Distressed and special situations investors should take note of the U.S. Bankruptcy Court’s recent decision in Oi’s Chapter 15 case. We present our takeaways for investors.

Fourth Circuit Authorizes Partial Dirt for Debt Plan

The Bankruptcy Code requires that secured creditors realize the indubitable equivalent of their claims as a condition to confirmation of a Chapter 11 plan of reorganization. In the case of Bate Land & Timber LLC, the Fourth Circuit addressed indubitable equivalence in the context of a partial dirt for debt plan where the debtor planned to covey several tracks of real property in partial satisfaction of its obligations to its secured creditor and pay the remaining balance owed in cash.

When the fallout from failed intellectual-property litigation collides with bankruptcy, the complexities may be dizzying enough, but when the emerging practices and imperatives of litigation financing are imposed on those complexities, the situation might be likened to three-dimensional chess. But in the court of one veteran bankruptcy judge, the complexities were penetrated to reveal that elementary errors and oversights can have decisive effects.

Boston Herald, Inc., along with three affiliates and subsidiaries, has filed a petition for relief under Chapter 11 in the Bankruptcy Court for the District of Delaware (Lead Case No. 17-12883). The Herald’s Petition estimates both its assets and liabilities to be between $10 – $50 million.

(Bankr. S.D. Ind. Dec. 4, 2017)

The bankruptcy court grants the motion to dismiss, finding the defendant’s security interest in the debtor’s assets, including its inventory, has priority over the plaintiff’s reclamation rights. The plaintiff sold goods to the debtor up to the petition date and sought either return of the goods delivered within the reclamation period or recovery of the proceeds from the sale of such goods. Pursuant to 11 U.S.C. § 546(c), the Court finds the reclamation rights are subordinate and the complaint should be dismissed. Opinion below.

Preference Claims:

The U.S. Court of Appeals for the Eleventh Circuit recently held, in a case of first impression, that “the Bankruptcy Code authorizes payment of attorneys’ fees and costs incurred by debtors in successfully pursuing an action for damages resulting from the violation of the automatic stay and in defending the damages award on appeal.”

A copy of the opinion is available at:  Link to Opinion.

PhaseRx, Inc. (NASDAQ: PZRX), a Seattle-based biopharmaceutical company developing mRNA treatments for life-threatening inherited liver diseases in children, has filed a chapter 11 petition before the United States Bankruptcy Court for the District of Delaware (Case No. 17-12890). The case has been assigned to the Honorable Christopher S. Sontchi.

(B.A.P. 6th Cir. Nov. 28, 2017)

The Sixth Circuit B.A.P. affirms the bankruptcy court’s dismissal of the Chapter 12 bankruptcy case. The court finds that the bankruptcy court failed to give the debtor proper notice and opportunity to be heard prior to the dismissal. However, the violation of due process was harmless error. The delay in filing a confirmable plan and continuing loss to the estate warranted the dismissal. Opinion below.

Judge: Preston

Attorney for Appellant: Heather McKeever

The Woodbridge Group of Companies, LLC, a real estate finance and development company based in Sherman Oaks, CA, has filed a petition for relief under Chapter 11 in the Bankruptcy Court for the District of Delaware, along with two hundred and seventy five subsidiaries and affiliates (Lead Case No. 17-12560).