ST. JOHN S UNIVERSITY SCHOOL OF LAW LL.M. IN BANKRUPTCY PROGRAM BUSINESS BANKRUPTCY REORGANIZATIONS. Spring 2016 Professor Alec Ostrow

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1 ST. JOHN S UNIVERSITY SCHOOL OF LAW LL.M. IN BANKRUPTCY PROGRAM BUSINESS BANKRUPTCY REORGANIZATIONS Spring 2016 Professor Alec Ostrow Wednesdays: 5:40 p.m. to 7:50 p.m. Conducted Online Business Telephone (212) Business Fax (212) Business aostrow@beckerglynn.com Required Texts: Michael A. Gerber & George W. Kuney, Business Reorganizations (3d ed. LexisNexis 2013). Statutes and Rules: (1) Complete U.S. Bankruptcy Code 11 U.S.C (2) Complete Federal Rules of Bankruptcy Procedure (3) Relevant portions of the U.S. Judicial Code, 28 U.S.C , b, , 1334, , 1452, 1930 Additional Materials: (citations or copies provided) Reported decisions Portions of the U.S. Constitution Other statutes or rules Preliminary Course Syllabus (Subject to Revision) Week 1 What Is a Bankruptcy Business Reorganization? The course will be introduced by asking, What is bankruptcy? and What is a reorganization? There will be comparisons between formal bankruptcy and its alternatives, between reorganization and liquidation, between a chapter 11 reorganization and an out-of-court workout. There will also be a discussion of the constitutional limitations on the Bankruptcy Code.

2 None 11 U.S.C. 361 (adequate protection) 11 U.S.C. 362 (the automatic stay) 11 U.S.C. 524 (discharge) 11 U.S.C. 541 (property of the estate) 11 U.S.C. 542 (turnover of property of the estate) Additional: U.S. Const. art. I, 8, cl. 4 (the Bankruptcy Clause) U.S. Const. art. I, 10, cl. 1 (the Contract Clause) U.S. Const. amend V (the Due Process Clause) U.S. Const. amend V (the Takings Clause) Local Loan Co. v. Hunt, 292 U.S. 234 (1934) United States v. Whiting Pools, Inc., 462 U.S. 198 (1983) United Savings Ass n v. Timbers of Inwood Forest Assocs., 484 U.S. 365 (1988) (in Casebook at 263) Background (Not Required) (the Fraizer-Lemke Act cases): Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555 (1935) Wright v. Vinton Branch of Mountain Trust Bank, 300 U.S. 440 (1937) Wright v. Union Central Life Ins. Co., 304 U.S. 502 (1938) Wright v. Union Central Life Ins. Co., 311 U.S. 273 (1940) Week 2 Commencement and Administration of Case We will next consider the filing requirements and venue considerations for a chapter 11 case. The roles of a debtor in possession and a creditors committee will be discussed, along with the retention and compensation of professionals for the debtor and the committee. Attacks on a chapter 11 case, such as motions to convert to chapter 7, dismiss or appoint a chapter 11 trustee will be discussed. Chapter 2, Sections , 2.05 (excluding Northwest Airlines cases) Chapter 4, Sections , 4.06 (excluding all cases other than Commodity Futures Trading Commission v. Weintraub) 2

3 11 U.S.C. 101(14) (definition of disinterested person ) 11 U.S.C. 101(51C) (definition of small business case ) 11 U.S.C. 101(51D) (definition of small business debtor ) 11 U.S.C. 109 (who may be a debtor) 11 U.S.C. 301 (voluntary cases) 11 U.S.C. 303 (involuntary cases) 11 U.S.C. 305 (abstention) 11 U.S.C. 308 (debtor s reporting requirements in small business cases) 11 U.S.C. 327 (employment of professional persons) 11 U.S.C. 330 (compensation of officers) 11 U.S.C. 331 (interim compensation) 11 U.S.C. 521(a) (debtor s duties schedules) 11 U.S.C (definitions) 11 U.S.C (committees) 11 U.S.C (powers and duties of committees) 11 U.S.C (appointment of trustee or examiner) 11 U.S.C (duties of trustee and examiner) 11 U.S.C (rights, powers and duties of debtor in possession) 11 U.S.C (authorization to operate the business) 11 U.S.C (right to be heard) 11 U.S.C (conversion or dismissal) 11 U.S.C (duties in small business cases) Judicial Code: 28 U.S.C. 586 (duties of United States trustees) 28 U.S.C. 959 (trustees suable; state laws) 28 U.S.C. 960 (tax liability) 28 U.S.C (bankruptcy fees) 28 U.S.C (venue of cases) Bankruptcy Rules: Fed. R. Bankr. P Week 3 The Automatic Stay The debtor s breathing room will be considered in detail, including what is stayed, what is not stayed, the duration of the stay, and relief from the stay. The concept of adequate protection will be introduced, and special consideration will be given to single asset real estate cases. 3

4 Chapter 3 (excluding Citizens Bank v. Strumpf; Grady v, A.H. Robins Co.; and In re Callister) 11 U.S.C. 101(51B) (definition of single asset real estate ) 11 U.S.C. 361 (adequate protection) 11 U.S.C. 362 (automatic stay) Bankruptcy Rules: Fed. R. Bankr. P. 4001(a) Week 4 Creditors Claims, Property of the Estate and Turnover The formalities of filing and allowing claims in bankruptcy will be discussed, along with the hierarchy of unsecured claims and the rights of secured creditors. The contours of the bankruptcy estate will be examined, along with the process of turning over property to the estate s representative. Chapter 8 (excluding section 8.08) : 11 U.S.C. 501 (filing of proofs of claim and interests) 11 U.S.C. 502 (allowance of claims or interests) 11 U.S.C. 503 (administrative expenses) 11 U.S.C. 506 (determination of secured status) 11 U.S.C. 507 (priorities) 11 U.S.C. 510 (subordination) 11 U.S.C. 541 (property of the estate) 11 U.S.C. 542 (turnover of property of the estate) 11 U.S.C. 543 (turnover by custodian) 11 U.S.C. 546(b)-(c) (limitation on avoiding powers post-petition lien perfection and reclamation) 11 U.S.C. 1111(a) (claims and interests claims deemed filed) 11 U.S.C (property of the estate for individuals) 4

5 Week 5 Estate Finance and Other First Day Orders The funding of business operations and case administration through the use of cash collateral and debtor in possession or DIP loans will be discussed. Other so-called first day orders, such as critical vendors, payment of prior claims, and dealing with foreign entities, will also be discussed. Chapter 2, Sections Chapter 5 : 11 U.S.C. 361 (adequate protection) 11 U.S.C. 363(a),(c), (e) (cash collateral) 11 U.S.C. 364 (obtaining credit) 11 U.S.C. 366 (utility service) 11 U.S.C. 506 (determination of secured status) 11 U.S.C. 507(b) (priorities superpriority ) 11 U.S.C. 552 (post-petition effect of security interest) Bankruptcy Rules: Fed. R. Bankr. P. 4001(b)-(c) Fed. R. Bankr. P Additional: Bankr. D. Del. Local Bankruptcy Rule Bankr. S.D.N.Y. Local Bankruptcy Rule Week 6 Asset Sales Part I The requirements for court approval of pre-plan asset sales will be discussed, including the business justification rule, the duty to maximize value, and the grounds for a free and clear sale. The statutory mootness of unstayed appeals will also be considered. Chapter 6, Sections 6.01, 6.02[A]-[B] 11 U.S.C. 363(b), (f), (m) (asset sales) 5

6 Bankruptcy Rules: Fed. R. Bankr. P Week 7 Asset Sales Part II The bankruptcy auction process will be examined, including inducements for initial or stalking horse bidders, such as break-up or topping fees, minimum overbids, pre-qualification of competing bids, and restrictions on marketing the deal. None Additional: Corporate Assets, Inc. v. Paloian, 368 F.3d 761 (7th Cir. 2004) Calpine Corp. v. O Brien Environmental Energy, Inc. (In re O Brien Environmental Energy, Inc.), 181 F.3d 527 (3d Cir. 1999) Committee of Subordinated Bondholders v. Integrated Resources, Inc. (In re Integrated Resources, Inc.), 147 B.R. 650 (S.D.N.Y. 1992), appeal dismissed, 3 F.3d 49 (2d Cir. 1993) In re Bidermann Indus. USA, Inc., 203 B.R. 547 (Bankr. S.D.N.Y. 1997) In re Texas Rangers Baseball Ptnrs., 431 B.R. 706 (Bankr. N.D. Tex. 2010) Bankr. D. Del. Local Bankruptcy Rule Bankr. S.D.N.Y. Local Bankruptcy Rule (j) (Guidelines for the Conduct of Asset Sales) Week 8 Executory Contracts and Unexpired Leases Assumption, rejection and assignment of executory contracts will be analyzed, along with controversies about constitutes an executory contract. Special attention will be given to issues concerning non-residential real property leases, personal services contracts, and nonexclusive licenses of copyrighted works and patented products and processes. Chapter 7 (excluding section 7.08) 6

