Category Archives: Chapter 11 Debtors
Date Created: Wed, 2019-01-23 14:18
Published by the ABI Business Reorganization Committee
Link to Newsletter is here.
As transactional business attorneys, we strive to craft documents that are bullet-proof, covering every what-if scenario should a deal fall apart. We hope that the agreements we draft will result in a fair and just consequence for all parties to the bargain.
On Sept. 13, 2018, the U.S. Court of Appeals for the Third Circuit issued its opinion in Energy Future Holdings Corp., et al. (Appellee) v. NextEra Energy Inc. (NextEra) (Appellant), affirming the U.S. Bankruptcy Court for the District of Delaware’s decision in the In re Energy Future Holdings Corp., et al., (EFH) (debtors) chapter 11 bankruptcy cases, striking a $275 million break-up fee (termination fee). What practical tips can we learn from this case?
The debtors owned an 88 percent economic interest in the rate-regulated business of Oncor Electric Delivery Co. LLC (Oncor), the largest electricity transmission and distribution system in Texas. On July 29, 2016, the debtors entered into an Agreement and Plan of Merger (Agreement) with NextEra, pursuant to which NextEra would acquire the debtors’ interest in Oncor. The Agreement provided that, but for certain exceptions, the debtors must pay a $275 million termination fee to NextEra if the debtors terminated the Agreement. The debtors would not have to pay the termination fee if they could not get regulatory approval by the Public Utility Commission of Texas (PUCT) and NextEra (not the debtors), then terminated the agreement. If the PUCT did not approve and the debtors then terminated the Agreement, then the break-up fee was to be due and payable to NextEra.
While PUCT regulatory approval was a condition to the merger, the Agreement did not set a date by when such approval was required and did not contemplate the scenario in which the merger would dissolve automatically because the third-party PUCT approval was not obtained. In the face of regulatory rejection, NextEra could simply “be patient,” wait for the debtors to terminate first, then collect the $275 million break-up fee. And that is exactly how it played out.
Ultimately, the PUCT refused to approve the merger because NextEra, a.k.a. the “deal-killers,” refused to comply with the (1) the requirement that Oncor maintain an independent board of directors, and (2) the ability of certain minority shareholders to veto dividends. Without PUCT approval and with another purchaser waiting in the wings, the debtors formally terminated the Agreement based on the failure to obtain regulatory approval and NextEra’s alleged breach of the Agreement.
NextEra filed an application seeking recovery of its $275 million administrative claim in the chapter 11 cases. Creditors of the debtors simultaneously sought reconsideration of prior approval of the termination fee. In an extraordinary move, Judge Sontchi amended his previously approved order so as to have the practical effect of striking the award of the $275 million termination fee.
Judge Sontchi explained that he had “fundamentally misapprehended the facts as to whether the Termination Fee would be payable if the PUCT failed to approve the NextEra Transaction.” No party made him aware “that if the PUCT did not approve the NextEra Transaction, the Debtors could eventually be required to terminate the Merger Agreement and trigger the Termination Fee unless NextEra terminated first of its own volition.”
On appeal, the Third Circuit, after taking the matter upon direct certification, rejected NextEra’s argument that the motion to reconsider was untimely, since the Approval Order was interlocutory and not a final order. The Third Circuit also found that the lower court fundamentally misjudged the likelihood that the termination fee would be harmful to the estates. Had the bankruptcy court possessed complete knowledge of the facts at the time the Approval Motion was filed, it could not have approved the termination fee as an allowable administrative expense under 11 U.S.C. § 503(b).
Given the totality of the circumstances, the fee was not an “actual, necessary cost and expense of preserving the estate” under 11 U.S.C. § 503(b)(1)(A). “Payment of a termination or break-up fee when a court (or regulatory body) declines to approve the related transaction cannot rovide an actual benefit to a debtor’s estate sufficient to satisfy the statutory requirement.” The termination fee was detrimental, with the debtors “back to square one and, with the passage of time, in a worse off position — desperate to accept an alternative transaction.”  The Third Circuit further noted that NextEra’s bid was not designed to provide a competitive benefit. Although the termination fee was intended to induce NextEra to adhere to its bid, this benefit was potentially negated by the perverse incentive that resulted, inducing NextEra to hold firm against any burdensome ‘deal killer’ conditions.” The termination fee would have created substantial financial risk if the PUCT did not approve the transaction, and it had the “potential to be disastrous.”
