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11th Circuit Court of Appeals OKs Company’s Asset Sale, Despite the Deal Cutting Off Payments for Retirees’ Healthcare Benefits

In an important new ruling, the 11th Circuit Court of Appeals declared that a debtor in Chapter 11 bankruptcy was entitled to court approval of its proposed going-concern sale, even though the terms of that sale meant extinguishing the debtor’s obligation to honor previously made promises to pay health care benefits for its retired employees for life. The ruling demonstrates that, even in the face of significant hurdles (including federal statutory ones), there may be a path forward for failing businesses through Chapter 11 bankruptcy. If your business is considering its options in bankruptcy, be sure you have a knowledgeable South Florida bankruptcy attorney on your side.

The debtor was a company that produced and exported coal from mines in Alabama, West Virginia, Canada and the United Kingdom. A downturn in the coal industry led prices to plummet in 2011. After the price fell, the debtor could not generate enough revenue to meet its obligations. Running out of cash, the company filed for Chapter 11 bankruptcy protection in Alabama.

Through the bankruptcy process, the company attempted to sell nearly all of its assets as part of a going-concern sale. The sale price was $1.15 billion, and the buyer agreed to take on $115 million in the company’s liabilities. The buyer conditioned its purchase, however, on it not being obligated to meet the coal company’s collective bargaining agreements (CBAs) and not being required to pay health care benefits for the company’s retirees. (Previously, the coal company and the union had bargained for the company to continue paying health care benefits for workers even after they retired.)

The company asked the bankruptcy judge to approve the sale under Section 363(b) of the code. The company also asked the court to terminate all of the company’s CBAs and its obligation to pay retiree health care benefits. The company asserted to the court that, if the court approved the sale with those added requests, the buyer would be capable of continuing to operate some of the mines and keep some of the debtor’s employees. If the sale was not approved, according to the debtor, the sale would fail, the company would run out of money and it would be forced to close all mines and terminate all employees.

The miners’ union and the retirees’ benefit plan opposed this proposed sale. They argued that the bankruptcy judge didn’t have the legal power to terminate the CBAs or end the healthcare benefit payments. The bankruptcy judge, however, approved the sale.

The 11th Circuit upheld that ruling. The statute, Section 363, said that the court could allow a debtor to complete a going-concern sale free and clear of certain obligations (like these retirees’ health care benefits) if the debtor can demonstrate satisfaction of certain criteria. In this case, the 11th Circuit pointed out that there was nothing “in the bankruptcy court’s findings suggest that the principal purpose of the §363 going-concern sale was to evade or avoid liability” under the law, which was an important point in the debtor’s favor.

As this case demonstrates, bankruptcy may provide beneficial options, even in the face of difficult circumstances. To better understand your options in (or outside) bankruptcy, talk to the experienced South Florida bankruptcy attorneys at Stok Kon + Braverman. Our legal team has been providing clients with reliable representation and effective strategies for achieving positive results for many years.

Contact us online or by calling (954) 237-1777 to schedule your consultation and find out how this firm can help you.

More blog posts:

A Lack of a Written Document Dooms a Creditor’s Non-Dischargeability Argument in Bankruptcy Dispute, Florida Business Lawyers Blog, Nov. 16, 2018

Eleventh Circuit Issues Ruling Approving Judge’s Issuance of Bar Order in Bankruptcy Case, Florida Business Lawyers Blog, July 6, 2018