Bankruptcy and Restructuring Blog

To read this article on bankruptcies in the fashion industry published by American Lawyer, please click here, or visit the AmLaw Daily website.

In a decision made on August 11, 2009, the U.S. Bankruptcy Court for the Southern District of New York allowed solvent, special purpose entity subsidiaries of a bankrupt parent company, General Growth Properties, Inc., to maintain their Chapter 11 bankruptcy cases, raising several important issues related to the use of special purpose entities structured to be "bankruptcy-remote." 

The author is a member of the Firm's Government Contracts & Regulated Industries Practice Group. For additional articles and postings concerning this and related topics, please refer to Sheppard Mullin's Government Contracts Blog, which can be found at www.governmentcontractslawblog.com.

I.  INTRODUCTION

Without a doubt, the False Claims Act ("FCA") has been dramatically changed in the last few months. As will be discussed in more detail herein, it certainly appears that the FCA has been retooled so that the playing field is now stacked in favor of the government and qui tam plaintiffs. There is also every indication that lenders who have federally insured mortgages, redevelopment funding, or other financial support from the government, are at risk of being sued for false claims unless they take certain precautions to educate and protect themselves.

On June 10, 2009, the sale of substantially all of Chrysler's assets closed, just 42 days after the country's third largest automaker filed for bankruptcy protection. The closing followed a contentious sale hearing before the Bankruptcy Court, an expedited appeal to the Second Circuit Court of Appeals and a brief stay imposed by the United States Supreme Court. The source of the contention: three Indiana state pension funds, arguing that the sale of Chrysler's assets constituted a sub rosa plan of reorganization that upended the priority scheme of the Bankruptcy Code. Rejecting the Indiana pension funds' arguments and approving the sale, a decision upheld on appeal, the Bankruptcy Court avoided mention of the effect of unprecedented the governmental intervention in its analysis, relying on its interpretation of applicable bankruptcy law. As the sale process in the bankruptcy of General Motors nears completion, much has been learned from Chrysler.

With bankruptcy filings up by more than 25% in the recent past, and with the promise of many more to come in the near future, an increasing number of businesses and individuals may find themselves listed amongst the largest unsecured creditors of a debtor and with much to lose in a bankruptcy case. As one of the largest creditors, these same businesses and individuals may also find themselves being solicited to serve on “official” unsecured creditors’ committees. While a creditor who is already owed significant amounts of money by a debtor may consider any further time or effort expended in connection with a debtor to be a waste of resources, serving on a creditors’ committee can often be a valuable opportunity to be involved in the direction a debtor's case and reorganization (or ultimate liquidation) will take and to ensure the maximum recovery for all unsecured creditors, including itself. This article provides a brief overview of what a committee is, who may serve on a committee, what service entails, and some of the pros, cons and other considerations of and for serving on a creditors committee.

On February 17, 2009, President Obama signed the American Recovery and Reinvestment Tax Act of 2009 ("ARRTA").  ARRTA contains significant potential Federal income tax relief for businesses.  Some of the more important provisions are summarized in the remainder of this article.

Most maritime shipping companies were operating profitably through the summer of 2008 until the "perfect storm" of the credit crisis and the worldwide recession struck, leading to the collapse of both the commodity and freight markets.  The resulting upheaval has affected trade credits, shipbuilding deliveries, orders, chartering, and sales-and-purchases, among other things, for shipping companies worldwide.  Reports of bankruptcy, insolvency, liquidation and complex debt restructurings of shipping and other maritime industry companies have begun surfacing in the trade press, with more to come.

As a result of the turmoil in the shipping industry, actions seeking attachments under Supplemental Admiralty Rule B of the Federal Rules of Civil Procedure have risen dramatically, further exacerbating the problems facing cash-strapped shipping companies.  As the recent U.S. bankruptcy filings of Armada (Singapore) Pte. Ltd. and Atlas Shipping A/S demonstrate, Chapter 15 bankruptcy proceedings under the U.S. Bankruptcy Code may provide struggling shipping companies with a powerful tool for protecting their assets from Rule B Attachments.

A common strategy for acquiring the business of a troubled company is to purchase assets rather than acquire all outstanding capital stock of the target, based on the general principle that a purchaser of assets is not responsible for liabilities of its seller absent an express or implied assumption.  Does the strategy work?  Depending on the liability and circumstances, the answers are "No" and "Maybe," and sometimes a qualified "Yes."  In troubled economic times, buyers may reconsider whether they are willing to rely upon indemnity by the seller or its owners, particularly since doctrines of public policy may render such an indemnity unenforceable in certain situations.

Bankruptcy filings are skyrocketing as more and more companies are going deep into the red.  For retailers or their landlords holding leases in commercial property, there are special considerations to keep in mind.  This post will provide some basic information on the rights of non-debtor tenants and landlords under unexpired non-residential property leases when a debtor–landlord or –tenant, respectively, files a chapter 11 bankruptcy petition.

In Burkhart v. Coleman, (In re Tippett) --- F.3d ---, 2008 WL 4070690 (9th Cir. Sept. 4, 2008), the Ninth Circuit held that an unauthorized post-petition sale of real property may be upheld where: 1) the bankruptcy trustee failed to record the bankruptcy petition with the county recorder; and 2) a bona fide purchaser thereafter bought and recorded title in the property.  As welcome as this news is to bona fide purchasers in California, the opinion raises interesting issues pertaining to acts arguably taken in violation of the automatic stay under section 362 of the Bankruptcy Code by holding that the automatic stay may not apply to sales or transfers of property initiated by the debtor under certain circumstances.