Articles Posted in Bankruptcy

Occasionally, a case comes along that is important not because it merely illuminates a specific issue of law, but because it completely rewrites the state of the law in a particular jurisdiction or judicial circuit. When these changes in the state of binding case law happen in Chapter 11 bankruptcy law (as occurred earlier this year here in South Florida) they serve as just one more reminder of why it’s so beneficial to rely on a knowledgeable South Florida bankruptcy attorney who can offer you not just diligent advocacy but also a completely up-to-date understanding of the state of the law, and what changes in the law mean for you.

A January 2021 ruling by the Third Circuit Court of Appeal here in Miami made a very significant change in the law governing when the automatic stay created by Section 362 of the Bankruptcy Code does – and doesn’t – go into effect. Knowing when your case will (or won’t) be automatically stayed can, of course, be a massively important consideration when it comes to deciding whether or not to file for bankruptcy.

The origins of the underlying case began after a Minnesota-based lender obtained a $12 million judgment in 2015 against a medical diagnostic imaging company with its holding company based in South Florida.

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There may be numerous ingredients that go into a workable and successful Chapter 11 reorganization plan. In some plans, one of those ingredients is non-consensual third-party releases. For some debtor businesses, the potential long-term viability of the business itself may hinge upon obtaining those releases and forever closing the door on certain creditor claims. Given how important these releases can be to the long-term success of your business, they serve as one more example of just how vital it is to have the right Florida Chapter 11 bankruptcy lawyer on your side to help you develop a plan with all the right ingredients, and then see that plan through all the way to a successful end.

Non-consensual third-party releases appear in Chapter 11 cases when the reorganization plan, in order to be viable, requires the court to sign off on the release of certain non-debtor third parties from claims by the debtor’s creditors. Recently, it was the Third Circuit Court of Appeals that was asked to address this topic.

In that case, the debtor was a Delaware-incorporated specialty laboratory that, in 2014, entered into a $1.825 billion credit agreement with multiple lenders. In 2015, the lab filed for bankruptcy. The debtor’s restructuring plan involved “broad releases, including ones that would bind non-consenting lenders.” One of those non-consenting lenders was one of the major lenders in that 2014 credit agreement. The bankruptcy court approved the plan, despite the lender’s objection.

Chapter 11 bankruptcy can provide a debtor with much-needed protection from creditors. Sometimes, though, creditors don’t abide by the rules and instead step over the line. When that happens, you need to know what to do ensure that your business is afforded the protection that the bankruptcy law says it should have. As part of this process, you’ll want to be sure that you have a South Florida attorney experienced in Chapter 11 bankruptcy issues representing your business.

Once you have filed for Chapter 11 bankruptcy and gone through all of the required steps of that process, the court will enter an order releasing your business from the obligation of paying most of its pre-bankruptcy debts. This, of course, is called the discharge order. Once it’s entered, the creditors whose amounts were included in the discharge are forever foreclosed from collecting those debts.

A recent U.S. Supreme Court decision looks at the very important question of what happens when a creditor attempts to collect a debt that has already been discharged in bankruptcy. The case involved B.T., a part-owner of business in Oregon who filed Chapter 7 bankruptcy. At the time that B.T. filed, the business and some other owners were litigating a civil lawsuit filed against B.T.

A recent ruling from the U.S. Supreme Court addressed an important question that may impact many commercial entities considering Chapter 11 bankruptcy. For (potential bankruptcy debtor) entities that are also trademark licensors, what happens to the licensee’s rights if the license is rejected in bankruptcy? While the court’s ruling limited power of rejection somewhat, providing some good news for licensees, it stopped well short of giving licensees unfettered rights after a rejection. In other words, if your entity is a holder and licensor of trademarks and is considering bankruptcy, Chapter 11 may be a viable option. Consult a knowledgeable South Florida bankruptcy attorney to help you make the best choice for your business.

The case upon which the high court ruled this spring involved a manufacturer of athletic wear with cooling technology. The manufacturer also held several trademarks which it had licensed. One of the licenses the manufacturer had issued, as part of a co-marketing and distribution agreement, was to a New York-based provider of cooling towels and other cooling items for athletes.

The manufacturer filed for Chapter 11 bankruptcy in 2015. At that time, the New York licensee still possessed its license to use the manufacturer’s trademark. The manufacturer sought to reject the New York licensee’s rights under the distribution agreement as part of its bankruptcy action.

