Over the past year, the Covid-19 pandemic upended many industries. While the construction industry has largely been able to operate throughout the pandemic, albeit with increased and ever-changing restrictions on jobsites, one consequence of these disruptions may be an increase in construction-related bankruptcy filings. Already in 2021, there have been over 70 construction-related bankruptcy filings across the country. For many property owners and real estate developers, these filings create a nightmare scenario where work may slow or even stop entirely.
In Sunbeam Products, Inc. v. Chicago American Manufacturing, LLC, 686 F.3d 372, the United States Court of Appeals for the Seventh Circuit held that a debtor-licensor’s rejection of an executory trademark license does not terminate the licensee’s right to use the trademark. The decision creates a circuit-level split that may invite Supreme Court review. However, no final resolution is likely soon. The Supreme Court declined to hear the case, denying a petition for a writ of certiorari in December of 2012.
After several years of unusually few corporate defaults, there has recently been an uptick in corporations failing to satisfy their bond and loan obligations. In a number of cases, the debts in question are part of multiple-lien or multi-tranche financing structures that incorporate complex subordination packages. The agreements at issue often go beyond merely subordinating rights to payments.
Although 2011 saw major decisions concerning many facets of bankruptcy law, perhaps no area of bankruptcy law drew as many high-profile decisions as the standards for confirming a chapter 11 plan of reorganization. We draw your attention to three particularly important 2011 decisions that are likely to heavily influence the contours of many future chapter 11 plans.
Designating Votes Not Cast in Good Faith
Chapter 15 of the Bankruptcy Code was enacted in 2005 to create a procedure to recognize an insolvency or debt adjustment proceeding in another country and to, in essence, domesticate that proceeding in the United States. Once a foreign proceeding is “recognized,” a step which cannot be achieved without a foreign representative satisfying various requirements, the foreign representative may obtain certain protections from a United Stated bankruptcy court, including the imposition of the automatic stay to protect the foreign debtor’s property in the United States.
In general, a company has two bankruptcy alternatives: liquidation under Chapter 7 and reorganization under Chapter 11.
Under Chapter 7, upon the filing of a bankruptcy petition, a trustee is appointed to gather and sell all of the debtor’s assets as quickly as possible. Once the trustee liquidates all of the assets, it must pay creditors in accordance with the priority scheme mandated by the Bankruptcy Code:
In today’s economy, we continue to see bankruptcies occurring in the construction sector. An owner, contractor, or subcontractor in financial distress can easily delay a project — or worse, jeopardize the project in its entirety. Contractors need to understand their rights in order to minimize their exposure in bankruptcy-related situations.
Protecting Contractors — Frequently Asked Questions
On June 23, 2011, the Supreme Court of the United States issued the decision of Stern v. Marshall, debatably the most important case on bankruptcy court jurisdiction in the last 30 years. The 5-4 decision, written by Chief Justice Roberts, established limits on the power of bankruptcy courts to enter final judgments on certain state law created causes of action.
Introduction