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Garnerville Bankruptcy Law Blog

What is the court's 'cram down' power in a Chapter 11 bankruptcy?

Chapter 11 bankruptcies in Rockland County and elsewhere have many components: secured creditors, unsecured creditors, unperformed contracts, partially performed contracts and assets that are difficult to value, just to name a few. Moreover, the Bankruptcy Code specifies a number of requirements that must be met before a reorganization plan can be approved by the court. What happens if, after all of the debts and assets are property valued, one secured creditor objects to its treatment under the proposed plan of reorganization? Can one objecting creditor tip over the entire bankruptcy process just to protect its claim?

The answer lies in what is colloquially referred to as the court's "cram down" power. Section 1129(a) of the Bankruptcy Code specifies the criteria that must be satisfied before the court can approve a proposed plan of reorganization. Section 1129(b) gives the court the power to approve a proposed plan even if one creditor or a class of creditors asserts that its claims or interests will be impaired if the plan is confirmed. This is known as the "cram down" power.

Envelope maker and printer seeks Chapter 11 protection

It's common knowledge in Rockland County that the Internet has had a devastating effect on a number of industries. Less commonly known is the effect of the Internet on products that most people take for granted -- stationery and envelopes. As more companies send invoices and other correspondence via email, the need for envelopes has significantly declined. Thus, one of the nation's largest manufacturers of envelopes and mailing supplies, Cenveo, Inc., has filed for Chapter 11 bankruptcy.

Cenveo makes a number of products that are no longer used by commercial firms. One such product is a specialized mailing envelope for credit cart statements. In addition to printing about 50 million envelopes per year, Cenveo also prints comic books and prescription labels for pharmacies. The company currently has about $1 billion in debt and is facing a dark financial future.

What happens to collateral in a business bankruptcy?

One of the most complex issues faced by both bankruptcy debtors and their creditors in New York and elsewhere is the fate of collateral that provides security for one or more of the debtor's liabilities. The automatic stay under Section 362 stops all efforts to levy on the asset that provides collateral for a debt, but the disposition of the claim and the collateral must await further developments in the bankruptcy proceeding.

All assets that provide security for debts become part of the bankrupt estate. The stay continues to block any effort by a creditor to take possession of or liquidate the collateral until the asset has been abandoned, the bankruptcy proceeding is dismissed, a discharge of the debt is granted or relief from the stay is granted by the court.

Toys 'R' Us is closing 182 stores as part of business bankruptcy

When toy retailer Toys 'R' Us filed its bankruptcy petition in September 2017, its executives said that the chain hoped to prosper during the holiday shopping season and that it would be able to reclaim its financial health in the New Year. The New Year has arrived, and the company has just revealed in a business bankruptcy court filing that it intends to close 182 stores, including a handful in and around Rockland County and New York City.

In a filing in the Bankruptcy Court in Richmond, Virginia, company executives said that the change in plans was caused by a disappointing holiday season. Other retailers experienced robust sales in November and December, but Toys 'R' Us described its sales as "disappointing." The company cited "operational missteps" as the cause of the disappointment, but the missteps were not described. The locations marked for closure represent about 20 percent of the company's stores in the United States.

Business bankruptcy venue reform bill stirs controversy

Due to its status as the country's financial center, New York is home to many corporate headquarters. The tiny state of Delaware likewise boasts an outsize number of corporate residents because its laws favor businesses that use the corporate form of organization. Both states also attract a disproportionate number of business bankruptcy filings -- and the lawyers who must appear in court to represent their clients. Thus, a bill recently introduced into the United States Senate by New York Senator Elizabeth Warren and Texas Senator John Cornyn is stirring intense controversy.

The dispute involves choosing the federal court in which to file a bankruptcy petition. The law currently specifies the appropriate venue as the state in which a corporation's domicile, residence, principal place of business or principal assets are located. For large corporations with multiple business locations, this law offers a large number of venue choices for a bankruptcy petition. Corporations not surprisingly choose the venue which will give them perceived advantages in procedural and substantive corporate law. Corporations may also choose a venue that will impose burdensome travel requirements on its creditors or employees worried about their pensions.

Business bankruptcy: what is Chapter 15 of the Bankruptcy Code?

