In CDI Trust v. U.S. Electronics, Inc. (In re Communications Dynamics, Inc.),1 the United States Bankruptcy Court for the District of Delaware addressed the issue of whether a rejection damages claim is subject to setoff against a pre-petition debt owed by the creditor to the debtor. The Court found that a rejection damages claim should be treated as if it arose pre-petition, and that the provisions of section 553 permitted, rather than prevented, the setoff of the rejection damages claim against the pre-petition debt.
Background
As recently reported in our Fall 2007 issue, Judge Lifland’s decision in In re Bear Stearns High-Grade Structured Credit Strategies Master Fund, Ltd.,1 limited the ability of offshore funds in financial distress to utilize chapter 15 of the Bankruptcy Code.
Introduction
The Worker Adjustment and Retraining Notification Act (“WARN”) requires an employer to give 60 days’ advance written notice prior to a plant closing or mass layoff. Frequently, as a company encounters financial distress—a situation that often leads to a plant closing or mass layoff— creditors exercise greater control over the entity in an attempt to recover debts owed to them. When the faltering company fails to provide the requisite WARN notice, terminated employees often assert that WARN liability should attach to such creditors. In Coppola v. Bear, Stearns & Co.
Customers dealing with troubled automotive suppliers often decide to resource production to other suppliers rather than facilitate a true restructuring of the troubled supplier's business. Such resourcing, however, generally cannot be done overnight. Tier 1 suppliers or original equipment manufacturers ("OEMs") often take months to resource production. Because of the "just in time" production process, Tier 1 suppliers and OEMs often cannot afford to be without component parts or tooling for the period of time that it may take to resource.
In response to the increasing complexity of cross-border restructurings and liquidations, a new chapter (Chapter 15) was added to the US Bankruptcy Code in 2005. Chapter 15 is meant to provide a framework for effectively and efficiently dealing with cross-border insolvency proceedings involving the United States by providing the representative of a foreign insolvency case with certain benefits and protections.
Directors and officers of troubled companies are already keenly cognizant of their potential liability for any breaches of fiduciary duty, negligence and fraud.
A federal bankruptcy judge has ordered Wells Fargo to pay $250,000 in sanctions for its role as a trustee for a pooled subprime mortgage trust. In re: Nosek, Case No. 02-46025-JBR (Bankr. D. Mass.).
Centimark Corp. v. Pegnato & Pegnato Roof Mngt, Inc., Case No. 05-708 (W.D. Pa. May 6, 2008)
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.
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