In a recent appeal to the Second Circuit, Bronx Miracle Gospel Tabernacle Word of Faith (the “Church”), asks the Second Circuit for relief from the sale of its property by a bankruptcy trustee. The Church’s action seeks damages against the trustee and her counsel and the bankruptcy judge who approved the sale. The action claims that the Church’s religious rights under the Religious Freedom Restoration Act (“RFRA”) and the Constitution have been violated in the bankruptcy court. The Church’s appeal is the latest installment in a foreclosure battle that began with a mortgage loan in 2008. Although the Church has been largely unsuccessful in its years of litigation against its lender, this is nevertheless a cautionary tale about how a determined borrower can take advantage of the legal system to fight on for years to recycle previously dismissed claims and to promote claims of misconduct which lack substantiating evidence. Continue Reading Bronx Miracle Gospel Tabernacle: Lender’s Nightmare Continues
Despite a relatively strong 2020, New York Classic Motors, LLC, a unit of Classic Car Club Manhattan, filed for chapter 11 protection on April 9, 2021. Classic Car Club Manhattan is a private club where members can drive an impressive fleet of luxury vehicles both new and restored classics. Members are also entitled to attend a calendar of events and access the private clubhouse on the Hudson River. The clubhouse is located at Pier 76, 408 12th Avenue, near the Javits Center in Manhattan. New York Classic Motors holds the lease on the clubhouse and is a tenant of Hudson River Park.
In an interview, Classic Car Club Manhattan’s co-founder called the bankruptcy a “defensive move” to preserve its clubhouse space after Hudson River Park gave notice in January that it needed to vacate the space as part of a planned development even though the club had more than four years remaining on the lease. Because of the filing, the club will be able to continue operations at Pier 76 while the case is pending. The club has not filed a declaration or disclosure statement yet. Continue Reading Car Club Seeks Chapter 11 Protection Despite Growing Membership in “Defensive Move”
A First Department decision from last month makes it harder for mezzanine borrowers to enjoin UCC foreclosure sales.
When there is a default under mezzanine loan documents, the lenders can retake their collateral by noticing and conducting foreclosure sales under the UCC. But mezzanine borrowers can seek relief from a court to enjoin UCC foreclosure sales.
During the COVID-19 pandemic, some borrowers succeeded in preventing mezzanine lenders from exercising their rights to a prompt UCC sale by obtaining injunctive relief in New York courts. One example was in the supreme court decision appealed from in Shelbourne BRF LLC v. SR 677 Bway LLC, No. 2020-03604 (1st Dep’t Mar. 4, 2021). The supreme court granted plaintiff borrowers’ motion for a preliminary injunction and enjoined a UCC foreclosure sale of interests in LLCs. Continue Reading Prospective Loss of Equity Is No Basis to Enjoin a UCC Foreclosure, Appellate Division Holds
The Great Atlantic and Pacific Tea Company, better known as A&P, recently moved for approval of a structured dismissal of its most recent chapter 11 case. Debtors seek structured dismissal of their chapter 11 cases when they cannot confirm a chapter 11 plan. In this case, the A&P estate is massively administratively insolvent, meaning that it can’t pay expenses that became due after the bankruptcy filing.
In theory, the bankruptcy judge, the United States trustee and the creditors committee monitor the case to prevent administrative insolvency; if a case becomes administratively insolvent, the case should be converted to chapter 7. But there is often an enormous reservoir of inertia among the case professionals to resist conversion, particularly in big cases, even where administrative insolvency is clear. The costs of that inertia are asymmetrical. Typically, the professionals receive all or most of their fees, while administrative creditors are involuntarily exposed to loss. Continue Reading A&P Liquidation Will Pay Administrative Creditors Just $.20 on the Dollar: Is There a Better Way?
A decision in the Delaware District Court allowing nonconsensual third-party releases in plans of liquidation has a surprising origin – the Harvey Weinstein scandal.
