Two recent decisions involving health care companies demonstrate how reorganization under Chapter 11 of the Bankruptcy Code1 can be used to manage large liabilities.
Bankruptcy Rule 8002 and Federal Rule 58 can sometimes look like this. Carolina and Khaled have a much simpler solution.
Consumer Protection
Vacationers Beware: Timeshare Exit Companies May Be Scammers, not Saviors
Reeling from the prospect of virtually unlimited liability after decades of sex abuse allegations, the Boy Scouts of America filed for Chapter 11 bankruptcy in Delaware court. For the Boy Scouts, this filing caps an exploratory process that lasted 15 months when the organization began to lay the groundwork for a possible filing.
The Bottom Line
In Whirlpool Corp. v. Wells Fargo Bank (In re hhgregg Inc.), Case No. 18-3363 (7th Cir. Feb. 11, 2020), the Seventh Circuit held that a trade creditor’s later-in-time reclamation claim was subordinate to lenders’ pre-petition and debtor-in-possession (“DIP”) financing liens. The Seventh Circuit found that Sction 546(c) of the Bankruptcy Code creates a “federal priority rule,” making clear that a reclamation claim is subordinate to prior rights of a secured creditor.
What Happened?
Hogan Lovells Publications | 17 February 2020
"The Net Short": U.S. and European High-Yield Covenant Trends in Response to Net Short Activism
Key Notes:
The U.S. Court of Appeals for the Ninth Circuit recently affirmed the dismissal of a consumer’s Truth in Lending Act (TILA) claim for lack of subject matter jurisdiction, holding that the claim was barred by the jurisdiction-stripping provision of the federal Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA).
A copy of the opinion in Shaw v. Bank of America is available at: Link to Opinion.
On August 23, 2019, Congress passed, and the President signed into law, Public Law 116-54 known as the “Small Business Reorganization Act of 2019” or “SBRA.” It takes effect on February 19, 2020. The SBRA adds a provision (namely subchapter V) to Chapter 11 of the U.S. Bankruptcy Code to make the reorganization process less complicated, and thus less expensive, for small businesses. The Act generally defines a small business as a debtor with less than approximately $2.7 Million of secured and unsecured debt.
Today, February 19, 2020, the Small Business Reorganization Act of 2019 (SBRA) becomes effective. Signed into law on August 23, 2019, this new subchapter to Chapter 11 reorganization is available to address problems encountered by small business debtors in reorganization under the provisions of the United States Bankruptcy Code.
SBRA is intended to facilitate the reorganization of a small business, with the goal of making small business bankruptcy proceedings more efficient and economical. The key components of SBRA are as follows: