Articles Posted in Bankruptcy

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.

Reports swirled for months about the financial health of the toy retail giant, Toys R Us, especially after the store filed for Chapter 11 bankruptcy. Several recent reports paint an especially ominous picture, since sources have indicated that Toys R Us will convert its Chapter 11 bankruptcy reorganization into a Chapter 7 liquidation. The increasingly bleak picture for Toys R Us does, however, serve as a reminder of some useful points of bankruptcy law:  namely, the conversion from a Chapter 11 to a Chapter 7, or vice versa. For analysis regarding your options in bankruptcy, make sure you have a knowledgeable Florida bankruptcy attorney representing you.

The toy retailer initially filed a voluntary Chapter 11 bankruptcy filing in September 2017. At that time, the business had $4.9 billion in debt. Six months later, the efforts to keep the business going may not have been successful. The store’s holiday season sales fell short of targets, and some reports indicated that the store missed a vendor payment. With these setbacks, the odds of the chain converting its bankruptcy filing to a Chapter 7 and beginning the liquidation process immediately have significantly increased.

So what goes into the decision regarding whether to file a Chapter 11 or Chapter 7 bankruptcy? One thing that may influence this decision is control. A debtor loses control of its assets immediately upon filing a Chapter 7 bankruptcy, since a bankruptcy trustee then takes control of the assets and liquidates them in accordance with the law. Due to this total loss of control immediately after filing a Chapter 7 bankruptcy, many businesses that harbor any realistic prospects of reorganizing successfully and surviving will initially elect to file a Chapter 11 bankruptcy.

In a dispute occurring as part of a South Florida bankruptcy case, a federal judge ruled against dismissing the case on account of the debtor’s bad faith in filing the Chapter 11 petition. The bankruptcy court decided, in refusing to dismiss, not that the debtor lacked bad faith but that dismissing the petition might possibly run contrary to the best interest of some of the debtor’s unsecured creditors, leaving dismissal as an unfair outcome for them.

The debtor who filed for bankruptcy in this case was a part-owner of commercial property in Miami. In 2010, the business filed a lawsuit against its bank, from which it had borrowed money repeatedly on a series of Small Business Administration loans. The bank later sued the business, and the bank won, receiving a damages award of $667,000 on Aug. 16, 2012. In a Feb. 2015 order, the court ordered the business to pay the bank $841,000 in attorney’s fees.

As part of this process, the business’ commercial property was ordered to be sold in a foreclosure sale. That sale was postponed twice. On the day before the third scheduled foreclosure sale, the business filed its petition for Chapter 11 bankruptcy. The debtor had a reorganization plan that involved renting space in its commercial property to a medical marijuana business.

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In almost any legal agreement, it is important to review and understand all of the terms of that agreement before you sign off on it. That’s because, once it is completed, you are legally bound by its terms and can create problems for yourself by not following it. This includes settlement agreements made relative to your creditor claim in a Chapter 11 case. For one South Florida creditor who settled but then violated the agreement’s terms, that meant being forced by the court to pay attorney’s fees.

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A case currently pending before the U.S. Supreme Court could have a massive impact on the future of Chapter 11 bankruptcy law. In the case, the bankruptcy court approved a settlement that allowed some creditors with inferior claims to obtain a recovery, while other creditors with superior claims got nothing. According to a New York Times report, the high court’s ruling “could upend the common practice that ranks lenders, employees and other creditors in order of priority as they try to recover their money when a company files for bankruptcy.”

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