The South Bay Law Firm Law Blog highlights developing trends in bankruptcy law and practice. Our aim is to provide general commentary on this evolving practice specialty.

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      Bankruptcy and Insolvency News and Analysis Week Ending October 21, 2016
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    Bankruptcy and Insolvency News and Analysis Week Ending October 14, 2016

    Bankruptcy and Insolvency News and Analysis – Week Ending October 7, 2016

    Sunday, October 9th, 2016



    Top ten court districts for ch. 11 filings reporting over $10 million in debt for 2016 year-to-date

    Business Bankruptcy Filings Through First Three Quarters of 2016 Up 28 Percent; Total Filings Fall 6 Percent

    Total chapter 11 filings reporting over $10M in debt by sector for 2016 YTD, led by energy, consumer discretionary and financials

    Sept. Business Bankruptcy Filings Up 28 Percent over 2015


    The Divide Between Maritime And Bankruptcy Jurisdiction

    Secured Claims

    Rules of Thumb for Intercreditor Agreements

    Satisfaction of a Prepetition Loan by a DIP Loan Does Not Extinguish Vendor’s Reclamation Rights Under Section 546(c)

    Avoidance and Recovery

    Extraterritorial Avoidance Actions: Lessons from Madoff

    The Avoidance of Pre-Bankruptcy Transactions: An Economic and Comparative Approach

    Opinion in NewPage (Pirinate Consulting) is a Reminder of 547 Defenses


    Preserving a Fundamental Bankruptcy Tool: Despite uncertainty, credit bidding continues to serve lenders and investors well in distressed industries

    Executory Contracts

    Lease Rejection: Does the Contract Disappear?


    How Absolute Is the Absolute Priority Rule in Bankruptcy? The Case for Structured Dismissals

    American Idol & The Absolute Priority Rule


    Chapter 15 at 11: Bankruptcy Code’s Cross-Border Insolvency Law Approaches 11th Anniversary


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    Bankruptcy and Insolvency News and Analysis – Week Ending June 24, 2016

    Friday, June 24th, 2016
    Photograph of the black board in the New York Gold Room, September 24, 1869, showing the collapse of the price of gold.

    Photograph of the black board in the New York Gold Room, September 24, 1869, showing the collapse of the price of gold.


    Health Care Chapter 11 Filings Are Rising


    Out-of-court restructuring alternatives

    Adequate Protection

    Courts Trending Toward Motion Date to Begin Adequate Protection Payments


    Chapter 11 Bankruptcy Sale: So Who Needs a Plan of Reorganization Anyway?

    Avoidance and Recovery

    Making Sausage – – The Seventh Circuit Examines the “Ordinary Course” Preference Defense

    Bankruptcy litigation


    Do Bankruptcy Courts Have Jurisdiction Over Out-of-the-Money Claims Disputes?


    Recognition of Foreign Insolvency Proceedings under Chapter 15 of the Bankruptcy Code



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    Bankruptcy and Insolvency News and Analysis – Week Ending May 13, 2016

    Friday, May 13th, 2016


    The “credit cycle” begins to unravel.

    Litigation and ADR

    6 Reasons Why Bankruptcy Mediation is a Process, Not a One-and-Done Session: PART THREE — DISCOVERY VACUUM

    Corporate Governance

    Bankruptcy Court Opinion Clarifies California Law on Duties of Directors & Officers Upon Insolvency

    Avoidance and Recovery

    Making Fraudulent Transfer Law More Predictable

    Golf Channel Finds the Fairway in Fraudulent Transfer Litigation – Good News for Vendors in Ponzi Scheme Cases

    Now You See It, Now You Don’t – The Search for “Unreasonably Small Capital”


    Valuation Outside the Box: Southern District of Texas Affirms the Bankruptcy Court’s Discretion to Select Appropriate Valuation Methodologies

    Executory Agreements

    Chapter 11 Debtors Exempt From Their Obligations Under An Expired Collective Bargaining Agreement


