In Shameeka Ien v. TransCare Corp., et al. (In re TransCareCorp.), Case No. 16-10407, Adv. P. No. 16-01033 (Bankr. S.D.N.Y. May 7, 2020) [D.I. 157], the Bankruptcy Court for the Southern District of New York recently refused to dismiss WARN Act claims against Patriarch Partners, LLC, private equity firm (“PE Firm“), and its owner, Lynn Tilton (“PE Owner“), resulting from the staggered chapter 7 bankruptcies of several portfolio companies, TransCare Corporation and its affiliates (collectively, the “Debtors“).

Joining three other bankruptcy courts, Judge Thuma of the District of New Mexico recently held that the rules issued by the Small Business Administration (“SBA“) that restrict bankrupt entities from participating in the Paycheck Protection Program (“PPP“) violated the Coronavirus Aid, Relief, and Economic Security Act, H.R. 748, P.L. 115-136 (the “CARES Act”), as well as section 525(a) of the Bankruptcy Code.

The Southern District of New York recently reminded us in In re Firestar Diamond, Inc., et al., Case No. 18-10509 (Bankr. S.D.N.Y. April 22, 2019) (SHL) [Dkt. No. 1482] that equitable principles in bankruptcy often do not match those outside of bankruptcy. Indeed, bankruptcy decisions often place emphasis on equality of treatment amongst all creditors and are less concerned with inequities to individual creditors.

Introduction

In Wells Fargo Bank, N.A., f/b/o Jerome Guyant, IRA v. Highland Construction Management Services, L.P. et al., Nos. 18-2450-52 (4th Cir. March 17, 2020), the Fourth Circuit Court of Appeals recently upheld that a borrower’s indirect economic interests in a limited liability company (LLC) were not assigned to a lender under a conveyance in a security agreement assigning mere membership interests, pursuant to Virginia state law.

Facts

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act or the “CARES Act.”The legislation includes a historic $2 trillion aid package intended to stabilize the U.S. economy and provide disaster relief aid to American citizens and businesses impacted by the COVID-19 pandemic. The emergency aid package, which is by far the largest in American history, contains many provisions focused on providing relief. Among these are certain temporary amendments to Title 11 of the United States Code (the “Bankruptcy Code”).

INTRODUCTION

In times of unprecedented market uncertainty, assessing financial exposure to your counterparties is essential. Volatility in the commodities markets and a public health crisis create the perfect storm for financial distress for companies in nearly every industry. Risk is inherent in business and that risk is heightened when you are dealing with a company in financial distress. Managing these risks begins with knowing your counterparties and understanding your legal position with respect to those counterparties.

Setoff is a right that allows a creditor to offset a prepetition debt owed to a debtor with its prepetition claim against the debtor.  See In re Luongo, 259 F.3d 323, 334 (5th Cir.

Countries across the world are actively taking measures to stem the spread of COVID-19 by encouraging and, in some cases, forcing social distancing. One of the most common measures employed so far is the closing of non-essential stores, bars and restaurants for several weeks, if not longer. Several large retailers, such as JCPenney, Ross Stores, Kirkland’s Inc., Marshalls and TJ Maxx, have announced store closings for two weeks in efforts to help stop the spread of COVID-19.

Setoff is a right that allows a creditor to offset a prepetition debt owed to a debtor with its prepetition claim against the debtor. See In re Luongo, 259 F.3d 323, 334 (5th Cir. 2001). This remedy is aimed at preventing the inequitable and inefficient result that occurs when a creditor is forced to pay a 100% of its prepetition debt owed to a debtor, without resolving its prepetition claim. In such circumstances, the creditor is often forced to later prosecute its unresolved claim against the debtor and is commonly only awarded a fraction of the value of its claim.