Category Archives: PA Chapter 11 Debtors

Avoiding Emergency Bankruptcy Filings

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.

BOTTOM LINE:

  • 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.

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Don’t Touch the Please Touch Museum While It Remains Under Chapter 11 Bankruptcy Protection

By: Daniel Hart and Salene Mazur Kraemer

On September 11, 2015, the Please Touch Museum in Philadelphia filed for Chapter 11 bankruptcy Please Touch Museum(Bankruptcy Case no. 15-16558) in the United States Bankruptcy Court for Western District of Pennsylvania, thus triggering an automatic stay or injunction pursuant to 11 U.S.C. 362 of the Bankruptcy Code that halts actions by creditors, with certain exceptions, to collect debts from the debtor who has declared bankruptcy.   “Don’t Touch the Debtor”.

The museum intends to remain as a debtor-in-possession and continue operating during the pendency of the Chapter 11 Case.  The museum’s mission is to enrich the lives of children by creating learning opportunities through play.  It aims to achieve this mission by creating meaningful interactive play-based experiences within the museum and beyond its walls for all young children and their families.  The museum has been nationally recognized for its lasting impact.

The museum filed for protection under Chapter 11 bankruptcy because it borrowed more money then it could pay back to renovate a new home in Fairmount Park’s Memorial Hall.  Sources say the bankruptcy filing has two main objectives: (i) to shed the majority of the $60 million it owes holders of its debt, and (ii) to negotiate a deal whereby the museum turns over maintenance and repairs of Memorial Hall to the city, which owns it.

The museum owes about half of its debts to a group of bondholders.  It formulated a plan to pay back these bondholders about $11.5 million of the $60 million debt.  Filing for bankruptcy was a tactic used to get this bondholder group to agree to the plan.  Also, the museum is launching a $10 million fund-raising rescue plan. In addition to paying off the debt, the museum intends to use the money to pay professional fees associated with the bankruptcy and to make some exhibit upgrades.  It remains to be seen whether this strategy will solve the museum’s problems.

Source: http://www.philly.com/philly/entertainment/20150912_Please_Touch_Museum_files_for_Chapter_11.html

Pittsburgh Riverhounds Stumble as They Declare Chapter 11 Bankruptcy

By:  Justin A. Saporito

The  Riverhounds Event Center, L.P. and Riverhounds Acquisition Group, L.P., the limited partnerships that own and operate Highmark Stadium and the Pittsburgh Riverhounds Professional Soccer Club respectively,  jointly declared voluntary Chapter 11 bankruptcy on March 26, 2014.  Debtors filed in the United States Bankruptcy Court for the Western District of Pennsylvania, assigned case numbers 2:14-bk-21180 and 2:14-bk-21181 respectively.  Both cases have been assigned to the Honorable Jeffery A. Deller.

The Riverhounds Event Center, L.P. owns and operates the newly constructed Highmark Stadium located in the South Side area of Pittsburgh and claims assets ranging from $1 million to $10 million with liabilities between $10 million and $50 million.  Of those liabilities, $7.2 million is mortgage debt and $1.5 million in bank loans.  riverhounds_logo

The Riverhounds Acquisition Group, L.P. is the limited partnership that owns the Pittsburgh Riverhounds minor league soccer team and claims assets ranging from $500,000 to $1 million with liabilities between $1 million and $10 million.  The Pittsburgh Riverhounds  was founded in 1999 and currently plays in the United Soccer Leagues.  Much of the debt leading up to the bankruptcy was incurred in 2012-2013 during the construction of Highmark Stadium.  The bankruptcy is not expected to affect the 2014 season.

Debtors share some creditors such as Shallenberger Construction, Inc.,  First National Bank of Pennsylvania, and Urban Redevelopment Association of Pittsburgh.  Both debtors are represented by John M. Steiner of Leech Tishman Fuscaldo & Lampl, LLC.

Billing Services Company Penn Data Services, Inc. Makes a 2nd Trip to Bankruptcy Court

By:  Justin A. Saporito, MAZURKRAEMER Law Clerk and Salene Kraemer, Esquire

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.double bankruptcy

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.

DragonFire, Inc. Running Out of Breath as it Files Chapter 11

By: Justin A. Saporito, MAZURKRAEMER Law Clerk

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.1366998187

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

By: Justin A. Saporito, MAZURKRAEMER Law Clerk and Salene Mazur Kraemer

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.

dance-moms-banner-85373The 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.

Philadelphia’s Marathon Grill Hits “The Wall” with a Chapter 11

By: Justin A. Saporito, MAZURKRAEMER Law Clerk

The entities in charge of the 1818 Market Street location for the Marathon Grill Philadelphia restaurant chain, 1818 Market Street Marathon Grill, Inc. and its general partner 1818 Market Street Marathon Grill Associates , filed for chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Eastern District of Pennsylvania (Philadelphia) on October 9, 2013.  1818 Market Street Marathon Grill, Inc. is the corporate entity for the 1818 Market Street location and has been assigned to the Honorable Judge Magdeline D. Coleman under case number 2:13-bk-18861.  1818 Market Street Marathon Grill Associates, the partnership in charge of the location filed separately and has been assigned to the Honorable Judge Eric L. Frank under case number 2:13-bk-18863.  (Please click the hyperlinks for docket summaries).  Motions for Joint Administration of both cases were filed by each entity on October 9, 2013.  The debtors listed the same creditors with the exception that 1818 Market Street Marathon Grill, Inc. also lists NNN 1818 Market, LLC, the building management company in charge of 1818 Market St.

