Historically, many companies seeking bankruptcy protection have attempted to streamline and shorten their Chapter 11 cases to reduce cost and risk.1 But the COVID-19 pandemic may be disrupting that trend, especially in industries that rely on in-person shopping or dining or are otherwise disproportionately affected by the economic slowdown. Across the country, many businesses are seeing revenues dry up as consumers stay home, following concerted governmental and social efforts to “flatten the curve” of the novel coronavirus’s transmission.2
Supply chain finance products have a well-deserved reputation of being fairly low risk propositions. The majority of facilities are uncommitted, exposures are typically short-term and many counterparties are highly rated and well capitalized.
In In re Tribune Co. Fraudulent Conveyance Litig., 946 F.3d 66 (2d Cir. 2019), the U.S. Court of Appeals for the Second Circuit reaffirmed, notwithstanding the U.S. Supreme Court's ruling in Merit Mgmt. Grp., LP v. FTI Consulting, Inc., 138 S. Ct. 883, 200 L. Ed. 2d 183 (2018), its 2016 decision that creditors' state law fraudulent transfer claims arising from the 2007 leveraged buyout ("LBO") of Tribune Co. ("Tribune") were preempted by the safe harbor for certain securities, commodities, or forward contract payments set forth in section 546(e) of the Bankruptcy Code.
In This Issue:
U.S. Supreme Court: Creditors May Immediately Appeal Denials of Automatic-Stay Relief
As courts across the country deal with scaled back operations due to the COVID-19 pandemic, bankruptcy courts in New Jersey and Delaware have issued novel orders to address the impact of the virus on certain debtors. Last month, debtors in the chapter 11 bankruptcy cases of Modell’s Sporting Goods, Inc. and CraftWorks Parent, LLC each sought and obtained court orders suspending certain case activity which, for all intents and purposes “mothballed” the cases for a certain period of time.
Recent emergency motions from Modell’s Sporting Goods, Inc. (“Modell’s) and Pier 1 Imports, Inc. (“Pier 1”) to put their chapter 11 cases on ice may signal a growing trend. As the economic consequences of efforts to contain and respond to COVID-19 infections render deal-making difficult or impossible, what were the best-laid plans a few weeks ago often no longer make sense.
Faced with constantly evolving circumstances in these challenging times, officers and directors should not lose sight of what is arguably their most important corporate role–that is, as a fiduciary. The question, particularly as a corporation’s financial situation changes and restructuring is being considered, is: Who is that fiduciary duty owed to? Unfortunately, the answer depends on whether the corporation is insolvent or near insolvent, which is why being vigilant now will help avoid scrutiny by creditors later.
A new trend is brewing in bankruptcy courts: debtors are increasingly able to use the courts’ general equitable powers for assistance in weathering the current economic storm. These pandemic-related equitable arguments may significantly impact the marketplace—positively or negatively depending on your position—specifically as it relates to lease performance and also in general.
In light of the ongoing economic impacts of the COVID-19 pandemic, and although Chapter 11 of the U.S. Bankruptcy Code pertains to many industries, there are certain real estate related provisions of which owners and tenants should remain particularly aware in planning strategies to cope with the fallout from the current health crisis.
To raise awareness in that regard, the following is a general summary of some of the more critical provisions of the Code.
Single Asset Real Estate Entity
In Thakkar v. Bay Point Capital Partners, LP (In re Bay Circle Properties, LLC), 2020 WL 1696303 (11th Cir. Apr. 8, 2020), the Eleventh Circuit dismissed an appeal because the only appellant remaining after a settlement lacked Article III standing (and in any event failed to meet the “person aggrieved doctrine” standard for appealing a bankruptcy court order).