activities" of Glass Lewis, questioning whether the proxy advisory firm's recent vote recommendations for the 2012 Canadian Pacific Railway meeting was influenced by its parent company, the Ontario Teachers' Pension Board. The letter pointed out that the Ontario Teachers' opposition to the board of directors of Canadian Pacific Railway was followed by Glass Lewis issuing a recommendation that shareholders vote for the alternative slate of directors. The Chamber questions the "tangible conflicts of interest in the operation of proxy advisory firms."
8 years 2 months ago
The Nasdaq Stock Market has proposed to broaden the exception (in Rules 5605(c)(2)(B), 5605(d)(3) and 5605(e)(3)) that allows one non-independent director to serve on a company’s audit, compensation or nomination committee under “exceptional and limited circumstances” for a maximum of two years if the board determines that it is in the best interests of the company and its shareholders. Under the existing rules, a company may not use the exception if the director is currently an officer or employee of the company or has a family member who is an officer or employee of the company.  The proposed rules would continue to prohibit the use of the exception for family members of executive employees but would not prohibit the use of the exception if the director is a family member of a non-executive employee. The proposal attempts to harmonize the exception with the director independence rules generally, which do not disqualify a director from being considered independent based on a familial relationship with a non-executive officer. As before, a listed company that relies on the exception must comply with the relevant disclosure requirements.  The SEC is soliciting comments on the proposal. Comments are due within 21 days from the date the proposal is published in the federal register (which is expected shortly). Read the proposed rule change.
8 years 2 months ago
We're at that stage during proxy season when observers analyze and come to preliminary views of the results so far, as we did ourselves in this memo. With more annual meetings having taken place, many focus on the voting tallies for shareholder proposals. The Conference Board's May Proxy Season Fact Sheet uses data for Russell 3000 companies as of the end of April and includes a detailed chart of each company's reported say-on-pay vote. The Manhattan Institute's Center for Legal Policy's Proxy Monitor's Mid-Term Report is based on its scorecard tracking every ballot proposal at Fortune 200 companies. Some of the notable details in these reports include:
8 years 2 months ago
On May 15, 2012, the Eleventh Circuit Court of Appeals issued its long-awaited decision in the In re: Tousa, Inc.  fraudulent transfer litigation.  The Court affirmed the Bankruptcy Court holding that the “Transeastern Lenders” received fraudulent transfers when Tousa, Inc., the parent company paid a settlement of $421 million dollars to the Transeastern Lenders which was funded by a loan from “the New Lenders” secured primarily by the assets of several Tousa subsidiaries, “Conveying Subsidiaries,” who were not themselves legally obligated to the Transeastern Lenders.The Tousa decision is a cautionary tale.  Companies that are dealing with troubled debtors who are receiving repayment of substantial debts will have to be wary and exercise due diligence and consider their potential exposures for fraudulent transfers after this decision.At trial, the Bankruptcy Court ruled the subsidiaries did not receive reasonable equivalent value in exchange for the liens to secure the loans from the New Lenders and the Transeastern Lenders were entities for whose benefit the Conveying Subsidiaries transferred the liens and liable for repayment of the funds under 11 U.S.C. §550(a)(i).

Read More from: SCG Bankruptcy Blog

8 years 2 months ago
In the run-up to the spectacular Lehman Brothers Holdings Inc. bankruptcy case and the immediate aftermath of the filing, JP Morgan Chase (“JPMC”) received over $8.6 billion dollars from the Lehman entities.  As a result of those transfers the Lehman entities and their Official Committee of Unsecured Creditors brought suit against JPMC to recover the transfers.On April 19, 2012, the Honorable James M. Peck entered his opinion granting in part and denying in part JPMC’s motion to dismiss.  The extensive and lengthy decision contains three broad groups of holdings.  First, the Court held that the transfers could not be avoided as either preferences or constructively fraudulent transfers because the safe harbor of 11 U.S.C.

Read More from: SCG Bankruptcy Blog

8 years 2 months ago