It is a harrowing scenario for any seller of goods: a trading-partner files for bankruptcy and leaves the seller with thousands, even millions of dollars in unpaid invoices. In many instances, some of these goods were delivered only days before the bankruptcy filing. While a creditor may be able to assert reclamation rights, those rights are often difficult to enforce in bankruptcy and may be subordinate to the interests of an all assets lender.

On June 16, 2008, Justice Clarence Thomas delivered the opinion of the court in Florida Department of Revenue v. Piccadilly Cafeterias, Inc. In a 7-2 decision, the Supreme Court reversed the decision of the U.S. Court of Appeals for the Eleventh Circuit and held that § 1146(a) provides an exemption to state stamp taxes only where a sale occurs pursuant to a plan that has been confirmed, and did not properly apply to a case where the plan was confirmed several months after the bankruptcy court approved the sale.

The district court in Hartford Accident & Indemnity Company, et al. v. American Capital Equipment, et al., No. 06-0891 (U.S. Dist. Ct. W.D. Pa. May 11, 2007), affirmed that Skinner Engine Company's insurers have standing to move to dismiss Skinner's chapter 11 bankruptcy case and to challenge its bankruptcy plan. However, the court also affirmed the bankruptcy court's denial of the insurers' motion to dismiss the bankruptcy case.

In late 2011, bondholders in the bankruptcy case of power company Dynegy Holdings, LLC (Dynegy) moved for the appointment of a bankruptcy examiner to investigate certain transactions that occurred immediately prior to the filing of Dynegy's bankruptcy petition. The transactions at issue involve the alleged transfer of millions of dollars in assets to Dynegy's parent company (a non-debtor) approximately two months prior to the bankruptcy filing.

The Bankruptcy Appellate Panel of the Ninth Circuit has affirmed the bankruptcy court’s grant of a motion by a debtor’s sole director to modify the automatic stay to allow payment of defense costs under the A-side coverage of the debtor’s directors and officers liability insurance policy. In re MILA, Inc., 2010 WL 455328 (B.A.P. 9th Cir. Jan. 29, 2010).

In the last issue of Franchise Alert, we discussed how to spot signs of franchisee financial distress at an early stage. Here, we present some steps franchisors can take to deal with financially distressed franchisees.

Update Files

The United States Bankruptcy Court for the District of New Jersey rejected the pre-packaged bankruptcy plan presented by the debtors and asbestos claims representatives. In re Congoleum Corp., No. 03-51524, 2007 WL 328694 (Bankr. D.N.J. Jan. 26, 2007). In addition, the court rejected a plan proposed by a group of insurers. In re Congoleum Corp., No. 03-51524, 2007 WL 328700 (Bankr. D.N.J. Feb. 1, 2007).

The last several years have seen bankruptcy filings from prominent retail chains such as Borders, Circuit City, Blockbuster, Movie Gallery and Ritz Camera. Many of these cases have resulted in liquidation. For commercial landlords, retail bankruptcy cases present a number of potentially damaging issues, including non-payment of rent, assignment of the lease to an unworthy tenant, vacant space in an otherwise popular location and going-out-of business sales.

Filing a successful proof of claim is the key to unlocking a creditor's right to recover against a debtor in bankruptcy. Only in limited circumstances may a creditor recover against the debtor's estate without properly filing a proof of claim. This article addresses the various stages of filing, attacking and defending a proof of claim.

The United States District Court for the Central District of California has reversed a bankruptcy court ruling allowing two law firms—Snyder Miller & Orton LLP (SMO) and Morgan Lewis & Bockius LLP (MLB)—to serve as "special insurance counsel" to address insurance and insurance-coverage-litigation-related matters under the narrow special purpose standards of § 327(e). In re Thorpe Insulation Co., No. CV08-00246-DSF (C.D. Cal. Apr. 22, 2008). Citing In re Congoleum Corp., 426 F.3d 675 (3d Cir.