Bankruptcy Basics: Doing Business with a Company in Bankruptcy. Mark M. Maloney George B. South III Brian C. Walsh

Transcription

1 Bankruptcy Basics: Doing Business with a Company in Bankruptcy Mark M. Maloney George B. South III Brian C. Walsh Tuesday, November 16, :30 1:30 p.m. EST If you have not downloaded the program materials, please do so now at

2 To connect to the audio part of the program please call: A customer service representative will connect you to the seminar. For technical assistance at any time during the presentation, please call: Speaker Biographies Mark M. Maloney mmaloney@kslaw.com Mark Maloney is a partner in the Atlanta office of King & Spalding and a member of the Financial Restructuring Practice Group. Mr. Maloney s practice includes representation of a broad range of clients in litigation matters involving creditors rights, bankruptcy, lender liability and other financial and commercial disputes. He has represented debtors, official committees, secured and unsecured creditors, and other parties in interest in major Chapter 11 bankruptcy cases and other insolvency proceedings in over 20 states and the District of Columbia. In 2003 and 2004 he was listed as one of the top bankruptcy attorneys in the country in surveys by The Deal Magazine. In addition, Mr. Maloney was selected by his peers as a Georgia Super Lawyer, as published in Atlanta Magazine in Mr. Maloney is a frequent lecturer on bankruptcy topics and has served as a faculty member for the American Bankruptcy Institute s Litigation Skills Symposium. His publications include Orix Credit Alliance, Inc. v. Delta Resources, Inc.- Poor Losers, in the Annual Survey of Bankruptcy Law, At Your Service: Deciphering the Amendments to the Service Rules, in Bankruptcy Litigation, Specific Personal Jurisdiction and the Arise From or Related To Requirement What Does It Mean? in the Washington & Lee Law Review. Mr. Maloney is also a chapter co-author of the West Group treatise Successful Partnering Between Inside and Outside Counsel. He has served previously as co-editor of Bankruptcy Litigation and as a member of the Advisory Board for the Annual Survey of Bankruptcy Law. Mr. Maloney received his B.B.A., cum laude, in banking and finance from the University of Mississippi. He received his J.D., magna cum laude, from Washington & Lee University, where he was senior articles editor on the Washington & Lee Law Review. Prior to joining King & Spalding, Mr. Maloney served as law clerk to the Honorable Rhesa H. Barksdale, U.S. Court of Appeals, Fifth Circuit.

3 Speaker Biographies George South joined King & Spalding New York in 2002 as a partner in its Financial Restructuring Group. Mr. South s practice includes both in- and out-of-court restructurings and the rehabilitation of financially distressed businesses. He regularly represents corporate debtors, creditors' committees, bondholders' committees, debtor-in-possession lenders, investment partnerships that buy and sell distressed securities, businesses and third parties seeking to invest in and/or acquire the assets and businesses of financially troubled companies, as well as liquidating trustees under chapter 11 plans. George B. South III gsouth@kslaw.com Mr. South has represented creditors' committees, significant creditors or third-party purchasers in connection with numerous Chapter 11 cases and out-of-court restructurings, including: Northwestern Corporation; Allegheny Energy; James River Coal Company; AMF Bowling, Inc.; Brill Media, Inc.; 1515 Broadway; Grand Palais Riverboat, Inc.; Hemmeter Enterprises, Inc.; JPS Textile; Microcast; Kaiser Aluminum; Kmart Corp.; Krause Furniture; Park Central Hotel; Sun Healthcare Group, Inc.; Winstar Communications; and XO Communications, Inc. Mr. South was lead counsel to the Official Committee of Unsecured Creditors of ITC DeltaCom, Inc. in Delaware and, most recently, the Official Committee of Unsecured Creditors of Recoton Corporation in New York. In addition, Mr. South is currently representing the Liquidating Trustees under the Chapter 11 plans of Bethlehem Steel Corporation, Oakwood Homes Corporation and Recoton Corporation. Mr. South has also represented major investors in the securities of financially distressed companies and has provided corporate finance, strategic planning and debtor-creditor advice to a number of corporate and institutional clients. Mr. South is an author of one of the leading bankruptcy treatises in the United States, Collier on Bankruptcy. In addition, he has participated as a speaker in numerous forums on energy and telecommunication issues in bankruptcy, and has provided advice to clients in connection with ring-fencing analyses and techniques in connection with utility company credits. Prior to joining King & Spalding, Mr. South was a partner with Fried, Frank, Harris, Shriver & Jacobson in New York. He received his J.D., with distinction, in 1991 from Hofstra University, where he was Managing Editor of the Hofstra Law Review, and his B.A. from Hofstra University in He is admitted to practice in New York and New Jersey. Speaker Biographies Brian Walsh is a partner in the Atlanta office of King & Spalding and a member of the Financial Restructuring Practice Group. Brian C. Walsh bwalsh@kslaw.com His practice includes representation of debtors, secured lenders and unsecured creditors in bankruptcy cases, receiverships and workout matters, as well as bankruptcy- and insolvency-related litigation in federal and state courts. His recent engagements have involved advertising agencies, construction equipment dealers, custom equipment fabricators, nursing home operators, telecommunications companies, textile manufacturers and utilities, among other industries. Mr. Walsh also has represented parties and amici in significant appeals in the Supreme Court of the United States and the federal courts of appeals. Mr. Walsh is a member of the State Bar of Georgia, the American Bar Association, the American Bankruptcy Institute and the Atlanta Bar Association. He is the author of "Representing the Oversecured Creditor," published in the American Bankruptcy Institute Journal, a co-author of Collateral Valuation Arguments After Associates Commercial Corporation v. Rash, published in the Journal of Bankruptcy Law and Practice, and the author of Seeding the Brownfields: A Proposed Statute Limiting Environmental Liability for Prospective Purchasers, published in the Harvard Journal on Legislation. Mr. Walsh graduated from Duke University, magna cum laude, in 1993 and received his J.D., magna cum laude, in 1996 from Harvard University, where he was on the editorial board of the Harvard Journal on Legislation. Prior to joining King & Spalding, Mr. Walsh served as law clerk to the Honorable Pasco M. Bowman of the United States Court of Appeals for the Eighth Circuit.

4 Bankruptcy Basics: Doing Business with a Company in Bankruptcy Mark M. Maloney George B. South III Brian C. Walsh Tuesday, November 16, :30 1:30 p.m. EST 1 Overview Creditor priorities in bankruptcy Executory contracts and unexpired leases Bankruptcy self-defense Finding out more about bankruptcy cases 2

5 12,000 Business Chapter 11 Filings by Year 10,000 8,000 6,000 4,000 2, July 2003 to Source: Administrative Office of the U.S. Courts June Significant Chapter 11 Filings in

6 Part 1 Priorities 5 Priorities in Bankruptcy Secured claims Super-priority claims Administrative claims Unsecured priority claims General unsecured claims Subordinated claims Equity 6

7 Improving Your Priority Take collateral or credit support Create a trust relationship Be a critical vendor Get your contract assumed Lobby Congress for special-interest legislation, like U.S. fishermen and grain merchants 7 Critical Vendors Doctrine traceable to the 1800s Employees always get paid their wages immediately Expanded in the 1990s to other critical creditors Widely perceived to have been abused in recent years KMart litigation likely to reverse the trend Caution: refusing to do business with a debtor could be seen as a violation of the automatic stay 8

8 Part 2 Executory Contracts and Unexpired Leases 9 What Is an Executory Contract? Each party has material unperformed obligations Ongoing customer contract is executory Promissory note is not executory Lease must be unexpired One document may be multiple executory contracts or leases E.g., master lease of multiple properties 10

9 Debtor s Powers Executory contracts and unexpired leases may be assumed, assigned, or rejected Generally no deadline for debtor s decision in Chapter 11 Debtor may require continued performance pending decision Creditor not obligated to extend trade credit Automatic stay precludes termination by non-debtor 11 Special Lease Requirements Debtor must perform under non-residential real property leases Debtor-lessee also must assume or reject within 60 days, subject to extension of deadline by court Debtor must perform under non-consumer personal property leases after first 60 days, unless court orders otherwise Provisions apply only to true leases, not financing transactions 12

10 Assumption vs. Rejection Assumption Requires cure of most defaults Adequate assurance of future performance Must be assumed in whole, not in part Cannot be modified without creditor s consent Breach after assumption yields administrative claim Rejection Excuses debtor s future performance Treated as pre-petition breach of contract Creditor s damages may be limited in some situations 13 Assumption vs. Rejection Court generally defers to debtor s business judgment Creditors often agree to concessions to avoid rejection 14

11 Assignment Contract must be assumed (and defaults cured) by debtor first Adequate assurance of performance by assignee Anti-assignment clauses generally overridden But tenant-mix and similar provisions enforced in shopping centers Anti-assignment laws respected Debtor not liable for breach by assignee 15 Rights of Real Property Lessees and Intellectual Property Licensees If debtor-licensor or debtor-lessor rejects a license agreement or lease, the licensee or lessee may either: Treat the license/lease as terminated, or Retain rights under license or lease for their full duration, including extensions If licensee/lessee retains rights, it must pay royalties/rent, but debtor cannot interfere with use rights Note: Intellectual Property does not include trademarks 16

12 Part 3 Self-Defense 17 Bankruptcy-Proofing Contracts Courts resist attempts to contract around the Bankruptcy Code Bankruptcy-related defaults and termination events are unenforceable Advance consent to relief from the automatic stay is unenforceable What works? Bring contract within anti-assignment law Include incurable defaults Include early triggers permitting termination pre-bankruptcy 18

13 Other Defense Mechanisms Monitor receivables carefully Stay ahead in your performance vs. debtor s performance under contracts Do not ignore notices from the bankruptcy court Institute procedures to route notices from lockboxes 19 Part 4 More Information 20

14 How Do I Find Out More About a Case? Court websites and PACER Electronic Bankruptcy Noticing program Debtor websites File a notice of appearance 21 Questions Self Study Code: