The Wall Street Journal reports that the US Senate passed a bill to require lawyers, accountants, consultants and other professionals hired by Puerto Rico in its bankruptcy proceedings to make additional disclosures of their various connections, in order to shed light on potential conflicts of interest. In February 2021, a companion version of this bill unanimously passed the House of Representatives. [WSJ; Nov. 18, 2021]

Reporting from Bloomberg discusses how distressed debt funds have sought to rebrand in response to government stimulus and low interest rates, which have substantially decreased the overall level of distress in the market. The reporting highlights how some traditional distressed debt investors are now highlighting investments in “global opportunities,” “opportunistic real estate,” and “special situations,” among others, while overall distress remains low. [Bloomberg; Nov. 17, 2021]

Reuters reports that two shareholders of Eagle Hospitality Real Estate Investment Trust, a bankrupt Singaporean hotel real estate trust, could face jail time over a purportedly fraudulent scheme in which the debtor obtained loans through the US government’s Paycheck Protection Program that was established to help small businesses during the COVID-19 pandemic. [Reuters; Nov. 15, 2021]

Bloomberg reports that Judge Christopher Sontchi from the US Bankruptcy Court for the District of Delaware, who has served as chief judge of the court since 2018, will retire from the bench in 2022. [Bloomberg; Nov. 15, 2021]

Reporting from the Wall Street Journal indicates that plaintiffs in price fixing lawsuits against generic drugmaker Teligent Inc. have sought court authority to continue that litigation despite Teligent’s October bankruptcy filing.  The litigation, which commenced in 2016, alleges that Teligent artificially inflated the costs of certain generic drugs and is being pursued primarily by attorneys general for 54 states, territories, and commonwealths. [WSJ; Nov. 11, 2021]

Reuters reports on the decision by U.S. Bankruptcy Judge Craig Whitley to transfer Johnson & Johnson subsidiary LTL Management’s bankruptcy case from North Carolina to New Jersey. Judge Whitley determined that New Jersey is the proper forum for the case, since Johnson & Johnson is based in the state and because much of talc litigation involving Johnson & Johnson is pending there. In at least a temporary reprieve for Johnson & Johnson, Judge Whitley did stay all personal injury claims against Johnson & Johnson – and not just those against LTL Management – for 60 days.  But the judge emphasized that he was doing so only so that the case could be transferred in an orderly manner without it being “on fire” in the recipient, the New Jersey bankruptcy court.  Once transferred, it will be up to the New Jersey bankruptcy court whether to further extend the stay. [Reuters; Nov. 10, 2021]

Bloomberg reports on the U.S. Supreme Court’s decision not to revisit its 1992 Dewsnup v. Timm decision, which held that homeowners cannot reduce a partially underwater mortgage through the Bankruptcy Code. The petitioners, a couple from North Carolina, argued that their secured lender’s claim should be reduced from the approximately $240,000 left on their mortgage to the approximately $220,000 that their home was worth arguing that that Bankruptcy Code’s definition of “allowed secured claim” can only be equal to the value of the collateral. The Supreme Court, however, decided not to revisit the decisions of the lower courts who agreed with the petitioner’s secured lender. [Bloomberg; Nov. 8, 2021]

Whether—and in what circumstances—a debtor should pay creditors a make-whole premium continues to be litigated in bankruptcy courts. Last week, as reported by Bloomberg, Judge Dorsey (Delaware) ruled that the debtor – Mallinckrodt Plc – did not need to pay a make whole premium to first lien lenders in order to reinstate such obligations under the debtor’s chapter 11 plan. And in Hertz’s Delaware bankruptcy case, Judge Walrath heard oral argument on whether Hertz was obligated to pay noteholders post-petition interest and a make-whole premium when the plan paid down the bondholders’ claim and designated it as unimpaired, as reported by the Wall Street Journal.

G.E. announced this week that it will split into three companies, separating its healthcare, aviation and power divisions, as reported by the Wall Street Journal. The move follows several years of corporate and debt restructurings that G.E. has undertaken since the financial crisis and reflects how large conglomerates, such as G.E., have fallen out of favor with investors.

Economic news continues to focus on the supply chain issues, and the New York Times covers an important link in the chain: truck drivers. The current shortage in truck drivers is predicted to grow as more truckers retire. Potential solutions being discussed include relaxing restrictions against drivers under the age of 21 crossing state lines.

