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Bankruptcy Bulletin Blamed for Blabbing Bondholders; New York Court Appoints Itself Arbiter of Who is “Legitimate Media”

world_war_II-talking_poster_1942We are all very used to (and very bored of) the on-going debate of what actually constitutes “the media” or “legitimate news.”  In most instances, this sort of debate pits exclusive, Columbia-educated, “proper” journalists against those who have large on-line followings and eschew any association with a Dickensian-era newspaper.  Or, as one story recently summarized it, “Corporate Media Freaks Out at Possibility of Breitbart, Infowars Being Allowed to Ask Questions [in White House Press Conferences],” full story here.

This debate has now, surprisingly, found its way into our arcane little bankruptcy world, with Murray Energy Corporation v. Reorg Research, Inc., 2017 NY Slip Op. 27036 (N.Y. County Sup. Ct., Feb. 14, 2017) (Edmead, J.).  It started with a distressed company called Murray Energy establishing an on-line “data room”

Supreme Court Completely Endorses Critical Vendor Theory! Well, Not Completely. But Almost!

We at the Bankruptcy Cave are not very surprised by the ruling yesterday in Czyzewski v. Jevic Holding Corp.  The Supreme Court in Jevic reviewed a Bankruptcy Court’s decision to approve a settlement (with a distribution of proceeds that contravened the Bankruptcy Code’s priority scheme) in conjunction with dismissing the bankruptcy case of the Chapter 11 debtor Jevic Holding Corp. According to the Bankruptcy Court, because the distributions would occur pursuant to a “structured dismissal” rather than a confirmed plan, the failure to follow the creditor priority scheme did not bar approval.  In short, the Bankruptcy Court did not confirm a plan of reorganization for the Chapter 11 debtor, in which sufficient creditor support can re-order some of the Bankruptcy Code’s priority scheme.  Nor did the Bankruptcy Court convert Jevic’s Chapter 11 case to Chapter 7, in which the Code’s creditor priority scheme can never be changed.

Fifth Circuit Rules for PACA Claimants, and Weakens PACA, All in One Curious Ruling

Set of colored vegetables for kids

Most restructuring practitioners are aware, either vaguely or through punishing experience, of the power of PACA creditors.  PACA (or the Perishable Agricultural Commodities Act, 7 U.S.C. § 499a et seq. for those who hate brevity) requires that buyers of produce hold such produce – and their proceeds – in trust for the benefit of produce sellers.  General creditors of the produce buyer receive nothing, even if they hold a lien on the buyer’s assets, until produce sellers are paid in full on any valid PACA claims (including their interest and attorneys’ fees in most instances).

But sometimes, or many times, the PACA trust assets needed to pay produce sellers are not present.  Accounts must be collected, by use of employees, lawyers, collection agents, or

For Whom the Bell Tolls: Obligations and Risks of Third-party Witnesses under Rule 2004 Examinations.

November 27, 2016

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Two recent Bankruptcy Court cases both remind and illustrate the power and risks presented by discovery of facts and documents under Bankruptcy Rule 2004, showing that it can compel third parties to provide information to support later litigation against them or cause them to lose their 5th Amendment right against self-incrimination.

  • In re Great Lakes Comnet, Inc.[1]/ (a copy of the case is here: great-lakes-comnet-inc), the Bankruptcy Court for the Western District of Michigan held that the Committee of Unsecured Creditors was entitled to conduct a Rule 2004 examination of a third-party company while explicitly recognizing that the intent of the examination was to prepare for and inform the committee regarding later litigation against the third-party.
  • In re Mavashev[2]/ (a copy of the case is here: in-re-mavashev), the Bankruptcy Court for the Eastern District of New York held that a third-party witness would not