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    Bankruptcy and Insolvency News and Analysis – Week Ending April 22, 2016

    Friday, April 22nd, 2016



    Triple negative – making sense of the current wave of corporate restructurings

    Task Force Studying Individual Chapter 11 Filings

    Workouts and Restructuring

    Please Buckle Your Seatbelts and Check Your D&O Insurance: A Gloomy Forecast Is Ahead

    Bankruptcy Court Chips Away at Bankruptcy Remoteness of Special Purpose Vehicles

    Executory Contracts

    Late Is Never Better! Timeline to Protect Your Contract in a Market Downturn

    Claims and Creditors

    “When Worlds Collide: Article 2 of The Uniform Commercial Code and Chapter 11”

    Avoidance and Recovery

    Second Circuit Limits Creditors’ Ability to Claw Back LBO Payments

    Seventh Circuit Finds Tax Sale Avoidable


    Third Circuit Permits Purchaser in Section 363 Sale to Make Payments to Interested Parties, Deviating from Bankruptcy Code Priority Scheme


    Ninth Circuit Rulings on Equitable Mootness in Transwest and Sunnyslope Impact Third Party Investors

    Improper Calculation of Postpetition Interest Leads to Reversal of a Confirmation Order


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    Bankruptcy and Insolvency News and Analysis – Week Ending August 7, 2015

    Friday, August 7th, 2015

    Burning 20


    July Commercial Chapter 11 Filings Increase 77 Percent from 2014

    Claims And Litigation

    Just Follow the Rules!  FRCP amendments could be e-discovery game changer

    Officer/Director Breach of Duty: If Things Get Bad Enough, There May Be Recourse

    Avoidance and Recovery

    Ordinary Course of Business Defense Further Examined – Burtch v. Revchem Composites, Inc.

    In a Case of First Impression at the Circuit Level, Ninth Circuit Holds an Insider Who Waives his Right to Indemnification from the Debtor is not a “Creditor” for Purposes of Preferential Transfers Under Sec. 547 of the Bankruptcy Code


    The ABI Commission on Business Bankruptcy Reform: The Sale of All or Substantially All of the Debtor’s Assets and Proposed Creation of “Section 363(x)”



    Structured Dismissals Part IV – Bells & Whistles: Sweetening the Pot and Drawing Objections

    Post-Bankruptcy Investing & Chapter 22s: Iconic Branding Alone Is Not Enough


    OAS S.A. Part III – SDNY Takes a Narrow View of Chapter 15’s Public Policy Exception

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    Recent Insolvency and Bankruptcy Headlines – June 6, 2014

    Friday, June 6th, 2014

    Some of the week’s top bankruptcy and restructuring headlines:

    English: Part of Title 11 of the United States...

    English: Part of Title 11 of the United States Code (the Bankruptcy Code) on a shelf at a law library in San Francisco. (Photo credit: Wikipedia)




    Business Bankruptcy Filings Off 21% Year-Over-Year


    Less Than 1M Filings This Year?


    – LBO Defaults Set to Reach A High This Year, Fitch Says


    The Changing Nature of Chapter 11




    Cross-Border Issues: Misconduct No Grounds for Termination of Chapter 15


    – Liquidators urge speedy action on Hong Kong corporate rescue bill




    DIP Dimensions: Energy Future Intermediate Holding Co. LLC”s Financing Fracas


    Avoidance Actions


    Avoidance Actions: Subsequent New Value Defense, Good Faith Defense, and Section 546(e) Safe-Harbor


    Ponzi Schemes:  11th Circuit Opines on “Property of the Debtor”


    – Thelen Ruling Highlights Evidentiary Issues in Fraudulent Transfer Case


    Bankruptcy Sales


    Limits On Credit Bidding and Section 363(k):  Another Court Follows Fisker


    – Successful Bidder Must Pay Damages (In Addition to Forfeiting Deposit) After Backing Out of Sale – At Least in Certain Circumstances


