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Tag Archives: The Financially Troubled Company

DIP Financing: How Chapter 11’s Bankruptcy Loan Rules Can Be Used To Help A Business Access Liquidity

Posted in Business Bankruptcy Issues, The Financially Troubled Company
Cash Is King. An army may march on its stomach, but for companies, it’s liquidity that keeps the business going. For many companies, typical sources of liquidity, beyond cash flow from sales or other revenue, are (1) financing from banks or other secured lenders, (2) credit from vendors that can reduce immediate liquidity needs, and (3) when needed,… Continue Reading

The Privilege Is All Mine: What Happens To A Corporation’s Attorney-Client Privilege In Bankruptcy?

Posted in Business Bankruptcy Issues, The Financially Troubled Company
It’s well-established that a corporation has an attorney-client privilege and can assert it to keep communications between the corporation and its attorneys confidential. When a corporation is solvent, its officers and directors maintain the right to assert — or waive — the attorney-client privilege on behalf of the corporation, and control who has access to privileged communications. The… Continue Reading

Using Chapter 11 Bankruptcy’s Sale Process To Achieve An Exceptional Sale Price

Posted in Business Bankruptcy Issues, The Financially Troubled Company
A Difficult Problem. Imagine that your company is facing a government investigation, requiring you to spend hundreds of thousands of dollars in legal fees and costs, while being threatened with substantially more legal expense. That financial burden is simultaneously starving the company of cash needed to grow the business, and cash balances are heading toward… Continue Reading

Summer 2012 Edition Of Bankruptcy Resource Now Available

Posted in Business Bankruptcy Issues, Recent Developments, The Financially Troubled Company
The Summer 2012 edition of the Absolute Priority newsletter, published by the Bankruptcy & Restructuring group at Cooley LLP, of which I am a member, has now been released. The newsletter gives updates on current developments and trends in the bankruptcy and workout area. Follow the links in this sentence to access a copy of the newsletter. You can… Continue Reading

Forced Into Bankruptcy: The Involuntary Bankruptcy Process

Posted in Business Bankruptcy Issues, The Financially Troubled Company
When a company is facing financial distress, the question often comes up whether creditors can "force" the company into bankruptcy. Although the answer is more complicated than it may seem, this post aims to sort out what being "forced into bankruptcy" really means (hint: there are two different ways this can happen) and why it matters to companies and creditors. Forced… Continue Reading

Delaware Supreme Court Affirms Ruling Protecting Managers Of Insolvent LLCs

Posted in Recent Developments, The Financially Troubled Company
Creditor Derivative Claims Against Fiduciaries Of Insolvent Corporate Entities. In a 2007 decision in North American Catholic Educational Programming, Inc. v. Gheewalla, et al., 930 A.2d 92 (Del. 2007), the Delaware Supreme Court held that directors of an insolvent Delaware corporation could be sued derivatively by creditors for breaches of fiduciary duty. For a discussion of the… Continue Reading

Spring 2011 Edition Of Bankruptcy Resource Now Available

Posted in Business Bankruptcy Issues, Recent Developments, The Financially Troubled Company
The Spring 2011 edition of the Absolute Priority newsletter, published by the Cooley LLP Bankruptcy & Restructuring group, of which I am a member, has just been released. The newsletter gives updates on current developments and trends in the bankruptcy and workout area. Follow the links in this sentence to access a copy of the newsletter. You can also… Continue Reading

New Ruling Finds Important Protection For Managers Of Insolvent Delaware LLCs

Posted in Recent Developments, The Financially Troubled Company
Derivative Claims Against Directors Of An Insolvent Delaware Corporation. With its 2007 decision in North American Catholic Educational Programming, Inc. v. Gheewalla, et al., 930 A.2d 92 (Del. 2007), the Delaware Supreme Court held that directors of an insolvent Delaware corporation could be sued derivatively by creditors for breaches of fiduciary duty. To read that decision,… Continue Reading

California Court of Appeal Provides Guidance For Directors Of Financially Distressed California Corporations

Posted in Recent Developments, The Financially Troubled Company
As I have reported over the past several years, Delaware courts, including the Delaware Supreme Court, have addressed the nature of a director’s fiduciary duties when a Delaware corporation is insolvent or in the "zone of insolvency," most notably with the 2007 decision in North American Catholic Educational Programming, Inc. v. Gheewalla, et al., 930 A.2d… Continue Reading

Section 363 Sales And Beyond: An M&A Lawyer’s Perspective On Purchasing Assets From Distressed Companies

Posted in Business Bankruptcy Issues, The Financially Troubled Company
With the economy suffering through the longest recession since the 1930s, it’s little wonder that much of the merger and acquisition ("M&A") activity these days has been focused on distressed companies. The Chrysler and General Motors cases may be the best-known examples, but Chapter 11 bankruptcy is frequently used by companies large and small to sell assets through Section 363… Continue Reading

Fall 2008 Edition Of Bankruptcy Resource Is Now Available

Posted in Business Bankruptcy Issues, Recent Developments, The Financially Troubled Company
The Fall 2008 edition of the Absolute Priority newsletter, published by the Cooley Godward Kronish LLP Bankruptcy & Restructuring group, of which I am a member, has just been released. The newsletter gives updates on current developments and trends in the bankruptcy and workout area. Follow the links in this sentence to access a copy… Continue Reading

Second Liens And Recharacterization: Is More Litigation Around The Corner?

