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Business Bankruptcy Issues Recent Developments

Video Of Testimony Before ABI Commission To Study Reform Of Chapter 11

As mentioned in a recent blog post, the American Bankruptcy Institute has established a Commission to Study the Reform of Chapter 11. A video of testimony before the Commission’s June 4, 2013 field hearing in New York is available below.

  • At that hearing, I testified on the second panel, discussing intellectual property licenses, their treatment in bankruptcy cases, and potential reforms to address several key issues. My testimony begins at the 01:14:14 mark.
  • Lawrence Gottlieb, my colleague at Cooley LLP in our Corporate Restructuring and Bankruptcy group, testified as part of the first panel, focusing on real property lease issues, how they impact Chapter 11 cases (especially those involving retailers), and suggested reforms. His testimony begins at the 00:08:12 mark.

More information on the Commission and its work, together with access to the video and written testimony of all panelists at the Commission’s hearings, is available at the Commission’s website.

 

Business Bankruptcy Issues Recent Developments

ABI Commission To Study The Reform Of Chapter 11

The American Bankruptcy Institute has established a Commission to Study the Reform of Chapter 11.

  • This afternoon, June 4, 2013, I will be testifying before the Commission about intellectual property licenses, their treatment in bankruptcy cases, and potential reforms to address several key issues. 
  • Lawrence Gottlieb, my colleague at Cooley LLP in our Corporate Restructuring and Bankruptcy group, will also be testifying before the Commission today, focusing on real property lease issues, how they impact Chapter 11 cases (especially those involving retailers), and suggested reforms.

More information on the Commission and its work, together with access to the testimony of all panelists at the Commission’s hearings, is available at the Commission’s website.

A copy of my testimony is also available by following the link in this sentence.

Business Bankruptcy Issues Recent Developments

Fall 2010 Edition Of Bankruptcy Resource Now Available

The Fall 2010 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 or to register to receive future editions. You can also subscribe to the blog to learn when future editions of the Absolute Priority newsletter are published, as well as to get updates on other bankruptcy topics.

The latest edition of Absolute Priority covers a range of cutting edge topics, including:

This edition also reports on some of our recent representations, including the successful Chapter 11 reorganization of our client, retailer Crabtree & Evelyn, Ltd., and our work for official committees of unsecured creditors in Chapter 11 bankruptcy cases involving major retailers and others. Recent committee cases include Eddie Bauer, Uno Restaurant Holdings, Ritz Camera, Filene’s Basement, BT Tires Group, Gottschalk’s, G.I. Joe’s, Trade Secret, Pacific Metro, Mervyn’s Holdings, The Ski Market, and Michael Anthony Management, among others.

I hope you find the latest edition of Absolute Priority to be of interest.

Business Bankruptcy Issues Recent Developments

Text Of Legislation To Repeal Certain Of BAPCPA’s Business Bankruptcy Changes Affecting Retailers Now Available

As reported in a post on the blog earlier this week, on April 2, 2009, Representative Jerrold Nadler (D-NY) introduced a bill entitled the "Business Reorganization and Job Protection Act of 2009." At that time the official text of the legislation was not available.

The bill would repeal changes made by BAPCPA relating to (1) the deadline to assume or reject non-residential real property leases, (2) utility deposits, (3) the Section 503(b)(9) administrative claim, and (4) reclamation. These BAPCPA provisions are among those that have had a significant impact on retailers. For a discussion of the bill’s provisions, you can read this blog’s earlier post on the legislation or the explanation of the bill by the NACM. It will be interesting to follow the bill as it makes its way through the legislative process in Congress.

Business Bankruptcy Issues Recent Developments

Legislation Introduced To Repeal Certain Business Bankruptcy Changes Made By BAPCPA’s 2005 Amendments

On April 2, 2009, Representative Jerrold Nadler (D-NY) introduced a bill entitled the "Business Reorganization and Job Protection Act of 2009." The bill has been co-sponsored by Representative Steve Cohen (D-TN), the Chairman of the Subcommittee on Commercial and Administrative Law of the United States House of Representatives Committee on the Judiciary. As of the date of this post, the bill’s official text has not been printed but the National Association of Credit Management has made available on its website what appears to be a final or near-final draft of the legislation, which you can access by clicking here. I plan to provide an update on the blog once the official version of the bill as introduced becomes available.

Introduction of the bill follows testimony before the Subcommittee on Commercial and Administrative Law by a number of bankruptcy professionals and law professors, including my partner and the Chair of Cooley Godward Kronish LLP‘s Bankruptcy & Restructuring Group, Lawrence Gottlieb. Click here for a prior post about his September 26, 2008 testimony, which focused on the disappearance of reorganizations of retailers since the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (known as "BAPCPA"). A link to Representative Nadler’s press release on the bill’s introduction can be found here.

The Legislation’s Proposed Changes. The Business Reorganization and Job Protection Act of 2009, introduced as H.R. 1942, would make several major amendments to the Bankruptcy Code. The common theme is that the proposed bill would repeal certain changes made by BAPCPA and restore the statutory language that was in place before BAPCPA was enacted in 2005. The four principal changes are as follows:

  • Real Estate Leases. The bill would change Section 365(d)(4) of the Bankruptcy Code by repealing the maximum 210-day period within which debtors could assume or reject non-residential real property leases. Instead of the current 120-day initial period and up to a 90-day extension, the statute would revert back to the initial 60-day period under the prior law but, more importantly, would allow the bankruptcy court, for cause, to grant further extensions without any time limit.
  • Utilities. Similarly, the bill would repeal Section 366(c) of the Bankruptcy Code, which now requires a deposit of cash or certain cash equivalents to provide adequate assurance of payment to utilities. If enacted, the bill would allow debtors to establish adequate assurance of payment with something short of a monetary deposit, as had been the case under the pre-BAPCPA law.
  • 20-Day Goods Administrative Claim. The bill would also make changes to the law relating to shipments by vendors prior to a bankruptcy filing. It would repeal Section 503(b)(9) of the Bankruptcy Code, added by BAPCPA, which gives an administrative claim to vendors for the value of goods received by a debtor in the ordinary course of business during the 20 days before the bankruptcy petition.
  • Reclamation. Another change the bill proposes to make is to go back to the pre-BAPCPA language in Section 546(c) of the Bankruptcy Code governing reclamation claims, specifically to repeal language that had expanded the potential reclamation claim for vendors to the 45 days before a bankruptcy petition. The bill would reinstate the pre-BAPCPA provisions restricting reclamation to that provided for under the Uniform Commercial Code (generally only a 10 day period) and permitting an administrative claim or secured claim to be provided to a reclaiming vendor in lieu of a return of the goods pursuant to a valid reclamation claim.
  • Effective Date. Finally, the bill proposes that its changes would apply to cases commenced on or after the date of its enactment, meaning it would apply to cases filed after the bill became law but not to cases filed before it became law.

Conclusion. If the Business Reorganization and Job Protection Act of 2009 were enacted, it could have a major impact on Chapter 11 bankruptcy cases, in particular those involving retailers. As explained in a recent article by several of my colleagues, the cumulative changes made by BAPCPA have had a profound impact on retail Chapter 11 cases. Repealing them could enable retailers the opportunity to emerge from Chapter 11 — the way they often did in the years before the BAPCPA amendments were adopted. Otherwise, we are likely to continue to see more retailers forced into going of out business sales in Chapter 11.

Business Bankruptcy Issues Recent Developments

Bankruptcy Rule Amendments: New Article Reviews The Important Changes

An article my partner Adam Rogoff, associate Seth Van Aalten, and I wrote was recently published in the January 2008 issue of Pratt’s Journal of Bankruptcy Law. The article discusses the significant amendments to the Federal Rules of Bankruptcy Procedure that took effect on December 1, 2007. Those amendments covered a range of procedures from omnibus claims objections to motions to assume executory contracts and real property leases to "first day" motions in Chapter 11 cases. 

If you don’t have a copy of the Journal, you can read the article, entitled "Important Changes To Bankruptcy Rules Take Effect," by clicking on its title in this sentence. For more details on the rule changes, use the links that follow for a copy of the full, "clean" set of rule amendments as well as the redline set showing changes made by the amendments to the existing rules, together with the Advisory Committee’s comments.

Business Bankruptcy Issues Recent Developments

Don’t Miss The Important Business Bankruptcy Rule Amendments That Just Took Effect

On December 1st of almost every year, amendments to the Federal Rules of Bankruptcy Procedure — the ones that govern how bankruptcy cases are managed — take effect to address issues identified by an Advisory Committee made up of federal judges, bankruptcy attorneys, and others. Often the changes are relatively minor and of interest only to bankruptcy practitioners, but this year’s set has made some significant changes that will directly impact debtors, creditors and other stakeholders.

A Look At The Amendments. You may find it interesting to see the entire group of amendments together, so I have included two links. The first is to the full "clean" set of the amended rules. The second is to a redline showing the changes made by these amendments to the existing rules, together with the Advisory Committee’s comments.

The Omnibus Objection Problem. One of the most significant amendments will make changes to the popular practice of filing omnibus objections. In large cases the debtor or other estate representative has so many claims to address that they have combined objections to dozens — sometimes hundreds — of different claims in one single motion. The objection may have a name such as “Debtors’ Fourteenth Omnibus Objections To Claims (Substantive)” or some similarly titled document. Click here for one example. In a post last year called "Objections To Claims: Ignore Them At Your Peril," I discussed how it can be hard to tell which claims an omnibus objection is targeting.

  • The format has often meant that the only reference to an individual creditor is buried within the objection’s many pages of text and exhibits, typically in an attached list or chart.
  • If the creditor doesn’t respond to the objection timely, its claim will likely be disallowed and it will recover absolutely nothing from the bankruptcy estate.