    – Upsetting a Bankruptcy Auction: Money Talks


    Never Do This: A Lesson On What Not To Do In a Section 363 Auction




    Plan Confirmation:  The Tax Man Cometh . . . And Getteth Impaired




    Debt Recharacterization: In re Alternate Fuels: Tenth Circuit BAP Holds Recent Supreme Court Decisions Do Not Limit Power to Recharacterize Debt to Equity


    – . . . And More Debt Recharacterization: In re Optim Energy: Court Denies Creditor Derivative Standing to Seek Recharacterization of Equity Sponsors’ Debt Claims




    And Still More:


    Related articles


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    When Speaking Up Isn’t Enough

    Monday, May 16th, 2011

    When a retailer becomes insolvent, suppliers or vendors who have recently provided goods on credit typically have the ability to assert “reclamation” rights for the return of those goods.  Retailers may respond to these rights by seeking the protection the federal bankruptcy laws – and, in particular, the automatic stay.

    When a retailer files for bankruptcy while holding goods which are subject to creditors’ “reclamation” rights, what should “reclamation” creditors do?

    Logo of Circuit City, now-defunct US retail chain

    Image via Wikipedia


    The Bankruptcy Code itself provides some protection for “reclamation” creditors by providing such creditors additional time in which to assert their claims, and by affording administrative priority for a certain portion for such claims even when they are not formally asserted.

    But is merely asserting a reclamation claim under the Bankruptcy Code sufficient to protect a supplier once a retailer is in bankruptcy?  A recent appellate decision from Virginia’s Eastern District serves as a reminder that merely speaking up about a reclamation claim isn’t enough.

    When Circuit City sought bankruptcy protection in 2009, Paramount Home Entertainment was stuck with the tab for more than $11 million in goods.  Though it didn’t object to blanket liens on Circuit City’s merchandise which came with the retailer’s debtor-in-possession financing, and stood by quietly while Circuit City later liquidated its merchandise throug a going-out-of-business sale, Paramount did file a timely reclamation demand as required by the Bankruptcy Code.  It also complied with what it understood to be the Bankruptcy Court’s orders regarding administrative procedures for processing its reclamation claims in Circuit City’s case.  It was therefore unpleasantly surprised when Circuit City objected to Paramount’s reclamation claim – and when the Bankruptcy Court sustained that objection – on the grounds that Paramount hadn’t done enough to establish or preserve its reclamation rights.

    Paramount appealed the Bankruptcy Court’s ruling, claiming that it complied with what it understood to have been the Bankruptcy Court’s administrative procedures for processing reclamation claims.  Paramount argued that to have done more (i.e., to have sought relief from the automatic stay to take back its goods or commenced litigation to preserve its rights to the proceeds of such goods) would have disrupted Circuit City’s bankruptcy case.

    In affirming the Bankruptcy Court, US District Judge James Spencer held that the Bankruptcy Code, while protecting a creditor’s reclamation rights, doesn’t impose them on the debtor.  Instead, a reclaiming creditor must take further steps consistent with the Bankruptcy Code and state law to preserve the remedies which reclamation claims afford.  Merely asserting a reclamation claim under the Bankruptcy Code – or under a Bankruptcy Court’s administrative procedure – isn’t enough:

    “Filing a demand, but then doing little else in the end likely creates more litigation and pressure on the Bankruptcy Court than seeking relief from the automatic stay. . . or seeking a [temporary restraining order] or initiating an adversary proceeding.  In this case, Paramount filed its reclamation demand, but then failed to seek court intervention to perfect that right.  As the Bankruptcy Court held, the Bankruptcy Code is not self-executing.  Although [the Bankruptcy Code] does not explicitly state that a reclaiming seller must seek judicial intervention, that statute does not exist in a vacuum.  The mandatory stay as well as the other sections of the Bankruptcy Code that protect and enforce the hierarchy of creditors create a statutory scheme that cannot be overlooked.  Once Paramount learned that Circuit City planned to use the goods in connection with the post-petition [debtor-in-possession financing], it should have objected.  It didn’t.  To make matters worse, Paramount then failed to object to Circuit City’s liquidation of its entire inventory as part of the closing [going-out-of-business] [s]ales.”