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The Marathon Grill began as a 10-seat hamburger restaurant in Northeast Philadelphia in 1984.  It eventually grew into a six location restaurant chain before shrinking back down to operating three locations at 1818 Market St., 19th & Spruce St., and 16th & Sansom St.  The bankruptcies affect the 1818 Market St. location, the largest of the three restaurants.  The filings were made in response to learning that the landlord intended to take possession of the restaurant space over an ongoing dispute over unpaid back rent and fees of approximately $540,000.

1818 Market Street Marathon Grill Associates declared assets between $500,000 and $1 million with liabilities between $100,000 and $500,000.  1818 Market Street Marathon Grill, Inc. declared assets between $50,000 and $100,000 with liabilities between $1 and $10 million.  The debtors entities are represented by Aris J. Karalis and Robert W. Seitzer of Maschmeyer Karalis P.C.  The bankruptcies do not affect the other Marathon Grill locations and the debtors have pledged that the 1818 Market St. location will remain open during the bankruptcy proceedings.

Salene: In my younger years as a lawyer at Weir & Partners LLP in Philadelphia (2002-2004), I used to grab many late dinners at the Marathon Grill location at Sansom Street.   It was hip, for sure.   What is the formula for sustainability in the restaurant industry?

Chapter 11 Debtors Beware: Do Not Fail to Pay Quarterly Fees Owed to the U.S. Trustee

By:  Justin Saporito, Law Clerk and Salene Mazur Kraemer, Owner

U.S. DOJ seal

What fees are associated with filing a Chapter 11 case? Aside from payment of attorneys’ fees (which can be steep), there are filing fees and ongoing quarterly administrative fees.

For a chapter 11 case, quarterly fees must be paid to the U.S. Trustee each quarter, or fraction thereof, until that case is closed, dismissed, or converted.  These fees are in addition to the filing fee that must be paid by the debtor.  The amount owed by the debtor is based upon the amount of disbursements made during the quarter starting at a minimum of $325 with a maximum of $30,000.  (Complete breakdown of quarterly fees w/ instructions.)   Again we repeat, there is a minimum payment of at least $325 a quarter.   If significant assets are sold, a debtor may be looking at a quarterly fee up to $13,000 or even $30,000 to be made payable to the U.S. Trustee’s office.  The fee schedule is uniform for all Federal Judicial Districts that are a part of the U.S. Trustee Program which includes all Federal Judicial Districts except for Alabama and North Carolina.

Quarterly fee bills are mailed to the debtor by the U.S. Trustee at the end of each quarter with instructions on how to determine the amount of fees owed.  These fees are due on the last day of the calendar month following the calendar quarter.  The minimum fee is due even if no disbursements were made that quarter and failure to pay a quarterly fee is cause for conversion or dismissal of the chapter 11 case.  Failure to receive an invoice does not excuse the obligation to timely pay U.S. Trustee’s fees.  Debtor’s counsel should contact the Office of the U.S. Trustee If a quarterly bill is not received, unless counsel for the debtor has executed an authorization allowing the U.S. Trustee to discuss the issue of quarterly fees with the debtor.

For payments made by check, the payment is converted to an electronic funds transfer (EFT).  This means that the account information will be copied from the check to electronically debit the debtor’s account for the amount of the check.  The debit usually occurs within 24 hours after which the original check is destroyed.  A copy of the check will be made by the U.S. Trustee’s Office however.  If the EFT cannot be process due to technical reasons, the debtor authorizes the U.S. Trustee’s Office to process the copy in place of the original check.  If the EFT cannot be completed due to insufficient funds, two more attempts to make the transfer may be made.

TIPS FOR THE CHAPTER 11 DEBTOR:  Payment of these U.S. Trustees fees is important.  The U.S. Trustee is an agent of the Department of Justice.  He or she is a lawyer who plays a critical and influential role in every Chapter 11 Case (more on this later).  Do not overlook paying these fees or responding to any requests made by a U.S. Trustee.   If a Debtor ignores such requests or fails to pay U.S. Trustee fees, the Debtor can almost be certain that a Motion to Dismiss the Case or Convert the Chapter 11 Case to  Chapter 7 Case (liquidation) will be forthcoming.

Prithvi Catalytic, Inc., an IT Consulting and Engineering Firm, Files Ch. 11 in Pittsburgh

prithvi_logo_10By:  Justin Saporito, Law Clerk

On September 10th, 2013 Prithvi Catalytic, Inc. filed a voluntary petition for relief under Chapter 11 in the United States Bankruptcy Court  for the Western District of Pennsylvania, which was incomplete.  Statements A-J, Statement of Operations, Summary of Schedules, and Tax Information are due by September 24th, 2013 and a Chapter 11 Plan is due by January 8th, 2014.  Debtor claimed assets between $1 million to $10 million with liabilities ranging from $10 million to $50 million.

