Can the Sequel Make More Money Than the Original?
September 28, 2004
Talk about a balance of power. Debtors want to sell assets for maximum value. Bidders want to buy cheaply and with finality. While debtors want flexible auctions, if the rules are open-ended, bidders will stay home. So what happens to bidder confidence when, after the auction concludes, but before the sale is approved, a late bidder offers more money? Bankruptcy courts must weigh the potential benefits to the estate against the reasonable expectations of the auction participants and the impact of accepting a late bid on the integrity of bankruptcy auctions. Recently, the Seventh Circuit examined this tension in <i>Corporate Assets, Inc. v. Paloian</i>, 368 F.3d 761 (7th Cir. 2004) (<i>Paloian</i>) [as analysed in last month's issue].
Total Bankruptcy Filings At Mid-Year
September 28, 2004
The number of total bankruptcy petitions filed for the 12-month period ending June 30, 2004 has decreased for the first time since 2000 over this time period, according to the latest figures prepared by the Administrative Office of the U.S. Courts.
From Cradle to Grave
August 31, 2004
Bankruptcy lawyers may not get involved in their clients' transactions until it is too late. They may be called in only upon the occurrence of a default, litigation, or the commencement of a bankruptcy case. At that point, they are faced with deals that have been "set in stone" -- drafted and structured by lawyers specializing in the front-end, who may have looked at the transaction from an overly optimistic viewpoint, especially in the case of a long-term deal with another party that presently is in good financial health.
Bankruptcy Courts Allowed to Reopen Section 363 Auctions
August 31, 2004
A bankruptcy judge's mandate, and the purpose of a section 363 sale process, is to obtain the "highest and best" offer for the assets. Finality and integrity of the process are also important policy considerations. Bankruptcy sales are designed to facilitate the estate's ready realization of value from its assets, while at the same time giving purchasers some degree of certainty that they will obtain clear title to an asset, without the fear of having the transaction later reversed. At times, however, these principles may be in conflict, as outlined by the Seventh Circuit.
Order in the Court: Limits on the Court's Preservation of Debtor Assets
August 31, 2004
Telecom companies invest substantial amounts to acquire their assets, such as underground cables or fiber optic networks. As a consequence of building or acquiring this capital-intensive infrastructure, telecom companies often pay millions of dollars in annual property tax assessments. When telecom asset values drop (as has most recently been the case), telecom companies generally focus on keeping their businesses afloat, rather than on their property taxes.
'Necessity' Revisited: Wishing Won't Make It So
July 29, 2004
The April and May issues of <i>The Bankruptcy Strategist</i> featured a scholarly, interesting, and informative article by Michael L. Cook and William R. Fabrizio on the recent Seventh Circuit <i>Kmart</i> Opinion (<i>In Re Kmart Corporation</i>, 359 F. 3d 866 (7 Cir. 2004)) in which the Circuit Court affirmed the District Court's reversal (<i>Capital Factors, Inc. v. Kmart Corporation</i>, 291 B. R. 818 (ND Ill. 2003)) of four "critical vendor" orders entered by the Bankruptcy Judge. In all respects but one, Cook and Fabrizio concisely and accurately analyzed the Opinion as well as the history and basic flaws of the so-called "Necessity" Doctrine. Moreover, we agree not only with their conclusion that "the [Necessity] Doctrine ... lacks explicit Code authorization," but also with their flat rejection of such erroneous (and insulting) comments as that of the unnamed practitioner who was quoted by Reuters as stating that the District Court Opinion was "[A] tremendous blow to the efforts of the Chicago bench and bar to fashion their bankruptcy court system in the mold of Delaware and New York." <i>The Bankruptcy Strategist</i>, April 2004, p. 2. Unfortunately when they come to the Opinion of the Court of Appeals, Cook and Fabrizio overstate the case.
Unique Settlement Ruling in Smart World Case
July 29, 2004
It is the uncommon occasion when creditors seek the Bankruptcy Court's assistance to impose a settlement that compromises the debtor's asserted rights to recovery against third parties. While settlements are typically preferable to the debtor's engagement in contested and costly litigation, it is a challenge to convince a court to compromise a debtor's asserted claims. In a recent case in the United States Bankruptcy Court for the Southern District of New York, a settlement was negotiated and ultimately approved by the Bankruptcy Court over the vigorous objection of the debtors-in-possession (the "Debtors"), resolving a hotly contested adversary proceeding and third party claims.
