On October 30, 2022, wealth advisory, risk management services and insurance brokerage services provider Vesta Holdings LLC of Mongomeryville, PA filed a petition for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court for the District of Delaware (Case No. 22-11019) along with two affiliates. The company reports $100 million to $500 million in both assets and liabilities.
In its Siegel v. Fitzgerald opinion, the U.S. Supreme Court declares that disparate quarterly fee amounts between U.S. Trustee and Bankruptcy Administrator districts are unconstitutional, under the uniformity requirement of the U.S. Constitution’s bankruptcy clause.
The most recent fallout from that opinion is the following docket entry by the U.S. Supreme Court in a different case with the same issues:
Illinois follows the common law of assignments for benefit of creditors (“ABC”): a non-judicial, trust-like process for liquidating a failed business.
That ABC process can work, hand-in-hand, with the Bankruptcy Code. The case of In re Computer World Solutions, Inc., Case No. 07-21123, Northern Illinois Bankruptcy Court, shows us how.
FACTS
Debtor is an importer and distributor of computer monitors, televisions and other electronic products, owing $20 million to Bank, which holds a first-lien on virtually all of Debtor’s assets.
Many years ago, back when mediation is a rarity in bankruptcy disputes, I asked an old-timer this question:
Why is the bankruptcy system a lagging adopter of mediation?”
A Surprising Answer
The old-timer gave this surprising answer:
“At the time of the Bankruptcy Code’s enactment, the bankruptcy judge was viewed as a mediator in the judge’s own court.”
The old-timer added this. When the Bankruptcy Code was enacted:
You’ve gotta admire the Debtor in In re Deirdre Ventura.
Debtor has been fighting to save a Bed and Breakfast business through bankruptcy: beginning in 2018 with a regular Chapter 11, and then struggling to get into Subchapter V.
Debtor’s is a you-can’t-make-this-stuff-up story of persistence through adversity.
Debtor has survived, for example, an inexplicably-bad appellate opinion refusing to allow Debtor’s Subchapter V election. The appellate opinion declares:
Assignment for benefit of creditors (“ABC”) has existed for centuries under the common law of England and the United States. And the ABC process has worked well under that common law!
ABC Function
ABC has been an effective tool in the toolbox of debtor and creditor remedies for resolving financial stress. Specifically, ABC allows a failing business to shut down with efficiently and credibility:
The interrelationship between an assignment for benefit of creditors (“ABC”) proceeding and an involuntary bankruptcy filing, for the same debtor, is governed by various portions of the Bankruptcy Code.
But that relationship remains ill-defined, nonetheless.
What follows is an attempt to summarize a bankruptcy court opinion dealing with that relationship. And here is two of its main conclusions:
On September 27, 2022, Phoenix Services Topco LLC, a steel mill service provider with approximately 2,600 employees, filed a petition for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court for the District of Delaware (Case No. 22-10906). The company reports $500 million to $1 billion in both assets and liabilities.
On June 21, 2022, Congress and the President (i) extend the $7.5 million debt limit for Subchapter V eligibility, and (ii) adjust other Subchapter V rules.[Fn. 1]
One of the adjustments is this:
“Without these [mediated] settlements, there is no Plan.”
- From Opinion on Plan confirmation, In re Boy Scouts of America, Case No. 20-10343, Delaware Bankruptcy Court, Doc. 10136, at 80 (issued July 29, 2022).
The Boy Scouts of America bankruptcy has achieved a milestone: on July 29, 2022, the Bankruptcy Court issues a 281-page Opinion on confirmation of Debtor’s Plan of Reorganization. The Opinion is generally favorable toward Plan confirmation but identifies a number of issues remaining to be resolved.