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.
On October 10, 2019, the United States Bankruptcy Court for the Southern District of Ohio (OHSB) entered General Order 30-2 implementing Complex Chapter 11 procedures. Under General Order 30-2, a case is eligible to be a complex case if (1) it is filed under Chapter 11 of the Code; (2) it is not filed by an individual debtor, as a single asset real estate case, or as a small business case as defined in § 101(51C) of the Code; and (3) the debt of the debtor or the aggregate debt of all affiliated debtors is at least $10 million or it involves a debtor with publicly traded debt or equity.
Leveraged transactions, such as leveraged buyouts (LBO) and leveraged recapitalizations, carry the risk of being unwound in a later bankruptcy of the party that transferred assets (including granting liens) or incurred obligations in the transaction. The risk that such transactions may be upset in bankruptcy extends, of course, to selling shareholders in an LBO and to shareholders who receive purchase price funds or dividends in a leveraged recap.
Published in the Spring 2017 issue of The Bankers' Statement)
In a continuing effort to alert our lender clients and other friends to developments in the bankruptcy, restructuring, workout and creditors’ rights space, provided below is a summary of recent noteworthy court decisions.
Supreme Court Limits Priority-Skipping Structured Dismissals in Chapter 11
(Published in the Spring 2016 issue of The Bankers' Statement)
Introduction
In a recent decision in a Delaware Chapter 11 case, the court took the unusual step of capping the amount of a secured lender’s loan that could be used in the lender’s credit bid in a Section 363 sale.
Jeffrey Marks, a partner in the Vorys Cincinnati office and a member of the commercial and finance group, authored this column about the decision from U.S. Court of Appeals for the Sixth Circuit in Onkyo Electronics V. Global Technovations. The column originally appeared in the September 17, 2012 edition of Bankruptcy Law360.
Case Study: Onkyo Electronics V. Global Technovations
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