Category Archives: New Chapter 11 Filings
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.
It was the day before Thanksgiving. A friend of mine called me in a panic. She received a notification that her bank account was frozen by a creditor; she was to get a direct deposit of her salary in the next 2 days, which was two weeks before Christmas. She needed to file bankruptcy fast in order to trigger the automatic stay (legal principle that means no creditor can take action to harm you).
I stayed up until midnight that day in order to get the case filed for her. Her business had gone bad and this was the fallout from it.
Often, bankruptcy cases are filed on an emergency basis. In many instances, time may be of the essence and you need to file the case immediately (e.g. a creditor has a judgment against you and has sent the Sheriff to your home or business; you have received a notice of garnishment of your wages or bank account by a taxing body). If this firedrill can be avoided, it should be.
Rushing into a case is pretty much never a good idea. Filing the petition on an emergency basis only increases the costs of your case and there may not be enough time to research potential issues that may arise during the course of your case. You may omit important creditors. You may omit assets. If the schedules are not accurate, you will need to amend them and that costs more money to do. Substantial, repeated amendments do not leave favorable impressions upon the U.S. Trustee or the Ch. 7 Trustee.
A debtor is permitted to file a barebones “emergency “bankruptcy petition together with a list of 20 largest creditors. The full set of schedules must be submitted within 14 days, unless extended.
Regardless of whether the case is an emergency filing or not, if you are an individual, you MUST complete pre-bankruptcy filing credit counseling course at least 24 hours before any case is filed.
- Talk to an attorney. He or she can give you the questionnaire you need to fill out well ahead of time. He or she will also give you a list of documents you will need You can start gathering that info. If the case is billed hourly, you will save yourself money by gathering up this information rather than having a paralegal do it.
- Pre-bankruptcy planning is always advisable for any individual or business. You don’t want to throw good money after bad (meaning you don’t want to pay down debt that ultimately may be discharged). You don’t want to make preferential or fraudulent transfers. Often, there are non-bankruptcy options, particularly for businesses (but that can be a topic for another blog post).
DISCLAIMER: This does not constitute legal advice. This post does not create an attorney client relationship. Consultant an attorney for more information re: this topic.
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.
By: Stephen Krug, Law Clerk
The various entities that comprise the Quiznos sandwich chain (“debtors”) filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the District of Delaware on March 14, 2014. A motion filed by debtors for joint administration of the cases was granted on March 17, and the case has been assigned to the Honorable Peter J. Walsh.
While debtors’ liabilities range from $500 million to $1 billion, the assets are only estimated to fall between $0 and $50,000. However, Debtors maintain that, although assets are low and 10,001 to 25,000 creditors exist, funds will be available for distribution to unsecured creditors. U.S. Bank National Association, as administrative agent and collateral agent under debtors’ second lien financing facility, is the largest unsecured claimant with a claim for approximately $174 million. Horizon Media Inc., MG-1005, LLC, and ESPN Inc. also hold substantial unsecured claims.
Debtors have proposed a pre-packaged reorganization plan that would slash debt by more than $400 million and would permit the handful of company-owned sandwich shops to remain operational. Sandwich stores operated by franchisees are not part of the bankruptcy proceedings and thus are not provided for in the pre-packaged plan.
Debtors hope to emerge from bankruptcy more viable than ever. Moving forward, debtors hope to reduce food costs and place more of an emphasis on advertising.
Penn Data Services, Inc. filed a voluntary petition for Chapter 11 bankruptcy protection on October 1st, 2013 in the Bankruptcy Court for the Western District of Pennsylvania (Pittsburgh). The case has been assigned to the Honorable Judge Carlota M. Bohm under case number 2:13-bk-24153. A summary of the docket can be found here.
This is the debtor’s 2nd consecutive voluntary filing for Chapter 11 bankruptcy protection, having previously filed over a year ago on August 21st, 2012 (that is referred to as a “Chapter 22” by those in the industry). That case was assigned case # 2:12-bk-24156 and was also overseen by Judge Bohm. The 2012 case was dismissed on August 30th, 2013 for failure to timely file a Chapter 11 Plan and Disclosure Statement. A docket summary of the initial filing for the 2012 case can be found here.