It should be noted that this Third Circuit Opinion was not a majority opinion. In the dissent, Judge Rendell took issue with (1) the grant of a delayed reconsideration motion when there had been no clear error of fact or law, and (2) what he viewed as a flawed analysis of the benefit to the estates as though there had been no pre-approval of the termination fee as part of the Merger Agreement. Judge Rendell writes that even if the bankruptcy court judge “failed to appreciate a particular set of potential consequences”, that “hindsight cannot justify nullifying a material term of the deal that was struck….”
Practical Takeaways from this Case and Appeal
- Have you made the material terms and conditions of a sale transaction as clear as you can at the approval hearing? Have you provided testimony of parties involved?
- Does the Agreement set forth the necessary time frame for completing the condition?
- Is the condition one that can only be satisfied by a third party, i.e., a regulatory body?
- Is it clear who bears the risk if the third party does not satisfy the condition?
- What impact will a failed condition have on an agreement? Will one party have undue influence on that third party’s ability to satisfy the condition? Which party will be deemed to be in breach if the condition is not satisfied?
- Is the dollar amount of the break-up fee commensurate with the value the prospective purchaser is or is not bestowing upon the estate?
Does the fee provide a competitive benefit? Could a break-up fee have a perverse incentive to induce a buyer to hold firm against certain burdensome
 In re Energy Future Holdings Corp., 904 F.3d 298, 314 (3d Cir. 2018).
 In re Energy Future Holdings Corp., 575 B.R. 616 (Bankr. D. Del. 2017).
 In re Energy Future Holdings Corp., 904 F.3d at 302.
 Id. at 304.
 Id. at 306.
 Id. at 306.
 Id. at 307.
 Id. at 306.
 Id. at 304.
 Id. at 307-310.
 Id. at 306, 315.
 Id. at 313-315.
 Id. at 307 (citing In re Energy Future Holdings Corp., 575 at 635).
 Id. at 314.
 Id. at 315.
 Id. at 317.
Fear of the unknown. The Ch. 11 process is unknown to many. C-level executives
dread discussions about bankruptcy options. We just recently filed a new Chapter 11 case and thought we would write a series of posts on basic Ch. 11 procedural matters so as to demystify the process.
Filing Chapter 11 (reorganization/restructuring) is a powerful tool that can be invoked by businesses and certain individuals pursuant to Title 11 of the United States Code (aka the “Bankruptcy Code”). As a practitioner, I am privileged to be able to facilitate such restructurings. Here is the first post in this series on Ch. 11 basics.
The administrative burden of filing a case can be heavy. Often, a paralegal is running the “paper pushing” ship just before and shortly after a case is filed. Information gathering. Data compilation. Report generation. A debtor’s bookkeeper, accountant and/or CFO all work with Debtor’s counsel and paralegal staff to gather necessary documentation and to fulfill requirements imposed by the Court and the United States Trustee (appointed by Department of Justice). Each office has very specific document requests, rules and procedures.
In furtherance of a U.S. Trustee’s monitoring responsibilities, here is a list of what the U.S. Trustee wants prior to the Initial Debtor Interview. Most of the documentation requested is straightforward and anticipated:
- Bank account statements.
- Latest filed Federal Tax Returns or copy of extension to file.
- Financial statements.
- Payroll detail.
- Rent roll.
- Accounts receivable detail.
- Recently filed sales tax
- Recently filed payroll returns.
- Detail of intercompany transactions.
- Accounts payable detail.
- Check register for last 60 days.
- Filed Scheduled and Petition
Other requirements are not as obvious. Two that specifically need explanation are:
- Proof of establishment of Debtor-In-Possession account(s)
- Proof of insurance indicating that the Office of the U.S. Trustee is an additional certificate holder.
Once a debtor has filed a bankruptcy petition, it must close existing bank accounts and open new accounts which identify the debtor as a debtor in possession (“DIP”). All money from the bankruptcy “estate” (i.e. anything the debtor owns) must be put into these accounts. The title of “Debtor in Possession” must be printed on the checks along with the bankruptcy case number. The Bank will not issue a debit card for a DIP account.
While this seems complicated at first, the good news is that this is standard procedure. So, any bank should be familiar with this request. However, a debtor cannot go to just “any” bank. The U.S. Trustee’s Office will only accept DIP accounts from approved depositories. A current list of such institutions is available through the U. S. Bankruptcy Court in the district where the bankruptcy was filed. Approved Banks DIP
Within 15 days of receipt from the bank, a debtor must serve copies of monthly bank statements upon all creditors and interested parties, together with a monthly operating report (MOR) of gross receipts and disbursements. Both the monthly operating report (MOR) and DIP bank statements are publicly filed on a debtor’s docket.
Proof of Insurance
A debtor must maintain all insurance coverage during the bankruptcy process. This includes: general comprehensive liability; property loss from fire, theft or water; vehicle; workers’ compensation; and any other coverage that would be customary in line with the debtor’s business.
In addition to maintenance, a debtor must list the Office of the U.S. Trustee listed as an additional certificate holder and provide proof of such. The documentation of proof must include the type and extent of coverage, effective dates, and insurance carrier information. In order to fulfill the Trustee’s requirements, the debtor will usually have to provide proof of the request. The proof of insurance and additional certificate holder requirement is standard, so the insurance company should not have any trouble fulfilling a debtor’s request.
Please TAKE NOTE that a debtor’s failure to comply could result in DISMISSAL of the case or conversion to a Chapter 7.
This post does not constitute legal advice. Consult an attorney about your specific case.
Article for ABI Business Reorganization Committee: In Re Vivaro Corporation, et al. (S.D.N.Y.) Case Summary
WARNING: This is not a blog post written “In Plain English”. It is a repaste of an article Daniel and I wrote for a technical business bankruptcy legal e-newsletter published by the American Bankruptcy Institute (“ABI”) Business Reorganization Committee. Here is a link to the article replete with our bios.
Foreign Claimants? No Problem. All You Need Is a Postage Stamp to Satisfy Claims Objection Service and Declarations from the Debtor to Assert 502(d) Disallowance
By Salene Mazur Kraemer, Esquire, MBA, CTA and Daniel Hart, Paralegal
On November 13, 2015, in the United States Bankruptcy Court for the Southern District of New York, Judge Glenn issued a memorandum opinion in the bankruptcy case, In re: Vivaro Corporation, et al. (Case no. 12-13810), with the following rulings: (1) a claim objection against a foreign entity may be served by U.S. mail under Bankruptcy Rule 3007 and need not be served in the same manner required for service of a summons and complaint in accordance with Rule 7004; and (2) when a claim objection is based on § 502(d) of the Bankruptcy Code, the Debtors must meet their burden under § 547 of the Bankruptcy Code regarding the receipt of an avoidable transfer before the court will disallow and expunge such claims.
In Vivaro, various foreign entities from Pakistan, Costa Rica, Canada, London, El Savador, etc. filed proofs of claim in the debtors’ cases. Vivaro Corporation, et al. (the “Debtors”) filed various objections to such claims as well as to scheduled claims of such foreign creditors. At the same time, the Debtors initiated preference actions against such foreign creditors. The bases for the claims objections included § 502(d) of the Bankruptcy Code, which permits the disallowance (even if temporarily) of a claim if there are pending allegations of unreturned preference transfers.
Debtors served the claims objections upon the foreign creditors via U.S. mail and attached copies of the preference transfer complaints to the notices of claims objection. Debtors used the address listed on the Debtors’ schedules or listed on the appropriate proof of claim. In the packet sent to the foreign creditors, the Debtors included a declaration from the Debtors in support of their claim objections, which informed each claimant that they were in receipt of an avoidable preference transfer and provided the standard for a preference payment under § 547 of the Bankruptcy Code
Judge Glenn ruled that Bankruptcy Rule 3007 applies to claims objections and permits service by U.S. mail which includes service by mail on foreign entities, and, therefore, the Debtors’ properly served notice of claims objection to each foreign entity by U.S. mail. Bankruptcy Rule 3007 states that “[a] copy of the objection with notice of the hearing thereon shall be mailed or otherwise delivered to the claimant, the debtor or debtor in possession, and the trustee at least 30 days prior to the hearing.” Fed. R. Bankr. P. 3007(a). Service by Rule 7004(a) was not necessary. Bankruptcy Rule 7004(a) provides that in adversary proceedings, personal service under Rule 4(e)–(j) F.R.Civ.P. may be made by any person at least 18 years of age who is not a party, and the summons may be delivered by the clerk to any such person. Fed. R. Bankr. P. 7004(a).
The standard of service of a summons and complaint upon an individual in a foreign country is governed by F.R.Civ. P. Rule 4(f)(1), which is made applicable to adversary proceedings by Bankruptcy Rule 7004(a). Service must be “[b]y any internationally agreed means reasonably calculated to give notice, such as those means authorized by The Hague Convention….” Fed. R. Civ. P. 4(f)(1).
This Vivaro Court rejected the Jorgenson v. State Line Hotel, Inc. (In re State Line Hotel, Inc.), 323 B.R. 703, 713 (9th Cir. B.A.P. 2005), decision that Rule 7004 applies to the service of claims objections. Rather, the Vivaro Court concluded that “Rule 9014 defers to Rule 3007 on the subject of claims objections: [Rule 3007] calls for an objection, not a motion, and authorizes notice, rather than requiring service.” The Court further reasoned that there is no reason to require different rules of service when dealing with claims filed by foreign entities. In respect to the second issue, the Vivaro Court ruled that if the Debtors showed proof to the Court that preferential transfers were made and not repaid, then § 502(d) of the Bankruptcy Code requires that the entire claim be disallowed unless the full amount of the avoidable transfer has been repaid. The Court, however, must be satisfied that the estate or estate representative has established a prima facie basis that the claimants received and have not repaid avoidable transfers. Although the complaint was not properly served in accordance with Rule 7004(a), copies of the complaint and Debtors’ declaration provided the claimants with notice and evidence of the avoidable transfers. Such service shifted the burden to the claimants to rebut the evidence that they received an avoidable preference. In this case, none of the claimants responded to the claims objections or made an attempt to repay the preference transfer to the estate.
The Court held that once a claimant’s liability has been determined, the claimant must be provided with a reasonable opportunity to turn over the property to the debtor’s estate in compliance with § 502(d) of the Bankruptcy Code before the claims may be disallowed. If the creditor is liable to the estate for having received an avoidable transfer in any amount, the creditor’s entire pending claim must be disallowed in full.
- If you have a foreign claimant, service of a claims objection by U.S. Mail will suffice.
- If you are attempting to disallow a creditor’s claim based on 502(d) of the Bankruptcy Code, you must first establish a prima facie basis that the claimant received and has not repaid avoidable transfers. Copies of the preference complaint together with declaration from the debtor should suffice.
An aging analysis is often needed to mount an ordinary course defense in a preference action that a debtor has initiated against your client creditor, who could be a supplier, a lender, a trade creditor, a landlord.
EXAMPLE: Debtor retail toy store buys toy inventory from Defendant Supplier Creditor on Net 30 day terms and has done so for years. Debtor always paid in about 45- 60 days (or 15 to 30 days late– the “lag time”). The purchase history is evidenced by 1000’s of invoices, purchase orders, and checks. As the Debtor started its “slide into bankruptcy”, it slowed down payments to this Supplier Creditor and started paying in 75 to 100 days after invoice within the 90 days prior to filing bankruptcy (35-70 day “lag time”). Debtor paid Supplier $100,000 in those 90 days about 75-100 days after invoice. Post- bankruptcy, the Debtor or a Trustee sues the Supplier Creditor for a return of the $100,000 alleging that the payments were preferential payments.
To argue the ordinary course of business defense provided for creditors in the Bankruptcy Code, the Supplier must show that the timing of the payments in the 90 day period was consistent with Pre-Preference Period transactions, that this was a typical supplier/debtor credit relationship where the Debtor and Supplier over time had fallen into a pattern of regularly paying and accepting payments on a late basis. The Supplier must show that during the Preference Period, the average lag times remained substantially the same. The Creditor had come to expect this and had accepted these payments to be made in the “ordinary course of business.”
As a debtor draws closer to the filing of a bankruptcy, it is generally the case that almost all invoices will be paid with less frequency. A creditor must prove more than just that fact. See Hansen Lumber, 270 B.R. 273 (even where representative of debtor acknowledged that as debtor got closer to filing bankruptcy, the invoices were being paid with less frequency and the creditor defendant was treated no differently than any of the debtor’s other suppliers, debtor’s batch payments to supplier were still preferential). Generally speaking, there have been two ways in which Courts have done an “aging analysis” comparing the timing of preferential payments to the course of dealings established by the payment history between the parties: the “ranging method” and the “averaging method”.
For the “ranging method,” the first step is determining the range of “lag times” for payments made by the Debtor to the Creditor during the Preference Period, (if possible, also taking into consideration both the number of invoices and the dollar amount of invoices). The second step is determining whether this Preference Period range of “lag times” falls within, or close to, the range of lag times for payments made by the debtor to the creditor prior to the Preference Period. Calculating a “lag time” is described below.
For the “averaging method,” a creditor simply compares the average “lag time” for payments made during the Preference Period with payments made during the Pre-Preference Period. To calculate the average, one must first count the days after invoice date for each invoice, add up the total number of days and divide by the total number of invoices. Global Distribution, 103 B.R. 949, 953 n.3 (citing In re First Software Corp., 81 B.R. 211, 213 (Bankr. D. Mass.1988). If a debtor is a making payment to the creditor which pays many invoices (a batch basis), there is an issue as to whether the “lag time” is calculated on a “batch” basis or on an “unbatched” basis (invoice by invoice). Uh. yeah, this analysis can get more complicated.
As I have previously written here, I have developed an extensive series of excel spreadsheets to generate an “aging analysis” to defend preference litigation. I am able to take a client’s 1000s of invoice transactions, input them into excel and do an analysis using both the “ranging” and “averaging” methods on both a “batched” and “unbatched” basis. The analysis must also account for how the “Ordinary Course” defense interplays with the “New Value” defense (another defense to preference allegations). More on that later.
In true scholarly fashion, I amassed 100’s of cases in various Circuits that scrutinize what is a reasonable “average” or reasonable “range” in determining whether a transfer is ordinary or not.
I know this is riveting stuff. But, this type of litigation can make or break a creditor, thrusting the creditor also into a liquidation itself if forced to disgorge payments a Chapter 11 Debtor has made to it for bona fide goods or services. Trust me, my clients are fuming after being hit with one of these lawsuits.
Feel free to reach out if you have any additional questions about the “aging analysis” in a preference action. The age of the transaction is only one factor in determining whether a transfer is or is not within the ordinary course defense, but albeit a weighty one.
This post does not constitute legal advice. Consult an attorney about your specific case.
I am analytical. I like numbers. I like clear answers. Black and white. Not grey.
I was the Calculus member of my high school’s academic team in high school. Dad was an industrial engineer and the visual lens through which he viewed the world rubbed off on me. I initially majored in Physics because I appreciated how Calculus concepts could be applied to real life.
Fast forward 25 years. I love my work as a business lawyer. But, I still crave that opportunity to solve math problems (I did have a chance to be a financial analyst for two years before I started the firm). I just recently realize that, whenever I can, I attempt to solve my clients’ legal problems using spreadsheets and finite alternative scenarios. I reduce chaos and moving parts down to a formula, decision tree, or spreadsheet. There are only so many scenarios. There is a range of only so many possible outcomes. The law can only go so many ways.
Such an approach has worked really well for me in the context of settling business litigation. Recently, in bankruptcy litigation, I had to resolve the extent, amount, and priority of competing lien positions of 5 creditors (2 mortgage holders and 3 taxing bodies), on my clients’ commercial assets (including a building) and one of the owner’s residence. We tried to negotiate for months and no one was budging, but then I busted out my spreadsheets. I kept running the numbers given different assumptions regarding the value of the assets, whether to include interest and penalties, and given the two alternative legal outcomes as to whom should be first in lien priority. With the help of an esteemed mediator, we resolved the matter and successfully confirmed the plan of reorganization.
