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.
On September 3, 2013 Fairmont General Hospital, Inc. of Fairmont, WV and affiliate company Fairmont Physicians, Inc. (“debtors”) filed voluntary petitions for bankruptcy relief under Chapter 11 of the bankruptcy code with Fairmont General Hospital, Inc. as the lead debtor. The petitions were filed with the United States Bankruptcy Court for the Northern District of West Virginia with the assigned case numbers 1:13-bk-01054 and 1:13-bk-01055 respectively. The cases were assigned to the Honorable Judge Patrick M. Flatley (who is originally from Salene’s hometown of Weirton by the way) and consolidated (by debtors’ request) under case number 1:13-bk-01054.
The Debtors’ Chapter 11 Plan and Disclosure Statement are due by January 2, 2014. Schedules A-J were originally due on September 17, 2013 as were a Statement of Financial Affairs, Statement of Operations, Federal Income Tax Return, and other filings. (Please see the docket summary for a complete list of due filings.) At the time of filing, the debtors made multiple motions including motions to extend the time before the required Schedules and other would become due, maintain existing financial institutions and practices, pay pre-filing debts and obligations, and maintain utility services. All of these motions were granted. For a complete breakdown of the case please refer to the docket summary. The Meeting of Creditors has been set for Thursday, October 31, 2013 at 10:00 AM.
Fairmont General Hospital (FGH) is a private, non-profit, community hospital that was originally founded in 1939. FGH offers a variety of health services including surgical, rehabilitation, mental health, wellness/testing, emergency services, and more. For a complete list of the services they offer please click here.
The debtors claim assets and liabilities between $10 and $50 million. Notably, the debtors are currently seeking a strategic partner to take over its facility. The debtors are represented by Rayford K. Adams, III of Spilman, Thomas, & Battle, PLLC. Spilman, Thomas, & Battle, PLLC has seven offices spread across West Virginia, Pennsylvania, Virginia, and North Carolina with three of their offices located in West Virginia.
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.
On June 12, 2013, Duke Investments, LLC, of 300 Tarentum Bridge Road, New Kensington, PA 15068, filed a voluntary Chapter 11 Bankruptcy Petition in the United States Bankruptcy Court for the Western District of Pennsylvania, Case No. 13-22509. The Debtor is owned by John Coutlakis and John Hareras.
The case was designated a “small business case” pursuant to 11 U.S. C 101(51(D). The summary of schedules discloses assets worth about $41,900 and debts totaling $399,591, most of which consisted of taxes ($190,000 to the IRS and $85,000 to the Pennsylvania Department of Revenue). The Debtor also scheduled several unsecured debt obligations to WesBanco and First Commonwealth Bank.
From the list of the Debtor’s executory contracts, it appears as though this Debtor operated several coffee shops in the area, Robinson Court, The Frick Building, and Bridgeville.
The Debtor is represented by Mr. Richard R. Tarantine, Esquire, 437 Grant Street, Suite 416, Pittsburgh, PA 15219, 412-321-5229, Email: firstname.lastname@example.org. Mr. Tarantine disclosed an hourly rate of $250/hour and a pre-petition compensation around $8,000.
The docket can be found here.
NOTE: This is not necessarily related to bankruptcy. But, on second thought, maybe it is. Just short of its 100th birthday, Weirton Steel Corporation filed for Chapter 11 bankruptcy protection in the Northern District of West Virginia (Wheeling) on May 19, 2003. Here the NY Times article published the day after the filing. As detailed in the Weirton Steel wikipedia entry, by bankruptcy court order, the assets were auctioned with most being acquired by ISG. ISG then formed a new division called ISG Weirton Steel. On April 5, 2005, ISG completed a merger with Mittal Steel. Then again in 2006, Mittal Steel completed a merger with Arcelor thus resulting in a new company known as Arcelor Mittal. While I was practicing bankruptcy in Philadelphia at the time of the initial bankruptcy filing, I would then relocate to Pittsburgh in 2004 and work for a boutique commercial bankruptcy firm who served as counsel to the creditors’ committee in the Weirton Steel Ch. 11 case. I was raised in Weirton, West Virginia and returned last year (after 21 years away) to open a law office there.
So I attended the Weirton Festival of Nations this past Saturday. I had to man the Rotary booth. I brought along my children.
I had the privilege of sitting next to E.T. Weir’s lovely wife Gretchen at the Festival. Her late husband was the grandson of E.T. Weir, who founded the Weirton Steel Corporation. He is the man after whom our town and high school were named. Gretchen Weir traveled here with her dynamic daughter from New York City to donate memorabilia to the Weirton Area Museum and Cultural Center and to address the audience as a part of the opening ceremony for the Festival. She and I talked about many things. I told her what it was like growing up in Weirton and what it is like now. I have reflected much about my upbringing in Weirton and my continued close bonds with my childhood friends.Gretchen asked me to what extent the mill was still operating and I said I wasn’t exactly sure but, to my relief, I see smoke sputtering out of a few remaining stacks. I told her my mom and I drove down Main Street just on Friday and shuttered when we noticed another part of the mill had been demolished.I explained Weirton was, at one time (and probably still is), one of the most ethnically diverse towns in the state of West Virginia. There were numerous ethnic enclaves- Italian, Greeks, Polish, Serbs, etc. The Festival this weekend was a celebration of this diversity. Performances, foods, booths, etc. My children and I thoroughly enjoyed it. When I was a kid we used to have the “International Food Festival” each July. It was a 3-4 day event. I used to LOVE it. I still have my “half-Italian” red, green and white pin. I told Gretchen that Weirton was so unique because there were not significant economic disparities (i.e, the haves and have nots). Most all of our pops, of course, worked in the mill; our moms had to quit working once they got married (!!! ). Most families were in the middle class and experiencing a similar way of life. Weirton native Anna Egan Smucker wrote a lovely children’s book title NO STAR NIGHTS about growing in Weirton, this way of life. I happened to borrow it from the local Mary H. Weir library çand have been reading it to my children for the past few weeks.