In October of 2017, the Weinstein scandal exploded across the nation, bringing to light over 80 sexual assault allegations against Hollywood mogul Harvey Weinstein. Weinstein saw swift retribution: his businesses, The Weinstein Company Holdings and affiliates (the “Weinstein Debtors”), faced multiple lawsuits and filed for chapter 11 bankruptcy in March of 2018. Weinstein himself was arrested two months later. The scandal triggered the #MeToo social justice movement, empowering victims of sexual assault and harassment across the globe to voice their claims. Weinstein was ultimately convicted on two felony counts of sexual assault, and the chapter 11 proceeding involving The Weinstein Debtors is drawing to a close in the Delaware Bankruptcy Court. Continue Reading Nonconsensual Third-Party Releases Not Limited to Plans of Reorganization
On March 11, 2021, the Bankruptcy Court for the District of Delaware approved a plan of liquidation for Cred Inc. and debtor affiliates, a collection of cryptocurrency investment firms that filed for Chapter 11 protection on November 8, 2020. So how exactly did a cryptocurrency investment firm go bankrupt in Fall 2020? In November 2019, Bitcoin was trading between $7,000 and $9,500 per coin. By November 8, 2020, the price of BTC had doubled, hitting a high of $15,637. Just four months later, on March 13, 2021, BTC closed over $61,000. And it wasn’t just Bitcoin. Ethereum is up 970% since November 8, 2019; BinanceCoin is up 1,361%; and Cardano is up 2,814%. Even Dogecoin is up 2,111% since November 8, 2019. Anyone remotely involved in the cryptocurrency business should have had an historic year. So what was the problem for Cred Inc.? Continue Reading Cryptocurrency Investment Firm’s Liquidation Plan Approved—Wait, What?
The record-breaking winter storm that hit Texas in February led to an unprecedented demand for electricity, which the state’s electric utilities were not able to satisfy at pre-storm price levels. Electric Reliability Council of Texas (“ERCOT”), a non-profit that manages the state’s electric grid and sets the wholesale price of electricity, initiated rolling blackouts and set electric prices to the market cap of $9,000 per megawatt hour. The increase in wholesale electric prices also pushed consumer prices to astronomical levels: one Texas customer was billed nearly $17,000 for electricity in February.
Weeks after Brazos Electric Power Cooperative, Inc. filed for chapter 11, Griddy Energy LLC joined it after suffering similar financial losses. The Griddy filing was precipitated by the increase in energy prices during the winter storm and later lawsuits by Griddy’s customers and the Attorney General of Texas stemming from these price hikes. Griddy intends to release customers from their unpaid electricity bills in exchange for releases from liability. Continue Reading Texas Storm Continues to Spark Chapter 11 Filings by Electric Providers
When Congress passed the CARES Act last year, it included changes to the Bankruptcy Code that helped individuals and businesses. Many of these provisions expire on March 27, 2021 even though the economy has not yet returned to normal. The COVID-19 Bankruptcy Relief Extension Act of 2021, which has not passed yet, would extend the changes for another year. The proposed law also seeks to extend other COVID-19 bankruptcy relief provisions that were enacted through the Consolidated Appropriations Act of 2021 and would otherwise expire in December 2021. If this law is passed as currently written, the relief will include:
- An increase in the maximum debt threshold for a small business debtor to qualify under Subchapter V;
- An amendment to the definition of “income” for Chapters 7 and 13 that excludes COVID-19 related payments from the federal government;
- An amendment permitting debtors in Chapter 13 to modify a plan of reorganization if the debtor is experiencing a material financial hardship due to the COVID pandemic;
- A provision that prevents termination of utility services in bankruptcy for individuals who make a payment to the utility for service provided during the 20 days prior to the bankruptcy filing, and after the 20-day period, pay for services provided during the case when those payments becomes due.
More information about this proposed bill may be found in this press release from U.S. Senate Democratic Whip Dick Durbin, who introduced this bipartisan legislation.
Because of the unprecedented winter storm that clobbered Texas in February 2021, Brazos Electric Power Cooperative, Inc., was forced to file for chapter 11 in response to staggering increases in energy prices around the time of the storm. According to the first day declaration, Brazos was financially stable and bankruptcy “was unfathomable.” But in response to rotating outages across Texas, the Public Utility Commission of Texas instructed the Electric Reliability Council of Texas (“ERCOT”) to raise rates far beyond expectations for more than four straight days. ERCOT also imposed tremendous fees on energy use. After seven days of swelled energy prices, Brazos was presented with a bill for around $2.1 billion—due in mere days. Continue Reading Texas Deep Freeze Spurs Chapter 11 Filing for Waco Based Energy Company
Belk Inc., a national privately-owned department store chain, just completed a $450 million debt restructuring in less than 24 hours! U.S. Bankruptcy Judge Marvin Isgur confirmed the plan the morning of the First Day Hearing despite the U.S. Trustee’s concerns about adequate notice. The Debtors’ prepackaged plan became effective hours after it was confirmed by the Court.
Belk argued that the plan must be confirmed quickly because the company had no cash reserves and no committed DIP financing. The Court agreed with the need for a speedy plan to protect thousands of jobs and hundreds of stores from closing. The prepackaged restructuring plan was supported by nearly all the creditors. The U.S. Trustee objected to hasty plan confirmation because the interested parties would be rushed to evaluate, respond, or object to the plan. Continue Reading In and Out of Bankruptcy in One Day: Record-Setting Prepackaged Restructuring Plan Confirmed Within Hours of Chapter 11 Filing