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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.)

In an important new ruling, the 11th Circuit Court of Appeals clarified the process for analyzing a creditor’s subsequent new value defense to a preferential transfer under Section 547(c)(4) in a debtor’s Chapter 11 case. The court rejected the “remains unpaid” standard, which is good news for creditors who desire to continue doing business with financially troubled entities, as the ruling gives them an even more robust subsequent new value defense and reduces the amount that a bankruptcy trustee can claw back. If you are a creditor of a business that has filed for Chapter 11 bankruptcy, you obviously want to keep all payments to which you are entitled, so you should be sure to put experienced South Florida bankruptcy counsel on your side to protect your interests.

The case that spawned the ruling involved a struggling chain of supermarkets with locations in Florida and Alabama, and the well-known ice cream maker that sold its products to the supermarket on credit. In 2008, amid liquidity problems, the supermarket began paying the ice cream vendor only once a week instead of twice and began delaying some payments by a week or more.

The supermarket was not successful in addressing its liquidity problems and filed for Chapter 11 on February 5, 2009. The bankruptcy trustee filed an adversary action against the ice cream company, seeking to avoid certain payments the supermarket had made to the ice cream vendor. The $563,000 sum the trustee sought represented the total amount that the supermarket paid to the vendor during the 90 days immediately preceding the bankruptcy filing. During that same 90-day period, the vendor made $435,000 worth of new deliveries on credit.

There are certain principles that can apply across an array of areas of the law. In many settings, it is good advice to “get it in writing.” The ability (or lack thereof) to produce a written document that supports your assertions regarding the terms of a statement or agreement can be essential to a successful outcome. This is also true in some bankruptcy situations. According to a recent U.S. Supreme Court decision, a debtor was able to overcome a claim of non-dischargeability and discharge a debt because the creditor lacked a written document to support its claim that the debtor engaged in falsehoods regarding his financial condition. As with any bankruptcy issue, it is worthwhile to ensure that you have knowledgeable South Florida bankruptcy counsel working for you.

The origins of the bankruptcy case began with a client who hired a law firm in Atlanta to represent him in a business litigation matter. Eventually, the client fell behind on legal bills to the sum of nearly $60,000. The firm threatened to cease representing the client, but he told them he was expecting a tax refund of $100,000. The firm relented. The client’s refund was actually around $60,000, and he spent the whole amount of his business, paying none of it to the law firm. In a later meeting, he told the firm that he had not yet received the refund. Based on that statement, the firm went forward, litigating the case to completion.

The law firm eventually had to sue for the unpaid fees, and a Georgia court awarded it $104,000. Along the way, the client filed for bankruptcy. The law firm filed an action in the bankruptcy, arguing that the $104,000 debt the client owed was not dischargeable.

For many businesses considering filing Chapter 11 bankruptcy, the option exists to consider multiple different locations as the place where the bankruptcy case will be filed. Part of this decision-making process means analyzing the state of the law in each available venue. A recent decision by the 11th Circuit Court of Appeals regarding the power of courts to enter certain injunctions in bankruptcy cases provides a clear signal that, as a debtor, considering the states within the 11th Circuit, including Florida, may be a beneficial move. Before you decide where you will file your Chapter 11 case, it is helpful to consult with an experienced Florida bankruptcy attorney.

The case recently addressed by the 11th Circuit court involved the viability of what’s called bar orders, or permanent injunctions entered by the bankruptcy court that prevent entities from bringing certain other legal actions. The underlying case involved a business that owed a chain of nursing homes. The business experienced some problems, however, in the form of resident deaths. In anticipation of litigation and high-dollar negative outcomes in those cases, the business took preemptive action. It established two new corporate entities. It sent the company’s assets to a holding company and then transferred ownership of the now-assetless corporation to the other newly formed entity. This meant that the latter entity took on all of the business’ liabilities, including patient wrongful death lawsuit awards in excess of $100 million, but none of the assets.

After discovering the maneuver, the estates of the deceased residents filed an involuntary Chapter 7 case in Tampa and also launched an adversary proceeding. The goal was to invalidate as fraudulent the transfers that had sent the assets into a holding company while sending the liabilities, including the estates’ judgments, into a judgment-proof shell company.