Bankruptcy Law
Bankruptcy Court- You have an appeal of right to the District Court and then to the Circuit Court.
Probably 70-80% of Bankruptcy Cases get affirmed by District Court.
Bankruptcy Code enacted in 1978, before that was the Bankruptcy Act. Constitution Provides that Congress can enact Uniform Bankruptcy Laws.
Chapter 7 and Chapter 13 and Chapter 11.
Court of Law- follow a code or law
Court of Equity- Judge has power to do what he thinks is fair.
Bankruptcy court is inherently a court of equity, but as time goes on, Congress has passed more laws.
95% of Chapter 11 fail, but 90% of those are mom and pop shops, etc.
Certain creditors are given certain priority.
Top of food chain is a secured creditor, and at the bottom is a shareholder.
Bankruptcy Code should be past 2006. Copy is on website.
Nortons and Colliers are two famous companies. He prefers Nortons.
Exam will have multiple choice and essay. They are of the type like what is correct and why, and what is incorrect and why.
01/14/08
Out-of-court work out- try to get as much out of debtor as possible before bankruptcy filing.
Avoidance Actions- Preferences and Fraudulent Conveyance
Forbearance Agreement
Process- Haven’t paid bank for a couple months or vendors.
Problem is out-of court work out is voluntary and if everyone doesn’t agree, it will make it very difficult for it to work.
Preference- ability to undue transactions…
If one person does not agree to terms, they can stop the out of court work out.
Chapter 13- Wage Earner Reorganization.
U.S. Trustee is the Arm of U.S., You HAVE to pay a fee to them. They basically monitor chapter 11s. This is at the will of the Attorney General. U.S. Trustee has standing in every bankruptcy matter.
Creditor’s committee- monitor the case
Problem 1 in Book:
Might want to work out an installment agreement.
Chapters in Bkrptcy Code
1,3,5,7,9,11,12,13,15
1,3,5- General Chapters
7-15 are the kinds of bankruptcys you can file.
Ch. 9 deals with municipalities.
Titel 11 is the entire Bankruptcy Code under USC
Ch. 12 deals with Farms.
Ch. 15- International Reorganization
01/21/09
We have decided to file Ch. 11 Bankruptcy,
Where can you file- 28 USC 1408- you can file your case in which domicile, residents, principal place of business…of person or entity.
How 180 days works-
Business located in Md, but it was located in PA. Now if you’ve been in MD for 85 days.
You have to consider the greater one of the 180 days, so PA. because 95 days there. If in md for 91 days, then you can file in that district.
Md. is not known to be particularly debtor unfriendly.
You can file in DE if the only connection you have to DE is that you are incorporated there.
3 Stage Process for Bankruptcy Process
Debtor
Bankruptcy Estate (Formed from petition)- The debtor no longer owns the assets.
Post Confirmation Debtor-
Pre-petition
Debtor in possession- the debtor is in possession of the bankruptcy estate’s possessions- same thing as trustee. There can be various parties during bankruptcy that control the estate.
The debtor-in-possesstion is the norm.
Confirmation is when you Ch. 11 plan is accepted by creditors
You can have a motion by u.s. trustee or creditors to appoint a trustee and take the debtor-in-possession out of possession. This happens because of some type of fraud, management has proven there is no way they can run business. THE DIP has the benefit of the doubt.
Once case is confirmed, you have…look at next column.
Creditor’s committee is made up of creditors of the estate. The CC does not vote on the plan. The creditors and equity holders vote on the plan. You can have more than one committee. You can have a committee of general unsecured creditors.
Many times the money in a bankruptcy estate is “sucked up” by professionals.
Creditors can file an involuntary ch. 7 for company.
Look at Pg. 62- he does not agree w/ analysis about eligibility to file. You can basically file for any reason. Just about any company will be eligible to file bankruptcy, you do not have to be insolvent.
Bankruptcy Code requires that there be specific board resolutions authorizing the filing.
Business assets could come out as more than one company.
Textbook definition of DIP-
Who can be a debtor
t do post-petition is the debtor cannot pay pre-petition debts post-petition outside the terms of the plan of the reorganization.
Debts that accrued before petition-date can’t be paid post petition date outside of a plan.
There are many times that debtor wants to pay pre-petition obligations post-petition before the plan is created. There are constructive ways to get around it. One thing that the Bankruptcy Code does provide us is section 105.
SECTION 105- Remember that it does not allow for the creation of substantive rights. It allows you to take an already existing substantive right and use it in a manner that you need to use it.
Some judges will use 105 as fallback to do whatever. For exam purposes, it is not a stand alone power. That will get you NO POINTS.
Some things need to get paid right away. Ie wages, utilities. Many times, first day motions are given before petition is even filed. This is something you want to do.
Idea is to give as less notice as possible to as less people as possible.
Cash Collateral- The cash derived from the liquidation or use of someone’s collateral. Usually, it is a consensual thing. The lender is saying use my cash collateral to pay these employees.
In re Colad Group, Inc.
Court Denies DIP Financing Agreement
The court will give an initial order, then a final order. The final order will have more complex things because everyone gets notice of the final order.
Local rules are particularly important in bankruptcy context.
Have to look at local district court rules, FRCP, local brankruptcy rules, and fed bankruptcy rules.
Critical vendor motion- pg. 217- Prof thinks there is no authority for critical vendor motions.
Generally, all equal vendors should get paid the same.
