Creditors' Resource : Bankruptcy and Creditors Rights Advisor : Corporate Recovery Associates : Richard J. Feferman : Creditors Committee, Reclamation, Unsecured Creditors

    Chelsea Emery of Reuters covers corporate bankruptcy and restructuring. On Reuters shop-talk blog, Chelsea reports that commercial bankruptcy filings in May were up sharply from the same month a year earlier. 7,514 bankruptcy petitions were filed for businesses in 2009 compared with 5,354 for May 2008.

 

 

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    The president of a tire company called me to discuss what to do as a result of a customer going into Chapter 11. He asked what could he do that isn’t going to require him to come up with any cash, is not going to take much time, and has the potential to be very effective?

    I responded that participation on an official creditors committee might make the difference in a satisfactory resolution with the customer that filed chapter 11. While there are no guarantees as to the outcome of a case, often I have been able to use the power of a creditors committee to significantly enhance the treatment of unsecured creditors.

    An active creditors committee has a powerful voice in a Chapter 11 case and the ear of the court. Bankruptcy Judges want to hear from the creditors’ committee on the many issues in a Chapter 11 case. Federal law provides for a seat at the negotiating table for committees. A committee’s activities include oversight of the debtor, and scrutinizing debtor’s affairs, and evaluation of the fairness and feasibility of a debtor’s actions. The bottom line is a well-run pro-active committee can create value for unsecured creditors.

    An attractive aspect of official committees is that they are usually structured so that there is no direct charge to the members for the cost of professionals that advise committees. Thus a mechanism is in place to level the playing field for creditors (or sometimes shareholders) in the negotiations that take place in formulating how a debtor will be restructured or liquidated.

    And the absence of a committee can result in the creditors getting the short end of the stick! Don’t assume that someone else is going to be looking out for creditors; it is the responsibility of the creditors to lookout for themselves – make use of this powerful tool – an Official Creditors Committee.

    I’ll write more on this soon, but for now see that a committee gets formed. Call me if you need help.
 

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    Wall Street Journal columnist John Fund thinks a federal bailout [with conditions] will be negotiated. The state's revenues are in free fall and a budget deal is not expected to be approved next week by voters.

 

    In a video posted on the Wall Street Journal website, Mr. Fund opines that the Obama administration will provide the money and California will agree to not cut spending.

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MIT Professor Simon Johnson is a thought leader on the Global Economy. His blog The Baseline Scenario is a great resource for understanding today's financial crisis. Last week he presented his Global Economic Outlook to the Senate Budget Committee.

 

I'm of the opinion that The Baseline Scenario is the best place on the web to stay easily updated on the  crisis. Johnson and his 2 co-founders are stimulating conversation and making this difficult subject understandable.

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Dear Sir:

The goal of federally financed bailouts should only be to augment feasible plans of reorganization, not to prolong the life of businesses beyond hope.

Bailout recipients should be required to devise and execute a feasible "Plan of Reorganization" as in Chapter 11 of the Bankruptcy Code. The financing could be in 2 parts: 1) the first part can provide interim financing while a Plan of Reorganization is developed; and 2) the second part will be "Exit Financing" that should only be provided to companies that can prove a that they have a feasible Plan of Reorganization.

All of the laws to administer the process are present in the Bankruptcy Code, with the exception of any legislation needed to let the government step into the shoes of the provider of the money. The Bankruptcy Courts also provide the only forum where certain issues can be dealt with (renegotiation or cancelation of existing contracts, protection for warrantee holders, etc.).

To handout money without conditions is not fair to the taxpayers, however given the seriousness of the financial problems we are faced as a nation perhaps a structure that requires responsible action by the recipients (with a recovery for the government) makes sense.

Respectfully,

Richard Feferman, Certified Insolvency and Restructuring Advisor
Corporate Recovery Associates
3830 Valley Centre Drive, Suite 705-152
San Diego, CA 92130
Tel: (858) 792-7473
email: richard@crarecovery.com
blog: www.creditorsresource.com

 

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 A couple of articles in the Wall Street Journal here and here are the basis for my bet that we are going see claims against Lehman's directors and officers insurance coverage. Perhaps even a fight over who is entitled to make claims against any policies. See Kimberly Melvin's article for background on D&O Policy Proceeds as Bankruptcy Estate Assets.

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We all know the housing bubble was inflated by easy credit and that market has become totally unhinged.


The Credit Market's issues are far from being sorted out. Certainly this is not going to be resolved in the short term. I think it is a fairy tail to believe the same abundant levels of consumer credit will return anytime soon. Money is going be more expensive and in shorter supply, hence we will have fewer dollars chasing houses. The next paragraph (and corresponding chart) shows why I think housing may be far from a bottom.


The S&P/Case-Shiller Home Price Indices are the gold standard for measuring aggregate home price fluctuations. The below chart, illustrating monthly changes in year-to-year comparisons, shows nationwide home prices falling at a faster rate each month.

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Loren Steffy of the Houston Chronicle wrote an article about a couple who have filed suit against several debt buyers who apparently ignored a Judge's discharge order. Although this blog is for Creditors, the whole notion implied in Steffy's well written article is that debt buyers who are so cavalier as to have complete disregard for a Federal Bankruptcy Judge's Order have thus far not been called to account.  This is unconscionable.


This case could be a big deal. I'll keep you posted.

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As I reported earlier 2008 is turning out to be a difficult year for retailers. What do you do when one of your Tenants files Chapter 11?


Here are three important issues:

I.    Ensure Your Rights To Payment
II.   Will The Lease Be Assumed Or Rejected?
III.  How To Improve Your Odds At Minimal Cost



I.    Ensure Your Rights To Payment. First things first, consult counsel and determine if there is any reason you do not want to file a Proof of Claim.  Then immediately review the tenant's (“Debtor’s”) account and lease files with your bankruptcy counsel. There are three classifications of claims typically filed by landlords:


1) Pre-Petition Claim. Everything the Debtor owes you up to the filing of the Bankruptcy Petition.



2) Ordinary Course Administrative Claim. Bankruptcy Code Section 365 (d)(3) requires the timely payment of your rent. Is the Debtor using your property to the benefit of the Bankruptcy Estate? Yes, and you are to be paid rent on time from the date the case was filed. If the Debtor is failing in its obligation to keep current on its Post-Petition rent then consider filing a Motion For Stay Relief as a precursor to an eviction proceeding.


3) Lease Rejection Claim. If the Debtor decides to terminate your lease you will be entitled to make a claim for your “Rejection” damages.


II.    Will The Lease Be Assumed Or Rejected? The Tenant will have 120 days to decide to Reject or Assume the lease. This may be extended, for cause (its usually granted), another 90 days. If the lease is assumed all arrearages must be paid immediately or adequate assurance of performance must be provided.


III.    Improve Your Odds At Minimal Cost. One of the best methods for improving your treatment in a Chapter 11 case without coming out of pocket with cash is get appointed to the Creditors' Committee. This is not a big time commitment and you can get lots of bang for the buck. Appoint an administrative staff member to represent your company on the Committee. The Committee will hire professionals (at the expense of the Bankruptcy Estate). Committee members have conference calls as needed. Good professionals will keep the Committee informed and handle the matters on a day-to-day basis. An effective Creditors Committee often will enhance the treatment of unsecured creditors.


Be proactive. Remember get counsel early and ask questions right away. Inquire about the formation of a Creditors Committee.

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