My abstract skills and fancy excel handywork also came in handy when I was about 29 (12 years ago, gasp), and working as a young associate. I developed an extensive series of “aging analysis” excel spreadsheets to utilize math to resolve a special type of bankruptcy litigation: preference litigation. The cases we handled were large dollar amounts in controversy, ranging from $15k- $8 million. Where a creditor is sued in a preference action (see first post on What the Heck is a Preference Action: Paying Off Favorite Creditors As a Business Tanks), there is an ordinary course of business defense. In order to mount this defense, a defendant should present an “aging analysis” of the length of time the parties were engaged in the transactions at issue.
We settled every time (with only one exception) and I am sure my extensive volumes of “aging analysis” spreadsheets helped. Maybe Dad would have preferred that I became an engineer like him. I don’t know. I do know that he would be proud of the way I approach my work now. Both my clients and I can thank my science and math teachers (Mr. Pete Karpyk, Mr. Phil Carey, Mrs. Kladakis, Mr. J.) for helping me be able to create these frameworks in which I can more readily resolve legal problems. So remember, #notalllawyershatemath.
Stay tuned for another post on exactly what is an “aging analysis” to be used to mount an ordinary course defense in a preference action.
Salene is a business and bankruptcy lawyer. This post does not constitute legal advice and does not constitute a guarantee of any legal outcome. The facts and legal issues vary from case to case; and not all outcomes will be the same.
By Daniel Hart, Paralegal and Salene Mazur Kraemer, Esquire.
In October 2015, every Pittsburgh local news outlet and national entertainment magazine reported on the bankruptcy fraud story of Abby Lee Miller. We have previously written here about her Chapter 11 Case: “Dance Mom” Instructor Abby Lee Miller Files for Chapter 11 Protection: Public Disclosure of Private Facts: Abby is the controversial star of the reality television show, “Dance Moms”. Her often abrasive personality is in contrast to the glitter of dance and beauty of her young dancers. She is quick to throw scathing insults at any of the children and their sometimes overly zealous Dance mothers.
Abby Lee filed for Chapter 11 bankruptcy in 2010, in Bankruptcy Court here in Pittsburgh. After some television surfing by a local bankruptcy judge and a subsequent investigation by local authorities, Abby may have committed bankruptcy fraud.
What is bankruptcy fraud? It is a white-collar crime that generally has taken four general forms:
- Debtors conceal assets to avoid having to forfeit them;
- Individuals intentionally file false or incomplete forms (underreporting income, overstating liabilities);
- Individuals file multiple times using false information or real information in several states;
- Debtors bribe a court-appointed trustee.
Nearly 70% of all bankruptcy fraud involves the first form, the concealment of assets. At the 341 meeting of creditors in each bankruptcy case, a debtor is required to testify under oath as to the accuracy of his or her bankruptcy petition and schedules. A bankruptcy trustee appointed by the United States Department of Justice probes each debtor about the facts and circumstances surrounding each case.
A bankruptcy trustee can only liquidate unexempt assets that are a part of the debtor’s “bankruptcy estate”. If the asset is not listed on the debtor’s schedules or the debtor does not reveal the asset, it can fly under the radar.
I tell each of my bankruptcy clients always to “tell the truth, reveal everything, err on the side of caution.” “You don’t want to end up in jail over this filing.”
The effects of bankruptcy fraud are often passed on to businesses, financial institutions, and the general consumer in the form of higher interest rates, greater loan fees, and higher taxes.
Bankruptcy fraud is a criminal offense. When a bankruptcy trustee suspects fraud but does not have enough evidence, he/she can compel testimony and document production from just about anyone through a Bankruptcy Rule 2004 examination. If fraud is suspected, the trustee refers the case to the Federal Bureau of Investigation (FBI). The agency will undergo its own investigation. A debtor guilty of bankruptcy fraud faces stiff penalties as outlined at 18 U.S.C. §152 which can result in a fine up to $250,000 for each count of fraud, or up to a five-year prison sentence, or both.
A federal grand jury indicted Abby Miller on 20 counts of bankruptcy fraud, alleging she concealed about $755,000 in assets and made false bankruptcy declarations. Federal Bankruptcy Judge Thomas Agresti nearly approve Miller’s Chapter 11 reorganization plan but then he was channel surfing one night and saw commercials for the new season of “Dance Moms”. Miller claimed in her bankruptcy reorganization plan that she did not have a signed contract for a new season and that her income from the show was “volatile.”
It is alleged that Abby did in fact, have a signed contract and steady income. During the past three years while the the bankruptcy proceeding was pending, as required by the Department of Justice for all debtors, Miller was required to deposit her income into a special DIP (Debtor in Possession) account and report that income to the court on a monthly basis. Instead, it is alleged that she set up other bank accounts and funneled her income from the TV show and other ventures into those accounts.
If found guilty, Abby Lee faces up to five years in prison, not to mention outrageous fines given 20 counts. The surprising twist in this case is that Abby’s bankruptcy plan, we believe, provided for a 100% payout to unsecured creditors (a rarity); it appears that she would have had no need to hide assets; she was obligated to pay unsecured creditors 100% anyway! We shall see!
Your loved one is in a hospital or nursing home that just filed for Chapter 11 bankruptcy. Should you be concerned about care?
A patient ombudsman will be appointed any time a “health care business”(i.e., a hospital or nursing home facility) files for bankruptcy. Specifically, Rule 2007.2 of the Federal Rules of Bankruptcy Procedure provides that the bankruptcy court “shall order the appointment” of the ombudsman unless a party in interest or the United States trustee files a motion within 21 days of the commencement of the case (unless the court sets another deadline). See Fed. R. Bankr. Proc. 2007.2.
It is questionable whether some facilities are classified as “health care businesses”.
The Bankruptcy Code defines “health care business at 11. U.S. C. § 101 (27A):
The term “health care business”—
`(A) means any public or private entity (without regard to whether that entity is organized for profit or not for profit) that is primarily engaged in offering to the general public facilities and services for— (i) the diagnosis or treatment of injury, deformity, or disease; and (ii) surgical, drug treatment, psychiatric, or obstetric care; and
(B) includes— (i) any— (I) general or specialized hospital; (II) ancillary ambulatory, emergency, or surgical treatment facility; (III) hospice; (IV) home health agency; and (V) other health care institution that is similar to an entity referred to in subclause (I), (II), (III), or (IV); and (ii) any long-term care facility, including any— (I) skilled nursing facility; (II) intermediate care facility; (III) assisted living facility; (IV) home for the aged; (V) domiciliary care facility; and (VI) health care institution that is related to a facility referred to in subclause (I), (II), (III), (IV), or (V), if that institution is primarily engaged in offering room, board, laundry, or personal assistance with activities of daily living and incidentals to activities of daily living.
A patient ombudsman is appointed to ensure the quality and continuity of medical care provided and to represent the interest of patients. During a chapter 11 bankruptcy of a health care business, Section 333(a)(1) requires the Court to appoint an ombudsman to monitor the quality of patient care “unless the court finds that the appointment of such ombudsman is not necessary for the protection of patients under the specific facts of the case.” Such a finding is largely a factual determination, and should be made only after an evidentiary hearing. See generally, In re Alternate Family Care, 377 B.R. 754, 758, 58 Collier Bankr. Cas.2d 1531 (Bankr. S.D. Fla. 2007).
The Alternate Family Care Court laid out “nine salient factors” for examining whether a patient ombudsman was required. Id. These factors have subsequently been adopted by other courts. In re Valley Health System, 381 B.R. 756, 761 (Bankr. C.D. Cal. 2008); In re North Shore Hematology-Oncology Associates, P.C., 400 B.R. 7, 11 (Bankr. E.D.N.Y. 2008). Some of these salient factors include: ”
- the cause of the bankruptcy
- debtor’s past history of patient care
- the ability of patients to protect their rights;
- the presence and sufficiency of internal safeguards to ensure appropriate level of care
- the impact of the cost of an ombudsman on the likelihood of a successful reorganization.”
In re Alternate Family Care, 377 B.R. at 758.
Other factors include:
- adequate internal protocols for protecting patient information.
- revenue projections through the bankruptcy would allow for a maintaining of the current quality of patient care
- additional administrative cost of an ombudsman was not justified as it may impair the ability of debtor to reorganize. Id.
- whether current operations were very limited.