Most people in New York can identify three chapters of the United States Bankruptcy Code: Chapter 7 for the discharge of business and personal debts; Chapter 11 for business reorganization and Chapter 13 for personal debt reorganization. Very few can identify the purpose of Chapter 15. This post will provide a brief overview.

Chapter 15 was passed by Congress in 2005 to handle "Ancillary and Other Cross Border Cases." The essential purpose of the statute is to give corporations involved in a foreign bankruptcy a means of protecting assets located in the United States. The statute works this way. A company that has filed for bankruptcy under the laws of a foreign county can file a petition under Chapter 15 if it has assets in this country that it wants to protect from creditors' claims. The purpose of the statute is to encourage cooperation between foreign courts and United States courts; protect investments, assets and creditors; and facilitate insolvency hearings and corporate restructuring.

Using personal bankruptcy's automatic stay to stall foreclosure

Most people in Rockland County probably view bankruptcy as a pain-filled process, second only to a trip to the dentist in that respect. However, when debts pile up and when mortgage payments are late, bankruptcy can be a significant pain-reliever. When dark financial clouds begin to gather, the beneficial effects of a consumer bankruptcy must be carefully weighed against the opprobrium that seems to automatically attach itself to any effort to use the bankruptcy laws to reduce debt and reorganize personal finances. In at least one case -- foreclosure of the mortgage on a residence -- bankruptcy provides a potential remedy for the debtor.

The remedy is called the "automatic stay." When a person files a petition under either Chapter 7 or Chapter 13, the court automatically issues an order to all of the debtor's creditors to a halt all collection actions on debts that were incurred prior to the filing of the petition. The automatic stay will stop any foreclosure proceeding, with a couple exceptions. Mortgage foreclosures are legal proceedings that invoke the power of the court to enforce the terms of the loan and the mortgage that secures the loan. Therefore, foreclosure proceedings are subject to the automatic stay. The automatic stay will not last forever, but it may provide breathing space to the debtor to renegotiate the terms of the mortgage loan or negotiate a short sale of the house.

Who are likely retail and apparel bankruptcy filers in 2018

Making predictions is a popular pastime as the year draws to a close. Financial analysts who follow the retail and apparel industry are no exceptions. Moody's put together a list for USAToday of the retail and apparel companies most likely to file bankruptcy petitions in 2018. Many of the companies are headquartered in New York City, and virtually all have stores in the city or its suburbs.

As noted on our last post, retailers are facing intense competition from on-line sellers such as Amazon and Wal-Mart. Among retailers who are seen as most vulnerable to these market conditions are Sears, K-mart, J. Crew, Claire's Stores and nearly two dozen other retailers. One analyst speculated that throwing a dart at a list of prominent retailers is likely to strike the name of a company who will be filing a bankruptcy petition this year. Current data accumulated by Moody's shows that 18.6% of the companies that Moody's rates, or about 26 firms in all, have credit ratings that qualify for a speculative and high risk ratings.

Toys 'R' Us caught between online and brick-and-mortar shoppers

A recent article published by Reuters told the story of a New York family that drove to a Toys 'R' Us store in Wallkill, New York, so that their children could enjoy the store's "play lab." Play labs are but one tactic the giant toy retailer is using in an effort to restructure its debt and emerge from its Chapter 11 bankruptcy proceeding. Unfortunately, the company's creditors may attempt to throw a wrench into these plans.

Play labs are specially designed areas in a number of Toys 'R' Us stores that allow children to play with toys that are for sale in the store. They are also one several innovations the chain is using in an attempt to reclaim its customers. Unfortunately, Toys 'R' Us may be up against fundamental and unfavorable changes in the toy market. The most obvious such trend is the increase in popularity of the internet as compared with traditional toy stores. The internet now accounts for about 20% of toy sales, where traditional toy stores have declined to a 15% share.

NYC-based solar company seeks Chapter 11 bankruptcy protection

A Manhattan based provider of rooftop solar power is seeking the protection of the bankruptcy court two months after closing its operations. The company, Level Solar, had its headquarters in Manhattan and two installations on Long Island. It also had offices in Massachusetts and Rhode Island. The company filed its Chapter 11 petition on December 4.

The company terminated all non-headquarters employees in September. Most of these employees worked on Long Island, where the company reportedly had more than 2,000 customers. The company's bankruptcy filing lists assets of between $50 million and $100 million. It also lists debts in excess of $5 million and more than 200 creditors.

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