Gretchen and her daughter were kind and interested and enthusiastic about urban renewal and where Weirton can go from here. Gretchen even let me take a photo with her to post to Facebook!!This post is a chapter in a turnaround story about urban renewal and the evolution of a small steel mill town. TO BE CONTINUED …
Preferential Treatment. My two older siblings Nathan and Nicole and I often teased my folks about being the favorite kid, each of us jockeying for the favorite position (not really). I will be writing a series of posts on paying a favorite creditor and the consequences of a debtor doing so as his or her business slides into bankruptcy. This is the first post. (I have a 50 page research treatise that I wrote, from which I am pulling to create these posts!). I will try to make the subject matter as interesting as possible.
I have been prosecuting and defending the recovery of alleged preferential transfers since my first few weeks as a bankruptcy associate at a large firm in Philadelphia and Wilmington, DE. I have developed a massive library of research regarding this special type of litigation that arises only in a bankruptcy case. So let’s start with the basics; what is a preference action?
As business owners and management see the tell-tale signs that they are going to close their doors or reorganize, the issue always comes up—who can I pay now and in what order? Often, we see significant outstanding tax liability, much of which consists of trust fund taxes (i.e., payroll, sales taxes, etc.) for which the owners of the company are personally liable. We also see mom and dads or related companies (aka insiders) lend an ailing business sizable chunks of money on an unsecured basis. We also see business owners who feel terrible stiffing their long-term business buddy suppliers because they know if that last payment is not made, then the suppliers’ business will become troubled too. In their darkest hour of distress, as the lights are about to go out, the owners scurry to pay “preferred” creditors.
But, the Bankruptcy Code provides a recourse to protect those creditors who are not on the preferred list. Specifically, pursuant to 11 U.S.C.§ 547 (aka Bankruptcy Code §547(b)), a preference action is a statutory right unique to bankruptcy that allows a debtor-in-possession or trustee to recover transfers made to a creditor within 90 days of a bankruptcy filing or within 1 year if to an insider, where such transfers were made to pay pre-existing debt. By initiating preference lawsuits inside of a bankruptcy proceeding, a bankruptcy trust or debtor is able to sue the creditors that it once “preferred” (either voluntarily or involuntarily) in order to claw back those monies into a debtor’s estate for fair distribution to all unsecured creditors.
The five basic elements of a preference are as follows:
- The transfer must be made (1) to or for the benefit of a creditor,
- (2) on account of an antecedent debt,
- (3) while the debtor is insolvent,
- (4) within ninety days before bankruptcy (for non-insiders) or within one year (for insiders); and
- (5) the transfer must enable the creditor to receive a greater amount had the transfer not occurred and had the creditor received payment in a hypothetical Chapter 7 liquidation.
All of these elements of a preference under Section 547(b) of the Bankruptcy Code must be present. If the plaintiff trustee/debtor-in-possession cannot prove a transfer’s avoidability by a “preponderance of the evidence” (generally the ability to prove as “more likely than not” that the five preference elements exist) then a defendant creditor will prevail. Note that, neither the debtor nor the creditor’s intent regarding the transfer is a material factor in the consideration of an alleged preference (more on this later).
I have been on both the prosecuting and defending side of numerous preference cases. When a debtor initiates preference actions, often a debtor is directed to pull its check register to identify payments and persons that the debtor has paid over the last year. Sometimes, those names, addresses and payments are placed into an excel spreadsheet that is then merged with a form complaint. The preference lawsuits are then filed in “batches.” I have seen hundreds of preference actions filed in a batch. Truth be told then — often, not a whole lot of diligence is put into determining whether a debtor’s actually preferred a certain creditor defendant (i.e., whether the debtor or trustee can satisfy each of the statutory elements of a preferential transfer and/or whether a defendant will have any valid defenses to the action that will either limit or eliminate liability). So the lawsuit is set in motion and now each creditor defendant to hire a bankruptcy lawyer and defend the lawsuit by either asserting that the plaintiff has not satisfied each of the prima facie elements set forth in the statute and/or asserting an affirmative defense.
Preference laws were designed to facilitate a fundamental bankruptcy policy of equality of distribution among creditors of the debtor. Nonetheless, in practice, preference actions are often viewed by creditors as extremely punitive, inasmuch as their effect is to cause creditors to disgorge funds that they have received for legitimate, undisputed bills. Fortunately, as referred to above, the bankruptcy statute also provides numerous defenses to a preference claim that can often substantially reduce or eliminate liability that would otherwise arise if the defenses are not timely asserted. I will discuss defenses in another post! Stay tuned.
MAZURKRAEMER represents debtors and creditors in bankruptcy courts all over the country. The information, comments and links posted on this blog do not constitute legal advice. No attorney-client relationship has been or will be formed by any communication(s) to, from or with the blog and/or the blogger. For legal advice, contact an attorney at MAZURKRAEMER or an attorney actively practicing in your jurisdiction.