Penn Data Services, Inc. is a billing services company founded in 1996 and located in Natrona Heights, PA. The debtor claims assets of less than $50,000 with liabilities between $50,000 and $100,000. Christopher M. Frye of Steidl & Steinberg P.C. is again representing the debtor, having been debtor’s counsel for the 2012 case.
Affairs Afloat, Inc. voluntarily filed for Chapter 11 bankruptcy relief on October 15th, 2013. The petition was filed in the Bankruptcy Court for the Southern District of New York. The case has been assigned to the Honorable Judge Burton R. Lifland, under case number 1:13-bk-13356. (Click case number for docket summary.)
The debtor is a river cruise operator that operates in New York City out of Pier 78 on West 38th Street. Affairs Afloat, Inc. was established in 1988 and provides services through its two river cruise ships, The Queen of Hearts (pictured right) and The Star of Palm Beach. The Queen of Hearts is a three level ship that is Coast Guard certified for 450 guests plus staff and crew. The Star of Palm Beach is a two level ship and is Coast Guard certified for 380 guests plus staff and crew.
Affairs Afloat hosts various cruises on specified dates in addition to its weekly cruises such as its Shadow Nightclub on Tuesday nights, Cruise Brasil on Wednesday nights, Candela Cruise on Thursday nights. Debtor also holds a Kiddie Cruise on Sunday afternoons. Debtor offers group packages for many of its events and its services are also available for private events. For more information about debtor’s programs and services please visit their website here.
Debtor claimed assets and liabilities of between $1 and $10 million with HSBC Bank, the Internal Revenue Service, the Security Exchange Commission. It appears that the Chapter 11 filing has not affected debtor’s operations as it is accepting reservations for cruises for Halloween and New Year’s Eve. Affairs Afloat, Inc. is represented by Jonathan S. Pasternak of DelBello Donnellan Weingarten Wise & Wiederkehr, LLP.
The following case is of particular interest to Salene since she is originally from Weirton, West Virginia and attended West Virginia University.
Freedom Industries, Inc. filed a voluntary petition for Chapter 11 bankruptcy on January 17, 2014 in the United States Bankruptcy Court for the Southern District of West Virginia. The case has been assigned to the Honorable Ronald G. Pearson. Both assets and liabilities are estimated to be between $1 and $10 million. Approximately 700 creditors are listed in the petition including multiple WV state agencies, service companies, and private individuals. Multiple motions were filed along with the petition including motions to allow payments to essential trade vendors and to pay $2.4 million in unpaid taxes to the IRS. A summary of debtor’s filings can be found here.
Debtor is a specialty chemicals manufacturer founded in 1986 and located in Charleston, WV. It manufactures chemicals for the mining, steel, and cement industries and is wholly-owned by Chemstream Holdings, Inc. The Charleston chemical plant is located along the Elk River and has recently been widely publicized as the cause of a chemical spill that contaminated the Elk River on January 9th, 2014 which led to state and federal states of emergency being declared. The spill left 300,000 residents without running water for several days. The chemical that leaked into the river is used in coal processing. The local water supply is currently said to be safe for residents in the nine affected counties except for residents in certain towns. Additionally, pregnant women in the affected areas are advised to drink only bottled water at this time.
Debtor is represented by Mark E. Freedlander of McGuire Woods LLP and Stephen L. Thompson from Barth & Thompson. Debtor also filed a motion to Employ Pietragallo, Gordon, Alfano, Bosick, and Raspanti, LLP as Special Litigation Counsel.
DragonFire, Inc. filed a voluntary petition for Chapter 11 bankruptcy in October 25th, 2013. The petition was filed in the United States Bankruptcy Court for the Western District of Pennsylvania and has been assigned case number 2:13-bk-24517. Debtor’s Disclosure Statement, Balance Sheet, Declaration of Schedules, and other documents were due by November 8th, 2013. For a complete list of the documents due please refer to the document summary.