The Amended Rule 3007: An "Anti-Gotcha" Solution. The new rules restrict the use of omnibus objections to certain limited circumstances and impose formatting standards. Otherwise, each claim will require its own separate claim objection unless the combined objection covers claims filed by the same person or entity. What grounds for objection can be made by an omnibus objection under the newly revised Rule 3007?

  • Duplicate claims;
  • Claims filed in the wrong case;
  • Original claims that were amended by later claims;
  • Claims that were not timely filed;
  • Claims that have already been paid or released;
  • Claims filed in a form that does not comply with applicable rules;
  • Claims that are really asserting an equity interest in the debtor; and
  • Priority claims that assert an amount in excess of the maximum amount in the Bankruptcy Code.

In short, if the claim is being challenged on substantive grounds, rather than more technical or procedural ones, then the objection will have to be filed one claimant at a time.

When an omnibus objection does make the permitted objections, it will now have to list claimants in alphabetical order, cross-reference claim numbers, give the ground for the objection and cross-reference that to the text of the objection, describe the objector and the reason for the objection in the document’s title, and combine no more than 100 claims in a single objection. This is all designed to make it easier for the creditor to figure out whether its claim is included and the basis for the objection.

Amended Rule 4001: The Clearer Disclosure Rules. Changes have been made to the rule that governs motions and stipulations for use of cash collateral and obtaining debtor in possession (DIP) financing. The amended rules now require that more details about the key provisions of cash collateral and DIP financing terms and conditions be stated in the motion, that proposed forms of order be filed with the motion, and that cross-references be made in the motion to where in the cash collateral or DIP financing agreements and proposed orders the key provisions are reflected. Since some financing agreements can run hundreds of pages long, with complex formulas and provisions, this rule change is designed to make it easier for the court and the parties to understand their material features without wading through the entire document.

New Rule 6003: Putting The Breaks On Some "First Day" Orders. Another major change is the addition of Rule 6003. This new rule provides that "except and to the extent that relief is necessary to avoid immediate and irreparable harm, the court shall not, within 20 days after the filing of the petition, grant relief" regarding three key areas:

  • The employment of professionals;
  • A motion to pay any prepetition claims (read: critical vendors) or to use, sell, lease (Section 363 sales), or incur an obligation for property of the estate, other than cash collateral or DIP financing motions; or
  • Assumption or assignment of any executory contract or unexpired lease (including commercial real estate leases).

As drafted, unless there is an emergency, and then only to the extent it’s really necessary, the bankruptcy court should defer these decisions until after the 20th day following the filing of the Chapter 11 bankruptcy petition (although technically these apply under the other chapters of bankruptcy). One reason for the rule is to give time for a creditors committee to be appointed and retain counsel before important decisions are made. That said, the exceptions for cash collateral and DIP financing, as well as for rejection of leases and other executory contracts, means a lot can still be done during the early part of a case. When Section 363 sale or critical vendor motions come up on an emergency basis, it’ll be interesting to see how often courts, in applying this new rule, find the existence of irreparable harm.

Amended Rule 6006: Assumption, Assignment, And Rejection Of Executory Contracts. Similar to Rule 3007, Rule 6006 has been changed to put limits on when omnibus motions can be used to deal with executory contracts and leases. Under new Rule 6006(e), absent special court authorization, omnibus motions may be used for multiple executory contracts or leases only when all of the executory contracts to be assumed or assigned are (1) between the same parties, or (2) being assigned to the same assignee. This latter provision likely covers most Section 363 asset sales, so non-debtor contracting parties should continue to carefully review those motions, as discussed in this earlier post. An omnibus motion may also be used when a debtor or trustee seeks to assume, but not assign to more than one assignee, real property leases. In addition, omnibus motions may be used to request rejection of multiple executory contracts or leases.

New Rule 6006(f) provides that, when allowed, these omnibus motions can list no more than 100 executory contracts or leases in any one motion (unlike the chart on this fairly typical pre-amendment motion), and multiple motions will need to be numbered consecutively. The new rule also requires that permitted omnibus motions provide a variety of new information, including:

  • An alphabetical listing by party name;
  • The terms of the assumption or assignment, including for curing defaults; and
  • The identity of the assignee and the adequate assurance of future performance to be provided.

A Few Other Changes. The other amendments this year (1) permit a court to consider a change of venue, (2) clarify when corporate ownership disclosure needs to be made, (3) address constitutional challenges to statutes, and (4) specify procedures for protecting social security numbers and other private information in court filings. Check the clean or redline sets linked above to read these additional rule amendments.

Conclusion. This year’s amendments to the Federal Rules of Bankruptcy Procedure have more than their share of real changes and they will have an impact on business bankruptcy cases. The omnibus motion changes should help creditors from missing when their claim is the target of an objection and contract parties from failing to see that their executory contract or lease is part of a motion to assume and assign. Although cash collateral and DIP financing motions are not affected, the new irreparable harm standard for certain relief in the first 20 days of a case may prove interesting when emergency Section 363 sales are attempted. Stay tuned.