A. Where We Left Off As noted in Part I, movants seeking approval of a structured motion to dismiss must generally prove that: (1) the court has the power to enter an order approving a structured dismissal; (2) “cause” exists to approve the structured dismissal; and (3) the structured dismissal is in the best interest of the debtor’s creditors. Part I addressed courts’ authority to enter orders approving structured dismissals under section 105(a) of the…
Structured Dismissals – How They Work Part II: Proving That Cause Exists to Dismiss the Case Under Section 1112(b)
Recommendations of the ABI Commission to Study the Reform of Chapter 11: Preference Claims
From time to time it has proved beneficial to revisit existing bankruptcy statutes, and update them where necessary. The American Bankruptcy Institute established the Commission to Study the Reform of Chapter 11 (the “Commission”) for this precise purpose, and on December 8, 2014 the Commission published its recommendations. If enacted by Congress, some of those recommendations might affect a trustee’s ability to avoid and recover preferential transfers under Bankruptcy Code section 547. The primary goals…
Franchisor Strikes Out in Bankruptcy Court
Occasionally, a case comes along that shows how things can go wrong for a franchisor in bankruptcy court. Cumberland Coral, LLC, is just such a case. To learn more about the case and the issues raised for franchisors and franchisees, click on the link below to an article recently published by the online news site Hotel News Now: http://www.hotelnewsnow.com/Article/14749
Determining “value” given by good faith transferee in fraudulent transfer action
The Bankruptcy Code allows a trustee to recover fraudulent transfers made by the debtor prior to bankruptcy. 11 U.S.C. § 548(a). An innocent recipient of a fraudulent transfer is not without a defense, however. The Code allows a transferee that takes in good faith to retain what it received from the debtor in a fraudulent transfer “to the extent that such transferee . . . gave value to the debtor in exchange for such transfer.”…
Bankruptcy Court: It Is the Proper Forum for Trade Secret Dispute
You are embroiled in a contentious trade secret lawsuit. In the midst of the litigation, your competitor files for bankruptcy and proposes to sell its assets. Do those assets include the trade secrets? Which court makes that determination? To find out how one bankruptcy court addressed these issues, click on the link below to an article written by Angie Offerman and recently published in the ABI Technology & Intellectual Property Committee Newsletter: http://committees.abi.org/committees/technology-and-intellectual-property/posts/2014/bankruptcy-court-it-is-the-proper-forum-for-trade-secret-dispute …
How Bankruptcy Affects Franchise Agreements
Few assets in the hospitality industry are more valuable and important than the franchise agreements. The bankruptcy filing of a franchisor or a franchisee can greatly increase the uncertainty of how and when the provisions of a franchise agreement will be enforced. To learn more, click on the link below to an article recently published by the online news site Hotel News Now: http://www.hotelnewsnow.com/Article/14427
Structured Dismissals – How They Work Part I: Court Authority for an Alternative Ending
A. Introduction Over the past decade, debtors have increasingly used the protections of Chapter 11 to sell substantially all of their assets in sales under section 363 of the Bankruptcy Code. As a result, post-sale debtors frequently have next to nothing left to reorganize or liquidate. Historically, post-sale debtors had only three options for wrapping up their bankruptcy cases: (1) confirming a liquidating plan of reorganization; (2) converting to Chapter 7 and liquidating remaining assets; or…
The Power of a Trust Fund Claim: Paying Milk Producers First
The Texas Agricultural Code requires milk processors to hold funds in trust for the benefit of milk producers, including dairies and cooperatives. A trust fund is a powerful tool that will allow a milk producer to be paid ahead of other creditors in the event that a milk processor files bankruptcy. To learn more about trust fund claims in general and the protection provided to milk producers in particular, click on the link below to…
The Fifth Circuit Narrowly Construes “Good Faith” in the Context of Lending to a Debtor
Debtor-in-possession financing (“DIP financing”) is a critical issue that comes up at the beginning of most large to mid-sized bankruptcy cases. Companies filing bankruptcy are typically doomed to a rapid liquidation if they are unable to obtain new financing to support them through the bankruptcy process. The risks associated with lending to a company already in bankruptcy are readily apparent. To deal with this risk, DIP lenders demand a number of different protections. Chief among…
The Art of Defending Preferential Transfers – Part Two: The Defenses
Learning how to defend a preferential transfer action is a particularly useful art for the credit professional. In Part One, we discussed the Bankruptcy Code’s specific requirements that must be established by the debtor or trustee in order for a transfer to be considered “preferential,” and subject to avoidance (return to the debtor’s bankruptcy estate) The logical follow-up is a discussion of the most common defenses to a preferential transfer action. The Bankruptcy Code describes…