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

On January 15, 2021, the Supreme Court unanimously ruled in City of Chicago v. Fulton that a secured party in possession of a debtor’s collateral does not violate the automatic stay by passively retaining possession after a debtor commences a bankruptcy case. When a debtor files a bankruptcy case, the Bankruptcy Code protects the debtor by imposing an automatic stay on efforts to collect prepetition debts or “any act . . . to exercise control over property” of the bankruptcy estate.
Continue Reading Recent Supreme Court Ruling Provides Important Protection for Secured Creditors

Herrick congratulates its Restructuring & Finance Litigation Group on the success it has enjoyed over the last two years. The team, which now has 18 members and counting, has grown substantially while taking on a variety of complex litigation matters and Chapter 11 Restructurings. Below is a small sampling of our recent work.
Continue Reading Herrick’s Restructuring & Finance Litigation: 2019-2020 In Review

Introduction

In In re VP Williams Trans, LLC,[1] Judge Michael Wiles of the United States Bankruptcy Court for the Southern District of New York confirmed that a secured creditor may make an election under section 1111(b) of the United States Bankruptcy Code (the “Bankruptcy Code”) in a proceeding under subchapter V of the Bankruptcy Code for small business debtors. Judge Wiles’s decision appears to be the first decision on this issue in this Circuit since subchapter V of the Bankruptcy Code came into effect this year.
Continue Reading Bankruptcy Court Affirms Availability of 1111(b) Election in Subchapter V Cases

In In re Pace Industries, LLC, Judge Mary Walrath of the United States Bankruptcy Court for the District of Delaware denied a motion to dismiss a chapter 11 where the debtor circumvented a preferred stockholder’s blocking rights by filing bankruptcy petitions without the preferred stockholder’s consent.[1] Judge Walrath ruled, in a decision that has not yet been published, that she was “prepared to be the first court” to find a stockholder’s blocking rights were invalid. Judge Walrath held that use of a blocking right to preclude access to bankruptcy relief was against public policy, and that a stockholder in possession of such a right has a fiduciary duty to act in the best interests of the corporation, and not its own interests. This decision suggests that blocking rights, which are commonly used in structured finance and real estate transactions to prohibit voluntary bankruptcy filings, may not always be effective.
Continue Reading Delaware Bankruptcy Court Voids Preferred Stockholder’s Right to Block Bankruptcy Filing

Introduction

Creditors of an insolvent debtor may avoid certain transfers as fraudulent conveyances under state or federal law. A fraudulent conveyance is a transfer made without the transferor receiving adequate consideration and which satisfies one of three insolvency conditions: 1) the transferor was insolvent when the transfer was made; 2) the transferor was rendered insolvent by the transfer; or 3) the transferor was left with unreasonably small capital to carry on his/her or its business.[1]
Continue Reading S.D.N.Y. Bankruptcy Court Holds that Allegedly Fraudulent Conveyances are Safe Harbored Under Section 546(e) and Provides a New Avenue of Defense