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Structured Dismissals and Application of Non-Estate Proceeds
Corporate restructuring practice has dramatically evolved in the nearly 40 years since enactment of the 1978 Bankruptcy Code. Since In re Lionel Corp. , 722 F.2d 1063 (2d Cir. 1983), one of the more significant changes to Chapter 11 practice has been the use of section 363 to sell the assets of a debtor, prior to confirmation of a plan, as a means to restructure and maximize value. This transactional use of the Bankruptcy Code has, by necessity, changed how cases are administered. With more frequent under-water balance sheets and ever evolving, more complex capital structures, many modern cases have required flexible approaches. Practitioners and bankruptcy courts have been forced to adapt. Two recent precedential decisions from the U.S. Court of Appeals for the Third Circuit provided a much-needed stamp of approval on these flexible and pragmatic approaches to modern restructuring practice.
Structured Dismissal As 'The Least Bad Alternative'
In Official Committee of Unsecured Creditors v. CIT Group/Business Credit Inc. (In re Jevic Holding Corp.), 787 F.3d 173 (3d Cir. 2015), prepetition, Sun purchased Jevic, a trucking company, through a leverage buy-out funded by CIT. On the eve of filing for Chapter 11, Jevic ceased its operations and gave termination notices to its employees. As of the petition date in 2008, Jevic owed $53 million to CIT and SUN as secured creditors, and over $20 million to taxing authorities and general unsecured creditors. Two lawsuits were filed during the bankruptcy case. One was from a group of truck drivers against Jevic and Sun. alleging violations of the Worker Adjustment and Retraining Notification Act (WARN) for failure to provide adequate termination notice. The truck drivers wanted $12.4 million in damages, $8.3 million of which they asserted was entitled to priority under section 507(a)(4) of the Bankruptcy Code (for wages, subject to a cap per employee, earned within 180 days prior to the petition date). The other was from the official creditors' committee, on behalf of Jevic's estate, against Sun and CIT seeking to avoid the leverage buyout transactions.
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