Executive Compensation Under Section 503(c) – The Sports Authority Story

October 18, 2016

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A recent, and highly publicized, decision from the case formerly known as Sports Authority, In re TSA WD Holdings, Inc. et al., Case No. 16-10527 (MFW), Bankr. D. Del. (Docket #2863, Aug. 31, 2016), allowed the defunct company to pay three unnamed senior executives $1.425 million in “incentive pay” to remain with the company and oversee its liquidation.[i]  Judge Mary Walrath granted Sports Authority’s[ii] Motion for Order (A) Approving Modified Executive Incentive Program and Authorizing Payments Thereunder and (B) Authorizing the Debtors to File the Unredacted Modified Key Employee Incentive Program Under Seal (Docket #2746) (the “EIP Motion,” a copy of which is here) over the strenuous objection of the U.S. Trustee (Docket #2809) (the “UST Objection,” a copy of which is here), and only after she had denied a similar from the Debtors request a month earlier.  More importantly, Judge Walrath authorized the

Proposed New Local Rules for the Southern District of New York

October 13, 2016

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The United States Bankruptcy Court for the Southern District of New York recently announced proposed amendments to its local rules.  The proposed amendments will not take effect until December 1, 2016, but we could not wait to take a peek at the future of practice in the Southern District.  (And for those of you who are rules junkies, here and here are prior posts on FRBP changes applying to all courts, from earlier this year.)

The future looks largely like the present—do not expect wholesale changes or many new rules.  The most significant changes clarify procedures such as motions to redact identifying or confidential information and reorder the rules governing notices of presentment.  Comments will be accepted until November 14, 2016, so it is possible additional changes could be made.  Here are some of the most significant changes:

L.R. 1002-1(b) will be added, which will require, if

Losing Both Ways: Debtor Diligence in the Identification of Claims

August 3, 2016

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Two recent cases serve as reminders the devil is truly in the details. As to the front-end risks associated with an early § 363(f) sale, in In re Motors Liquidation Company[1](the “GM” case) we have seen a $10 billion reminder that identification and actual notice to persons with claims against the Debtor is an indispensable element to the “free and clear” result intended by such a sale.  On the back-end risks of a confirmed Chapter 11 Plan, In re AmCad Holdings, LLC[2]teaches that failing to specifically identify claims of the Debtor against others for retained jurisdiction under the Plan can defeat the intended jurisdiction of the Bankruptcy Court to adjudicate those omitted claims.

GM involves the ongoing troubles from the 2009 insolvency of the General Motors Corporation, the United States’ largest car manufacturer.  As opposed to the usual reorganization procedures of 11 U.S.C. §§ 1121?1129, which

Internet Service a Utility in Bankruptcy? It Might Be Now.

HTTP on a Computer Monitor

Editor’s Note:  One of the many fascinating things about restructuring work is its willingness to evolve by borrowing from other areas of the law.  Just as business practices change, new financing techniques evolve, and transactions become more complex, the bankruptcy world must adapt as well, to allow for a well functioning insolvency system and not a stilted, out of date process.  To that end, we at The Bankruptcy Cave love finding curious decisions in tangential fields of the law, and thinking about how they may change bankruptcy practice, or how bankruptcy practice may change them (for instance, click here for a neat post last year about “Obamacare” and bankruptcy, or here for the most recent edition of

Some Much Needed Transparency Required on Liquidating Trustees, Liquidating Trusts, Plan Documents, and Other Post-Confirmation Matters

July 10, 2016

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We at The Bankruptcy Cave applaud the recent ruling by Judge Whipple of the Bankruptcy Court for the Northern District of Ohio, seeking to make the post-confirmation parties, processes, and procedures far more transparent. In In re Affordable Med Scrubs, LLC,[1] Judge Whipple declined to approve a disclosure statement for a secured creditor’s liquidating plan.  The key deficiencies were as follows:

 

  • Disclosure Must be Provided about the Liquidating Trustee: While the secured creditor’s disclosure statement did state who the liquidating trustee would be, it provided no disclosures about the putative trustee’s connections to key creditors and other parties in interest. We applaud this effort to require disclosures about a proposed liquidating trustee or plan administrator. The selection of a liquidating trustee or plan administrator is a murky process – at best, it is based on some vague (and undisclosed) considerations of pricing and experience of the individual or
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