Is there any downside to a debtor filing a motion to estimate a claim? Or, is an estimation motion simply procedural in nature? As the debtors recently discovered in In re SC SJ Holdings LLC, a motion to estimate a claim before a bankruptcy court may not always lead to a significantly reduced claim, and may impact plan confirmation.

The Facts

Even prior to the COVID-19 pandemic, most retail bankruptcy cases involved at least some effort to maximize value by selling real estate holdings. The Bon Ton Stores, Forever 21, Sears, and Toys ‘R’ Us cases, among others, are perfect examples. These cases have, for the most part, achieved such sales under section 363(f) of the Bankruptcy Code with minimal resistance, typically on expedited time-frames.

The retail sky is falling. At least that is how it appears from recent and unprecedented number of retailers filing for bankruptcy. From iconic stores such as Sears and Toys ‘R’ Us, to department stores such as Bon Ton, to mall stores including Brookstone, The Rockport Company, Nine West, among others. The reasons given for such filings vary as much as their products but one theme seems to be constant — the inability of retailers to maintain “brick and mortar” operating expenses in the era of online shopping.

Will Congress Finally Act?

This is the fourth in a series of Alerts regarding the proposals made by the American Bankruptcy Institute Commission to Reform Chapter 11 Business Bankruptcies. We discuss here the Commission’s efforts to require that debtor’s management act in a more transparent fashion. For copies of this or any prior articles about the Commission, please contact any BakerHostetler bankruptcy attorney.

This is the fourth in a series of Alerts regarding the proposals made by the American Bankruptcy Institute Commission to Reform Chapter 11 Business Bankruptcies. We discuss here the Commission’s efforts to require that debtor’s management act in a more transparent fashion. For copies of this or any prior articles about the Commission, please contact any BakerHostetler bankruptcy attorney.

Debt exchanges have long been utilized by distressed companies to address liquidity concerns and to take advantage of beneficial market conditions. A company saddled with burdensome debt obligations, for example, may seek to exchange existing notes for new notes with the same outstanding principal but with borrower-favorable terms, like delayed payment or extended maturation dates (a "Face Value Exchange"). Or the company might seek to exchange existing notes for new notes with a lower face amount, motivated by discounted trading values for the existing notes (a "Fair Value Exchange").

As the American economy continues to slog through the ongoing Great Recession, even financially sound companies face challenges due to the continued economic malaise. In particular, a company that works with suppliers, customers and other business partners facing financial troubles needs to be prepared to handle the consequences of others' fiscal problems. Being attuned to signs of distress and taking defensive actions early can help strong companies avoid problems and be better positioned in the case of a significant event, such as a business partner filing for bankruptcy.

One of the primary fights underlying assumption of an unexpired lease or executory contract has long been over whether any debtor breaches under the agreement are “curable.” Before the 2005 amendments to the Bankruptcy Code, courts were split over whether historic nonmonetary breaches (such as a failure to maintain cash reserves or prescribed hours of operation) undermined a debtor’s ability to assume the lease or contract.

A group of creditors learned the hard way that there may be no excuse for a late claim. U.S. Bankruptcy Judge James Peck of the Southern District of New York recently disallowed seven proofs of claim that had been filed late in the Lehman bankruptcies. Judge Peck held that the reasons cited by the parties for the late filing did not rise to the level of “excusable neglect” and he was thus disallowing their claims. This is of particular interest as it comes out of the Southern District of New York, which has one of the largest bankruptcy dockets in the country.