7 11 U.S.C U.S.C (collective bargaining agreements) 11 U.S.C (retiree benefits) Week 9 Avoidance Actions Preferences, fraudulent transfers, and the strong-arm power will be examined. In addition, litigation against the debtor s management for breach of fiduciary duty, and the role of the creditors committee and the concept of derivative standing will be addressed. The jurisdiction of the bankruptcy court in such matters will also be addressed. None 11 U.S.C. 544 (trustee as lien creditor) 11 U.S.C. 545 (statutory liens) 11 U.S.C. 546 (limitations on avoiding powers) 11 U.S.C. 547 (preferences) 11 U.S.C. 548 (fraudulent transfers and obligations) 11 U.S.C. 549 (postpetition transactions) 11 U.S.C. 550 (liability of transferee of avoided transfer) 11 U.S.C. 551 (automatic preservation of avoided transfer) 11 U.S.C. 553 (setoff) Judicial Code: 28 U.S.C. 151 (designation of bankruptcy courts) 28 U.S.C. 157 (procedures) 28 U.S.C. 158 (appeals) 28 U.S.C (bankruptcy cases and proceedings) Additional: U.S. Const. art. III Shapiro v. Wilgus, 287 U.S. 348 (1932) Beiger v. IRS, 496 U.S. 53 (1990) BFP v. Resolution Trust Corp., 511 U.S. 531 (1994) Executive Benefits Ins. Agency v. Arkison, 134 S. Ct (2014) Bonded Fin. Servs., Inc. v. European-Am. Bank, 838 F.2d 890 (7th Cir. 1988) Official Comm. of Unsecured Creditors ex rel Cybergenics Corp. v. Chinery, 330 F.3d 548 (3d Cir. 2003) (en banc) 7

8 QSI Holdings, Inc. v. Alford (In re QSI Holdings, Inc.), 571 F.3d 545 (6th Cir. 2009) Marathon Petroleum Co. v, Cohen (In re Delco Oil, Inc.), 599 F.3d 1255 (11th Cir. 2010) Week 10 Plans Part I Debtor s exclusivity, classification of claims and interests, impairment, and mandatory and permissive plan contents will be discussed. Chapter 9, Sections U.S.C (who may file a plan) 11 U.S.C (classification of claims and interests) 11 U.S.C (contents of plan) 11 U.S.C (impairment) Week 11 Plans Part II Voting and disclosure statements will be discussed. Confirmation of consensual plans, including a review of statutory requirements, focusing on best interests and feasibility will be considered. Chapter 9, Sections 9.08, 9.09, 9.11, U.S.C (postpetition disclosure and solicitation) 11 U.S.C (acceptance of plan) 11 U.S.C (modification of plan) 11 U.S.C (confirmation hearing) 11 U.S.C. 1129(a) (confirmation of plan consensual) 8

9 Bankruptcy Rules: Fed. R. Bankr. P Fed. R. Bankr. P Fed. R. Bankr. P Fed. R. Bankr. P Fed. R. Bankr. P Fed. R. Bankr. P Week 12 Plans Part III The focus will be on cram down on dissenting classes of secured claims, unsecured claims and equity interests, including a discussion of fair and equitable standards, the absolute priority rule, the new value exception or corollary, specific statutory requirements, and valuation issues. Chapter 1, Section 1.09 Chapter 9, Section U.S.C. 1111(b) (election for holders of partially secured claims) 11 U.S.C. 1129(b) (cram down) Bankruptcy Rule: Fed. R. Bankr. P Additional: In re MPM Silicones, LLC, 2014 WL (Bankr. S.D.N.Y. Sept. 9, 2014) (only portion relevant to cram down interest rates pages *23 to *32) Week 13 Plans Part IV Effects of confirmation, consummation and equitable mootness of appeals of confirmation orders, and other special issues, such as non-debtor releases, and chapter 22 cases will be discussed. 9

10 Chapter 10, Sections 10.01, U.S.C (effect of confirmation) 11 U.S.C (implementation of plan) 11 U.S.C (distribution) 11 U.S.C (revocation of confirmation) 11 U.S.C (exemption from securities laws) 11 U.S.C (special tax provisions) 10