Debtor is the corporate entity for DragonFire Japanese Steakhouse and Sushi Bar located at 1500 Washington Rd. in the Gallery Mall in Mt. Lebanon, Pennsylvania. As the name suggests, DragonFire specializes in hibachi and sushi. For those unfamiliar with hibachi, it is a rectangular Japanese style barbecue grill. Customers often sit at a counter that spans three sides of the grill. The chef stands at the fourth side and prepares the meal (which typically consists of fried rice, vegetables, and various meats) with much fanfare. DragonFire also boasts a robata grill, a traditional Japanese slow grilling method. For more information about DragonFire, you can visit their website here.
Debtor has declared between $50k and $100k in assets with between $500k and $1 million in liabilities with approximately 20 creditors listed in the petition. Debtor is represented by Donald R. Calaiaro of Calaiaro & Corbett, P.C.
“Dance Moms” Instructor Abby Lee Miller Files for Chapter 11 Protection: Public Disclosure of Private Facts
Salene’s Preface: I was in Bankruptcy Court last week in Pittsburgh and noticed Abby walking into Court. (She is a stunning woman by the way and you can understand why she is on TV). I had to ask myself, “How do I know her?” I did figure it out pretty quickly. I was surprised to see her on my turf (that is in the world of commercial bankruptcy) and was not aware that Abby had filed for Ch. 11. My daughter is a dancer and I watch the show!
Abigale Lee Miller filed for Chapter 11 relief on January 3rd, 2011. The petition was filed in the United States Bankruptcy Court for the Western District of Pennsylvania under petition number: 10-28606 TPA and has been overseen by the Honorable Judge Thomas P. Agresti.
Debtor is better known as Abby Lee Miller, the host and instructor for the popular Lifetime reality television show Dance Moms. The show follows a group mothers and their young daughters who are participating in the world of young competitive dance. The show takes place in Pittsburgh, PA at the debtor’s studio, the Abby Lee Dance Company, and follows the ladies as they travel across the country to various competitions. Dance Moms is currently holding open casting calls for its 4th season.
The Abby Lee Dance Company was formed 27 years ago as a not-for-profit organization and is an audition only program. It is located at 7123 Saltsburg Road, Pittsburgh, PA, 15235. Debtor is also the owner of Reign Dance Productions, which shares the building with The Abby Lee Dance Company.
Debtor has declared approximately $325,500 in assets with approximately $356,500 in liabilities. Thirty-four creditors are listed in the petition, with Chase Mortgage holding the largest unsecured claim in the amount of $50,000. This debt is the unsecured portion of what appears to be a $200,000 undersecured mortgage on a home of Ms. Miller’s in Florida valued at $150k. Ms. Miller’s dance studio has a $96,000 mortgage on it; the studio is valued at around $150,000 Ms. Miller owes about $27,000 in back taxes (which are unsecured priority claims). Her unsecured debt only totals $32,000, many of whom are vendors for her business.
The Second Amended Disclosure Statement was approved on January 18th, 2013 and the Order Approving Disclosure Statement and Scheduling Hearing on Plan Confirmation was entered into on October 21st, 2013. Please click here to for a copy of the order. The debtor is represented by Donald R. Calaiaro of Calaiaro & Corbett, P.C. The Confirmation Hearing to approve her Plan of Reorganization is set for December 12, 2013 at 1:30 p.m. EST. Please click here for a copy of the Disclosure Statement. A summary of the Chapter 11 plan can be found here.
Salene’s comment: We purposefully do not often write blog posts about individual Chapter 11 cases (usually filed by very wealth individuals. Most folks file a Chapter 7 or Chapter 13). When a company or person files for bankruptcy, I warn my clients that you are subjecting yourselves to a “financial autopsy”; you are making a public filing of all of your assets and liabilities. So, information seekers can look up what your home is worth, what kind of car you drive, how much credit card debt you have, whether you own a fur coat, how much your wedding ring costs, and whether you have any money in an IRA/401k. Anyone can see how much money you have made in the last three years and they get to read what your monthly budget is for expenses. While there are certainly benefits to the privilege of filing for bankruptcy, public disclosure of private facts is certainly one of the drawbacks.