Posted in Business Bankruptcy Issues, The Financially Troubled Company
In many Chapter 11 bankruptcy cases, unsecured creditors investigate whether a basis exists to recharacterize existing secured debt as equity. The reason? A successful challenge can turn first or second lien secured debt into "back-of-the-line" capital contributions, enabling unsecured creditors to realize a much greater recovery. A recent article by two of my Bankruptcy & Restructuring Group colleagues at Cooley Godward Kronish LLP, Ronald R. Sussman… Continue Reading

Recent California Decision Addresses Whether Directors And Officers Can Be Liable For Unpaid Wages Of A Bankrupt Company

Posted in Recent Developments, The Financially Troubled Company
When insolvent companies are unable to make payroll or to pay accrued vacation or other amounts owed employees, the question often arises whether directors, officers, or shareholders face personal liability for these unpaid amounts. The California Court of Appeal recently addressed that issue, examining whether particular sections of the California Labor Code, as well as section… Continue Reading

Leading Venture Capitalists Reflect On Business Failure

Posted in The Financially Troubled Company
David Feinlieb of Mohr Davidow Ventures has an interesting post on his Tech, Startups, Capital, Ideas blog entitled "Why Startups Fail." David highlights four main reasons around his general theme of "they run out of money": They spend too much on sales and marketing before they’re ready. The market outpaces the startup’s ability to execute.… Continue Reading

Assignments For The Benefit Of Creditors: Simple As ABC?

Posted in Business Bankruptcy Issues, The Financially Troubled Company
Companies in financial trouble are often forced to liquidate their assets to pay creditors. While a Chapter 11 bankruptcy sometimes makes the most sense, other times a Chapter 7 bankruptcy is required, and in still other situations a corporate dissolution may be best. This post examines another of the options, the assignment for the benefit of creditors,… Continue Reading

New Article Examines Latest Deepening Insolvency Trends

Posted in Business Bankruptcy Issues, The Financially Troubled Company
For a number of years, the concept of deepening insolvency has been one of the more hotly debated issues in the insolvency arena. Two of my colleagues in the Bankruptcy & Restructuring group at Cooley Godward Kronish LLP, Michael Klein and Ronald Sussman, have written an interesting article entitled "Tide Has Turned On Deepening Insolvency –… Continue Reading

Real Estate Workouts: Are Pre-Bankruptcy Waivers Of The Automatic Stay Enforceable?

Posted in Business Bankruptcy Issues, Recent Developments, The Financially Troubled Company
This post examines a new decision from the Bankruptcy Court for the Southern District of Florida involving the enforceability of a pre-bankruptcy waiver of the automatic stay. Let’s first set the stage by taking a look at a not so uncommon fact pattern involving a real estate project in financial trouble. The Real Estate Workout: Forbearance… Continue Reading

Licensing Intellectual Property From An Israeli Company: What Happens If There’s A Bankruptcy?

Posted in Business Bankruptcy Issues, The Financially Troubled Company
Many technology companies are based in Israel and license intellectual property to companies in the United States and around the world. This raises an interesting question: what happens if the Israeli company, as licensor, goes into bankruptcy or liquidation in Israel? The latest edition of Cross Border Commentary, a publication by the International Business Practice of my firm,… Continue Reading

How Venture Capitalists View An Economic Downturn

Posted in The Financially Troubled Company
Recent posts from two thought-leading venture capitalists give insights into how VCs approach the impact of a possible recession. The first is from Will Price, a managing director at venture capital firm Hummer Winblad. In his post, titled "Downturn – Now What?" (hat tip: Ask The VC blog), Will offers some very interesting observations, including this… Continue Reading

When Startups Shut Down: A Venture Capitalist Reflects On Why Early Stage Businesses Fail

Posted in The Financially Troubled Company
Fred Wilson, a managing director at New York-based venture capital firm Union Square Ventures, has an insightful post entitled "Why Early Stage Venture Investments Fail." It’s a rare opportunity to get a venture capital investor’s perspective on the reasons startup companies go bust. Fred cites two main reasons: 1) It was a dumb idea and we… Continue Reading

The Bull Rips A Hole In The Matador’s Cape: New Ninth Circuit Decision Limits Reach Of Section 502(b)(6)’s Landlord Cap

Posted in Business Bankruptcy Issues, Recent Developments, The Financially Troubled Company
A commercial real estate lease often represents the largest single liability of many debtors. For retailers, which typically have scores or even hundreds of store leases, the liability involved is orders of magnitude larger. It’s fair to say that the management of lease obligations can be of enormous consequence to debtors, landlords, and other creditors in… Continue Reading

Ordinary Course Preference Case Takes Extraordinary Turn: Ninth Circuit Strikes Down Local Bankruptcy Rule On Jury Trials

Posted in Business Bankruptcy Issues, Recent Developments, The Financially Troubled Company
Preference lawsuits are filed all the time in bankruptcy cases and the ordinary course of business defense is frequently asserted. Still, it’s the rare case that ends up with a federal court of appeals decision addressing jury trial rights and invalidating a bankruptcy court’s local rule. This post is about just such a case. The Bankruptcy Preference. As a… Continue Reading

The Best Of Both Worlds: Can A Secured Creditor Get A Section 503(b)(9) “20 Day Goods” Administrative Claim Too?

Posted in Business Bankruptcy Issues, Recent Developments, The Financially Troubled Company
In a decision from August 17, 2007, just released for publication, the Ninth Circuit’s Bankruptcy Appellate Panel (BAP) faced a previously unanswered question under Section 503(b)(9) of the Bankruptcy Code, the section enacted as part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (known as BAPCPA).  Is a Section 503(b)(9) administrative claim available… Continue Reading

S&P Warns A Big Increase In Debt Defaults Is Coming

Posted in Business Bankruptcy Issues, Recent Developments, The Financially Troubled Company
In an article entitled "Defaults wave to hit corporate US," the Financial Times reports that Standard & Poor’s is predicting that $35 billion in corporate debt will go into default by the end of 2008. This is similar to the view taken by Moody’s, reported in a recent post. According to the Financial Times, S&P… Continue Reading