See In re William L. Saber, M.D., P.C., 369 B.R. 631, 637–38 (Bankr. D. Colo. 2007)(avoiding appointment of ombudsman where sole practitioner filed for bankruptcy as a result of contractual dispute with a former employee). See also In re Banes, 355 B.R. 532, 536 (Bankr. M.D.N.C. 2006) (court declined to appoint patient care ombudsman where debtor had ceased operations and closed her dental practice).
If your local hospital files for Chapter 11 bankruptcy and you have any concerns regarding patient care, contact the attorney for the debtor. His or her information will be listed on the docket which should appear in a google search of the name of the debtor. Or, call the Bankruptcy Court in which the case is pending.
By: Matthew B. Smith, Law Clerk
Medford Trucking, LLC filed for voluntary Chapter 11 bankruptcy in the United States Bankruptcy Court for the Southern District of West Virginia on June 27th, 2014. The case has been assigned to the Honorable Robert G. Pearson under case number 2:14-bk-20354 .
Debtor claims assets of less than $50,000 with liabilities of less than $50,000. However the enumerated claims exceed $1 million. Among the debtor’s 19 creditors are Petroleum Products, Inc., American Express, Bank of America, and several other companies and law firms. Debtor is represented by Brian R. Blickenstaff of Turner & Johns, PLLC from Charleston, West Virginia.
Debtor is a transport company that was founded in 2001 and headquartered in Charleston, West Virginia. Debtor has operated as many as 82 tractor-trailer rigs, and employed as many as 160 drivers. Debtor carries a USDOT Number permitting it to haul non-hazardous materials within the state of West Virginia. Debtor specializes in light freight and coal hauling.
by Justin A. Saporito, Law Clerk
Aramid Entertainment Fund, Limited filed for Chapter 11 protection in the Bankruptcy Court for the Southern District of New York on June 13, 2014. Debtor has declared assets of $237.3 million and consolidated debt of $11.5 million. Debtor was assigned case number 1:14-bk-11802, a judge has yet to be assigned. Approximately 96 creditors were listed in the petition; among them are several other Aramid entities including Aramid Liquidating Trust, Ltd. and Aramid Entertainment, Inc. which jointly filed with the Debtor and were assigned consecutive case numbers.
Aramid Entertainment Fund, Limited is part of Aramid Capital Partners, LLP, a London based hedge fund that specializes in financing movies. According to their website, Aramid Capital has provided financing for thirty-two (32) movies including Paranormal Activity, W., and How to Lose Friends & Alienate People. Please click here for a list of their productions.
Debtor filed for Chapter 11 protection due to the cost of ongoing litigation against several of its borrowers who failed to repay loans or violated film-financing agreements. One such suit began in February 2012 and is over an alleged $44 million in losses. Debtor invested $22 million in a financing deal between Relativity Media, LLC and Sony Pictures. Debtor alleges that executives from Fortress Investment Group, LLC used Aramid’s confidential information, which was allegedly obtained during a 2010 portfolio review as part of a proposed purchase of Debtor’s assets, to make a deal with Sony that destroyed Debtor’s investments.
By: Justin A. Saporito, Law Clerk
Bradford & Byrd Associates, Inc. filed for voluntary Chapter 11 bankruptcy in the United States Bankruptcy Court for the District of New Jersey on May 23rd, 2014. The case has been assigned to the Honorable Christine M. Gravelle under case number 3:14:bk-20478.
Debtor claims assets of less than $50,000 with liabilities ranging between $500,000 and $1 million. Among debtor’s 21 creditors are the Internal Revenue Service, New Jersey Department of Labor, New York State Workers Compensation Board, Mercedes Benz, and several other companies and private individuals. Debtor is represented by Bunce Atkinson of Atkinson & DeBartolo, PC from Red Bank, New Jersey.
Debtor is a janitorial firm that was founded in 1989 and headquartered in Freehold, New Jersey. Debtor provides janitorial services clients in New York, New Jersey, Pennsylvania, Georgia, and North and South Carolina. Some of debtor’s more notable clients include UPS, the Social Security Administration Headquarters, and Public Service Electric and Gas Company. In debtor’s more than 20 years in business, it has achieved some noticeable accomplishments including servicing the Statue of Liberty in 1996 and being contracted to clean vintage chandeliers at West Point Military Academy in 2001.