The Debtor is a multi-national IT Consulting and Engineering solutions company that began operations in 1998 with its registered office in Hyderabad, India and opened its first U.S. office near Seattle, WA in 2000.  The Debtor expanded operations with new development centers and sales offices in the U.S., Canada, Brazil, India, South Africa, and the Middle East.  Debtor focuses its strategic business in the healthcare, retail, BFSI (banking, financial services, and insurance), and telecom markets and provides services in Europe in addition to the regions where it maintains offices.

A total of fifty-four creditors are listed on the Debtor’s petition including  the District of Columbia, various Departments from 22 different U.S. states, the federal government, and several private companies.  Click here for  Complete list of Creditors and summary of docket.

Debtor is represented by Louis P. Vitti of Vitti & Vitti & Associates, PC located at 215 Fourth Avenue Pittsburgh, PA 15222.  The Office of the United States Trustee Liberty Center  shall be represented by Kathleen Robb located at Suite 970 1001 Liberty Avenue Pittsburgh, PA 15222.

Inside the Trenches of a Chapter 11: The Firehose of the First 30 Days

fire-hydrant-flushing    The first 30 days of a Chapter 11 bankruptcy case often are like water spewing violently out of a fire hydrant.  Fast.   Furious.  Urgent.  Many issues being thrown at the Debtor, its employees, and its lawyers at one time.

According to the Pre-Bankruptcy Planning for the Commercial Reorganization: A Brief Guide for the CEO, CFO/COO, General Counsel and Tax Advisor, written by the Reorganization and Restructuring Group of Squire, Sanders & Dempsey, LLP (2nd edition, 2008), a whopping 83 percent of chapter 11 reorganizations that are filed generally “die on the vine” and are never confirmed.

I purchased this Brief Guide at the American Bankruptcy Institute that I attended this past Spring and I thought I would write a few blog posts integrating my experience with the concise content of the book.  As set forth on Appendix A to the Guide, generally certain matters must be addressed within the first 30 days of a case.

  • Petition filed
  • Filing of list of 20 largest creditors
  • Applications for retention of professionals (attorneys, accountants, turnaround professionals, valuation specialists, real estate brokers).  A Debtor cannot pay a professional unless the retention of the firm is first approved by the Judge and the professional files a fee application on the docket, to which parties may review and/or object.
  • Filing of ”first day” motions (seeking authority to pay wages, use pre-petition bank accounts, pay deposits for utilities, use of cash collateral, payment of interim compensation to professionals)
  • Filing of schedules of assets and liabilities and statement of financial affairs.  Getting correct addresses and dollar amounts owed for every single creditor often is a daunting task.  Once the Schedules are filed, a creditor matrix is generated. The Bankruptcy Court and parties in interest use this address list to mail or “serve” important pleadings in the case. If the matrix is enormous, certain limited servicing lists can be authorized by the Court. In mega-cases, servicing agents are employed by the Debtor to handle only this aspect of the case, i.e., proper service.
  • Filing of Corporate Resolution authorizing the Chapter 11 filing
  • Negotiation of debtor in possession financing
  • Hearing on use of cash collateral and adequate protection
  • Negotiation with trade creditors regarding reclamation claims and/or reestablishment of trade terms.

The first few weeks of a case can be exhausting and dramatic.  Often, by the time a petition is filed, a debtor runs out of money and payroll has not been paid (therefore employees are angry and morale is low), bank accounts frozen, the utilities have been shut off, and/or the front doors have been padlocked by a creditor.   Once a case is filed, a creditor may immediately file a motion to dismiss the case.

The filing of the petition and related schedules requires a financial autopsy of a business and all of its related entities. In order to avoid confusion down the road, Debtor’s counsel should try to obtain as much factually accurate information as possible during this time. The process requires persistence, diligence and coordination with the Debtor’s employees, who basically become your co-workers for as long as the case is open, which could be 18 months or longer.

During this critical time, management and key employees must be counseled regarding what to do and not do, now that the actions of the Debtor are under close scrutiny by not only a Judge but also a U.S. Trustee as well as the creditor body. Employees should be clear regarding what transfers may or may not be made without court approval.  Also, at the same time, the U.S. Trustee’s Office dictates that a debtor comply with its financial reporting requirements (hence the required “Monthly Operating Report”), and the filing of insurance and bank account information.  Lack of compliance may lead to a dismissal of the case or a conversion to a Chapter 7.  Often the debtor must close pre-petition bank accounts and open new ones.

Keeping all constituencies informed is an important part of the role of Debtor’s counsel.  Creditors may include key lenders and critical vendors who will want to know what the turnaround strategy is for the company. Once creditors receive the “Notice of Suggestion of Bankruptcy”, they too will be scurrying around to hire bankruptcy lawyers if the size of their claims warrants such an expense.