When to Use a 'Stalking Horse' Agreement
January 01, 2004
A debtor has a fiduciary duty to maximize the value of the assets of its estate. When selling assets of a bankruptcy estate, the process usually begins with an extensive marketing process. As a result of extensive marketing, a debtor can find itself actively negotiating with numerous potential purchasers. While most marketing periods end with a court-approved auction, it has become commonplace for the debtor to enter into the auction process with a "stalking horse" agreement in place.
Selling 'Free and Clear': Will It Continue?
January 01, 2004
Section 363(f) of the Bankruptcy Code provides an extraordinary tool to trustees and debtors in possession -- the ability to sell property "free and clear." This unique power, unavailable to a seller outside bankruptcy, not only facilitates the tasks of liquidation or reorganization, but it may even be the critical incentive for entering bankruptcy in the first place. It has now become the principal focus of many Chapter 11 cases.
Clearing the Confusion
January 01, 2004
As explained in last month's article, there has been a great deal of confusion in the courts regarding Section 365(b)(2)(D). In a detailed opinion on appeal, the Ninth Circuit diverged from two lower courts, holding that the most natural reading of subsection (b)(2)(d) requires a finding that the word "penalty" modifies both "rate" and "provision." This ruling, as discussed in last month's article, caused further confusion in the courts as to interpretation.
Guidelines for Director Decision Making in Chapter 11
December 01, 2003
Chapter 11 is designed to enable a company in financial distress to preserve its business as a going concern and maximize the distributable value to creditors. This may be accomplished through the debtor's rehabilitation of its business and restructuring of its balance sheet through a stand-alone plan of reorganization or through the sale of its assets or businesses pursuant to section 363 of the Bankruptcy Code (or a Chapter 11 plan). The best course of action to preserve the debtor as a going concern and maximize value is dependent on the facts and circumstances of the Chapter 11 case and the interests of the relevant stakeholders.
Confusion About Section 365(b)(2)(D)
December 01, 2003
It is generally understood that bankruptcy law requires debtors to cure all contractual defaults before assuming any executory contract because debtors would receive a windfall without such requirement: They could assume (and compel performance on) contracts that they had breached without paying any resulting damages claim. If such a result were permitted under the Code, failing companies would have even less incentive to continue performing on contracts pre-petition because they could presumably seek to assume those contracts in bankruptcy without penalty.
Enron Versus Wall Street
December 01, 2003
In late September 2003, Enron Corp. and Enron North America Corp. sued more than 40 banks and financial institution defendants for knowingly participating with insiders of Enron in a "multi-year scheme to manipulate and misstate Enron's financial condition." Complaint at '1.
High Reversal Rate of Markman Decisions Weakens their Intended Value
December 01, 2003
In <i>Markman v. Westview Instruments, Inc.,</i> 517 U.S. 370 (1996), the Supreme Court held that patent claim construction is an issue of law to be decided exclusively by the court rather than the jury. As a result, district court judges now routinely conduct what is referred to as pretrial <i>Markman</i> hearings in order to resolve disputes about the meaning of words or phrases in patent claims. Prior to <i>Markman,</i> claim construction took place at trial and was decided by the judge or the jury with appropriate instructions from the court.
The Creditor in Possession
November 01, 2003
A hallmark of United States bankruptcy law has been the principle that a debtor should be provided with an opportunity to use the bankruptcy to get a "fresh start." That principle, initially applicable to individuals, was carried forward as an underlying premise of business reorganizations and coupled with the belief that reorganizations preserved going concern values. The value of reorganization as compared with liquidation in cases of major business failures was first realized in connection with the reorganization of railroads during the latter part of the 19th century that continued into the 20th century. In the context of the current economic environment, the underlying premise of railroad reorganizations of preserving going concern value may no longer be viable.
