Bankruptcy

Subscribe to Bankruptcy

In an anomalous decision by the Bankruptcy Court in the District of Kansas, the court declined to enforce the voting provisions in subordination agreements that allowed the senior creditor to vote on behalf of a group of subordinated creditors. Reversing a trend of enforcing express voting restrictions in intercreditor agreements, the court invalidated the voting provision at issue, yet ultimately barred the subordinated creditors from participating in the confirmation process entirely. The decision bucks the trend of enforcing intercreditor agreements that limit the voting rights of junior creditors, but nevertheless, holds that such creditors can be precluded from exercising other rights to participate in a chapter 11 case.

The Debtor—Fencepost Productions Inc., a designer and distributor of outdoor clothing, together with its related debtors—filed for chapter 11 in late 2019. In 2018, the Debtors’ principal creditor, Associated Bank, N.A. (“Associated”), made a $14 million secured loan. At the same time, a group of unsecured creditors, BMS Management, Inc. and related individuals (collectively the “BMS Group”), entered into subordination agreements with Associated, under which Associated had the right to vote the claims of the BMS Group.
Continue Reading Voting Rights Provisions in Intercreditor Agreements May Not Be Enforceable As Expected

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

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?

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…

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

Earlier this month, three student loan borrowers filed an involuntary Chapter 11 petition under 11 U.S.C. § 303(b)(1) for Navient Solutions LLC, a student loan servicer. Three or more entities who each hold a claim against an involuntary debtor can file an involuntary bankruptcy petition on that debtor’s behalf if each claim is neither a contingent liability nor the subject of a bona fide dispute as to liability or amount. The borrowers alleged that Navient is insolvent and wrongfully collected about $45,000 in loan repayments from the petitioners after their loans were discharged in bankruptcy. On February 17, 2021, Navient filed an expedited motion to dismiss the petition, arguing that it was frivolous and filed in bad faith by petitioners’ counsel: for an advantage in other Navient suits and to harm Navient’s reputation. Navient asserted that the petitioners failed to allege specific facts or provide documentary evidence supporting the debtors’ right to file under section 303(b)(1).
Continue Reading Navient’s Expedited Motion to Dismiss Student Loan Borrowers’ Involuntary Chapter 11 Petition

When Congress passed the Small Business Reorganization Act (“SBRA”) in August 2019, we lived in a different world. The SBRA added a “Subchapter V” to the Bankruptcy Code for small business debtors, responding to longstanding criticism of the Bankruptcy Code’s costs and complexities on small businesses trying to reorganize. The SBRA became effective exactly one year ago, on February 19, 2020, and when many businesses in the United States shut their doors in March 2020, many thought that the timing of the SBRA was just right to serve the needs of the small business community. On the paper anniversary of the SBRA’s effective date (the first wedding anniversary is colloquially referred to as the paper anniversary), we have looked at how the SBRA has helped small business debtors and how Congress modified Subchapter V this year to further help struggling small businesses. We are also highlighting a few issues coming out of Subchapter V so far.
Continue Reading Subchapter V: The Paper Anniversary

Greylock Capital Associates, LLC, a New York-based hedge fund founded in 2004, recently filed for chapter 11 protection under subchapter V for small businesses. Assets under management for Greylock have halved since 2017 and the hedge fund has cut its staff from 21 people to just nine now. Greylock filed to reject its $100,000 per month Madison Avenue lease that the hedge fund no longer needs. Greylock leased the 11,400 square foot premises in 2014, but when the fund’s growth stalled after its height in 2017 there was no need for such a large office in the heart of midtown Manhattan.
Continue Reading Greylock Capital Associates, LLC May Preview A Rash of Filings To Reject New York City Leases