Can state regulatory agencies move ahead with lawsuits against businesses who file for bankruptcy in order to enforce consumer protection and business laws, or does the automatic stay’s broad injunctive sweep capture those actions? The answer depends on whether the state is acting in its regulatory capacity or simply like another creditor – and the distinction is not always clear.
Since filing for Chapter 11 in May 2020, Hertz and its major stakeholders have been in negotiations and, at times, disputes over how best to reduce Hertz’s nearly half-a-million vehicle fleet. These negotiations and disputes have caught the eye of investors in asset-backed securities (“ABS”) and market watchers alike, as the outcome of the case could have rippling effects across the ABS industry and capital markets, generally.
Valuation is a critical and indispensable part of the bankruptcy process. How collateral and other estate assets (and even creditor claims) are valued will determine a wide range of issues, from a secured creditor's right to adequate protection, postpetition interest, or relief from the automatic stay to a proposed chapter 11 plan's satisfaction of the "best interests" test or whether a "cram-down" plan can be confirmed despite the objections of dissenting creditors.
As discussed in earlier posts,1 substantial uncertainty exists over whether companies in bankruptcy are eligible to pursue funding pursuant to the SBA’s Paycheck Protection Program, or PPP, which was established by the CARES Act to support small businesses by offering SBA-guaranteed loans on advantageous terms.
As discussed in an earlier Legal Update,1 substantial uncertainty exists over whether companies in bankruptcy are eligible for loans under the Paycheck Protection Program, or PPP, which was established by the CARES Act to support small businesses by offering SBA-guaranteed loans on advantageous terms. Several recent bankruptcy court decisions underscore this uncertainty.
In This Issue:
U.S. Supreme Court: Creditors May Immediately Appeal Denials of Automatic-Stay Relief
As courts across the country deal with scaled back operations due to the COVID-19 pandemic, bankruptcy courts in New Jersey and Delaware have issued novel orders to address the impact of the virus on certain debtors. Last month, debtors in the chapter 11 bankruptcy cases of Modell’s Sporting Goods, Inc. and CraftWorks Parent, LLC each sought and obtained court orders suspending certain case activity which, for all intents and purposes “mothballed” the cases for a certain period of time.
Prepayment premiums (also referred to as make-whole premiums) are a common feature in loan documents, allowing lenders to recover a lump-sum amount if a borrower pays off loan obligations prior to maturity, effectively compensating lenders for yield that they would have otherwise received absent prepayment. As a result of the widespread use of such provisions, three circuit courts of appeal – the U.S. Court of Appeal for the Second, Third and Fifth Circuit – have recently had to address the enforceability of prepayment provisions in bankruptcy.
The Bankruptcy Code creates a rebuttable presumption that a proof of claim is prima facie evidence of the claim's validity and amount. Courts disagree, however, over whether that presumption also applies in a proceeding to determine the secured amount of the creditor's claim. The U.S. Bankruptcy Court for the Eastern District of California weighed in on this issue in In re Bassett, 2019 WL 993302 (Bankr. E.D. Cal. Feb. 26, 2019).