Creditors often consider filing an involuntary bankruptcy petition against their financially distressed debtors. Before using this extraordinary remedy, a creditor should evaluate whether it will achieve a valid business objective. Additionally, each creditor should evaluate whether there is a valid basis to support the filing. When the debtor's bankruptcy is appropriate, it can be a valuable step in maximizing a creditor's recovery. But the stakes are high.

WorldSpace, a key provider of satellite radio services to customers living in ten European, African and Asian nations, filed for Chapter 11 protection last Friday before the U.S. Bankruptcy Court in Wilmington, Delaware, listing assets of $307.4 million against debts of $2.12 billion.

In almost all large chapter 11 cases where a debtor leases significant amounts of real property, the debtor’s ability to assume or reject its unexpired leases plays a significant role in the restructuring of the debtor’s business operations.

On November 13, 2008, Lehman Brothers Holdings Inc. and its U.S. affiliates in bankruptcy, including Lehman Brothers Special Financing and Lehman Brothers Commercial Paper (collectively, “Lehman”) filed a motion asking that certain expedited procedures be put in place to allow Lehman to assume, assign or terminate the thousands of executory derivative contracts to which they are a party.

On November 13, 2008, Lehman Brothers Holdings Inc. and its affiliated debtors in Chapter 11 (collectively, “Lehman”) filed a motion (the “Motion”) seeking Bankruptcy Court approval of procedures (the “Procedures”) for the assumption and assignment of derivative contracts not yet terminated by its various counterparties, as well confirmation of Lehman’s right to enter into settlement agreements for the termination of derivative contracts that have been terminated by its counterparties post-petition.

Lehman Brothers Holdings Inc. and its affiliated debtors (collectively, the “Debtors”) filed a motion in the bankruptcy court on Nov. 13, 2008, asking the court to approve procedures for (i) assuming (affirming) and assigning derivative contracts entered into before the Debtors commenced their bankruptcy cases, including resolving cure amounts; and (ii) entering into settlement agreements that may establish termination payments and the return of collateral under terminated derivative contracts.

Debtors’ Derivative Contracts

The United States Bankruptcy Court for the Southern District of New York overseeing the Lehman Brothers (“LBI“) case under the Securities Investor Protection Act (“SIPA“) entered an order on Nov. 7, 2008 (the “Claims Bar Date Order“) establishing the following deadlines for the filing of claims against LBI:

While the current outlook may be grim for the economy at large, the prospects of individual companies vary significantly, and some companies will continue to perform well despite the larger trends. For example, the designer retailer’s loss may become Walmart’s gain as consumers shop more closely for bargains. As the car manufacturers frequently say, “your mileage may vary.”

On November 25, LandAmerica Financial Group, Inc. (“LandAmerica”) filed a Chapter 11 petition in Virginia, seeking bankruptcy protection. By separate agreement (the “Stock Purchase Agreement”), LandAmerica agreed to sell Commonwealth Land Title Insurance Company (“Commonwealth”) to Chicago Title Insurance Company (“Chicago Title”) and Lawyers Title Insurance Company (“Lawyers”) and United Capital Title Insurance Company (“United”) to Fidelity National Title Insurance Company (“Fidelity”).

Attention holiday shoppers. Not sure what to buy Aunt Matilda or cousin George? A gift card allows them to buy whatever they like? Maybe. Large retailers such as Sharper Image, Bombay Company and Linens ‘N Things have filed for bankruptcy or gone out of business, leaving behind millions of dollars in unused gift cards. In bankruptcy, money left on a gift card is treated as a debt, which the bankruptcy court can decide if it is to be repaid, and how. If the retailer stays in business, the court may allow it to continue to honor its cards, but even then consumers may not get the full value.