    Let the seller beware.

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    Nobody Does It Better . . . Than Government Regulators

    Tuesday, April 19th, 2011

    Title II of the Dodd-Frank Act provides “the necessary authority to liquidate failing financial companies that pose a systemic risk to the financial stability of the United States in a manner that mitigates such risk and minimizes moral hazard.”

    Under this authority, the government would have had the requisite authority to structure a resolution of Lehman Brothers Holdings Inc. – which, as readers are aware, was one of the marquis bankruptcy filings of the 2008 – 2009 financial crisis.

    Readers are also aware that Dodd-Frank is an significant piece of legislation, designed to implement extensive reforms to the banking industry.  But would it have done any better job of resolving Lehman’s difficulties than did Lehman’s Chapter 11?

    The New York Stock Exchange, the world's large...

    Image via Wikipedia


    Predictably, the FDIC is convinced that a government rescue would have been more beneficial – and in “The Orderly Liquidation of Lehman Brothers Holdings Inc. under the Dodd-Frank Act” (forthcoming in Vol. 5 of the FDIC Quarterly), FDIC staff explain why this is so.

    The 19-page paper boils down to the following comparison between Chapter 11 and a hypothetical resolution under Dodd-Frank:

    [U]nsecured creditors of LBHI are projected to incur substantial losses. Immediately prior to its bankruptcy filing, LBHI reported equity of approximately $20 billion; short-term and long-term indebtedness of approximately $100 billion, of which approximately $15 billion represented junior and subordinated indebtedness; and other liabilities in the amount of approximately $90 billion, of which approximately $88 billion were amounts due to affiliates. The modified Chapter 11 plan of reorganization filed by the debtors on January 25, 2011, estimates a 21.4 percent recovery for senior unsecured creditors. Subordinated debt holders and shareholders will receive nothing under the plan of reorganization, and other unsecured creditors will recover between 11.2 percent and 16.6 percent, depending on their status.

    By contrast, under Dodd-Frank:

    As mentioned earlier, by September of 2008, LBHI’s book equity was down to $20 billion and it had $15 billion of subordinated debt, $85 billion in other outstanding short- and long-term debt, and $90 billion of other liabilities, most of which represented intracompany funding. The equity and subordinated debt represented a buffer of $35 billion to absorb losses before other creditors took losses. Of the $210 billion in assets, potential acquirers had identified $50 to $70 billion as impaired or of questionable value. If losses on those assets had been $40 billion (which would represent a loss rate in the range of 60 to 80 percent), then the entire $35 billion buffer of equity and subordinated debt would have been eliminated and losses of $5 billion would have remained. The distribution of these losses would depend on the extent of collateralization and other features of the debt instruments.

    If losses had been distributed equally among all of Lehman’s remaining general unsecured creditors, the $5 billion in losses would have resulted in a recovery rate of approximately $0.97 for every claim of $1.00, assuming that no affiliate guarantee claims would be triggered. This is significantly more than what these creditors are expected to receive under the Lehman bankruptcy. This benefit to creditors derives primarily from the ability to plan, arrange due diligence, and conduct a well structured competitive bidding process.

    Convinced?  You decide.

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    The Shadow of Shadow Banking

    Sunday, July 18th, 2010

    A recent post over the July 4 holiday weekend offered a “30,000 foot view” of the 2008 world-wide financial meltdown and offered some broad observations about its causes – and remaining challenges to recovery.

    From the Federal Bank of New York last week comes yet another broad overview – this one of the “shadow banking” system that has come to comprise a significant portion of the US’s (and the world’s) financial infrastructure – particularly that of the world financial markets.

    Looking south from Top of the Rock, New York City
    Image via Wikipedia


    In Shadow Banking, researchers Zoltan Pozsar, Tobias Adrian, Adam Ashcraft, and Hayley Boesky describe the financial components of this ad hoc banking system, its role in recent asset bubbles, its brittleness under stress, and the role of the Federal Reserve and other federal agencies in relieving that stress.

    As described in the abstract:

    The rapid growth of the market-based financial system since the mid-1980s changed the nature of financial intermediation in the United States profoundly. Within the market-based financial system, “shadow banks” are particularly important institutions. Shadow banks are financial intermediaries that conduct maturity, credit, and liquidity transformation without access to central bank liquidity or public sector credit guarantees. Examples of shadow banks include finance companies, asset-backed commercial paper (ABCP) conduits, limited-purpose finance companies, structured investment vehicles, credit hedge funds, money market mutual funds, securities lenders, and government-sponsored enterprises.

    Shadow banks are interconnected along a vertically integrated, long intermediation chain, which intermediates credit through a wide range of securitization and secured funding techniques such as ABCP, asset-backed securities, collateralized debt obligations, and repo.

    This intermediation chain binds shadow banks into a network, which is the shadow banking system. The shadow banking system rivals the traditional banking system in the intermediation of credit to households and businesses. Over the past decade, the shadow banking system provided sources of inexpensive funding for credit by converting opaque, risky, long-term assets into money-like and seemingly riskless short-term liabilities. Maturity and credit transformation in the shadow banking system thus contributed significantly to asset bubbles in residential and commercial real estate markets prior to the financial crisis.

    We document that the shadow banking system became severely strained during the financial crisis because, like traditional banks, shadow banks conduct credit, maturity, and liquidity transformation, but unlike traditional financial intermediaries, they lack access to public sources of liquidity, such as the Federal Reserve’s discount window, or public sources of insurance, such as federal deposit insurance.  The liquidity facilities of the Federal Reserve and other government agencies’ guarantee schemes were a direct response to the liquidity and capital shortfalls of shadow banks and, effectively, provided either a backstop to credit intermediation by the shadow banking system or to traditional banks for the exposure to shadow banks.  Our paper documents the institutional features of shadow banks, discusses their economic roles, and analyzes their relation to the traditional banking system.

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    Reflections for a Holiday Weekend: The Great Recession of 2008

    Monday, July 5th, 2010

    Last weekend’s July 4 holiday afforded members of the US business and restructuring community an opportunity for reflection on recent economic history.  Those who took the opportunity to do so would have benefitted from “The Great Recession of 2008-2009: Causes, Consequences and Policy Responses,” a recent discussion paper authored by Sher Verick and Iyanatul Islam and prepared under the auspices of the Institute for the Study of Labor (an independent think-tank associated with the University of Bonn, Germany).

    Assorted international currency notes.
    Image via Wikipedia


    According to the authors’ abstract:

    “Starting in mid-2007, the global financial crisis quickly metamorphosed from the bursting of the housing bubble in the US to the worst recession the world has witnessed for over six decades.

    Through an in-depth review of the crisis in terms of the causes, consequences and policy responses, [the] paper identifies four key messages. Firstly, contrary to widely-held perceptions during the boom years before the crisis, the paper underscores that the global economy was by no means as stable as suggested, while at the same time the majority of the world’s poor had benefited insufficiently from stronger economic growth.

    Secondly, there were complex and interlinked factors behind the emergence of the crisis in 2007, namely loose monetary policy, global imbalances, misperception of risk and lax financial regulation.

    Thirdly, beyond the aggregate picture of economic collapse and rising unemployment, this paper stresses that the impact of the crisis is rather diverse, reflecting differences in initial conditions, transmission channels and vulnerabilities of economies, along with the role of government policy in mitigating the downturn.

    Fourthly, while the recovery phase has commenced, a number of risks remain that could derail improvements in economies and hinder efforts to ensure that the recovery is accompanied by job creation. These risks pertain in particular to the challenges of dealing with public debt and continuing global imbalances.”

    Verick and Islam’s work offers an excellent overview for anyone seeking to view economic events of the last two years through a “wide-angle” lens.

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