In litigation that is emblematic of the financial distress that the movie theatre business continues to experience, Cineplex sued its former suiter Cineworld in Canadian court when it walked away from a potential acquisition after the pandemic. Cineplex alleged that Cineworld got “buyer’s remorse” and the actions it took after the pandemic to cut costs should be considered “ordinary course” for the industry. A decision by the Ontario Superior Court of Justice is expected soon, according to The Canadian Press.

Hertz is making big news just months after emerging from its successful Chapter 11 bankruptcy. As reported by NBC News, Hertz has signed deals with Tesla (to add at least 100,000 Teslas to its fleet), Uber (to make up to half of those Teslas available to Uber drivers), and with Carvana (to sell its used vehicles to the used vehicle retailer for resale). Hertz had shed much of its rental car fleet during its bankruptcy and the pandemic-caused travel downtown, giving it the opportunity to rebuild its fleet with environmentally friendly alternatives.

A report on stablecoin from the President’s Working Group on Financial Markets was released on Monday, as covered by Reuters. The report recommends that Congress “urgently” pass a law to regulate stablecoin issuers. However, federal agencies such as the SEC and CFTC may be able to police certain aspects of stablecoin activity absent legislation. We’ve previously covered the risks that stablecoins posed to the financial system here.

The Wall Street Journal reports that Yango Group Co., a Chinese real estate developer, has proposed a bond exchange, pushing out maturities until September 2022, in hopes of preventing a default. The developer cited governmental policy, credit issues and consumer sentiment as reasons for it not having access to typical refinancing options.

As ESG continues to drive investment decisions, the Wall Street Journal considers an investor’s proposal that Shell—one of the best performing oil and gas companies on ESG metrics—divide into a “green” Shell and a “brown” Shell and sell off its oil operations.

Bloomberg reports that Puerto Rico’s restructuring plan can move forward, with the passage of a new law that allows the island to sell bonds.  This resolves Puerto Rico’s dispute with the commonwealth’s financial oversight board, which threatened to derail its bankruptcy case. [Bloomberg; Oct. 28, 2021]

Reporting from Reuters indicates that the economy grew at its slowest pace in over a year in the third quarter, following the resurgence in COVID-19 cases, global supply chain issues, and shortages of goods.  [Reuters; Oct. 18, 2021]

NPR analyzes Guitar Center’s emergence from bankruptcy, and its reported intentions to go public less than one year later, as retail spending on musical instruments went up during the pandemic.  [NPR; Oct. 20, 2021]

Tether – the world’s largest issuer of “stablecoin” – has come under increased media and regulatory scrutiny in recent months as concerns over its liquidity have grown.  This, in turn, has led to increased concerns regarding the risk that Tether, and other stablecoin issuers, pose to the crypto economy specifically and to the global financial system more generally.

Continue Reading Is Stablecoin Stable? Media and Regulators Raise Concerns

Partially walking back her prior pronouncements suggesting that she would rule to the contrary (which we previously wrote about here), on October 13, 2021, District Court Judge Colleen McMahon denied the U.S. Trustee’s request for an emergency stay pending appeal of the Purdue Pharma confirmation order.  In a related order issued three days earlier, Judge McMahon had noted that she “fully” intended to grant the stay request so long as she had jurisdiction to do so.  In the end, however, the District Court was persuaded to deny the request based on the debtors’ agreement not to raise equitable mootness as a defense to the appeal and by the debtors’ commitment to provide 14 days’ advance notice of the plan going fully effective.  The U.S. Trustee had argued that a stay was still required, notwithstanding these conditions, given the weightiness of the issues at stake and the potential for later equitable mootness-related issues.  While sympathizing with this position, the District Court ultimately found that the U.S. Trustee had not shown a sufficient likelihood of any “concrete harm” that could arise between the date of the District Court’s ruling and the next-scheduled hearing on the nearly identical stay motion back in the Bankruptcy Court.  The District Court nonetheless emphasized that it would “not allow this appeal to be equitably mooted” and if, at any time, “it appears that imminent action might lead to that result,” the movants were invited to “knock on [Judge McMahon’s] door.”

Continue Reading Stay and Direct Appeal Requests Denied in Purdue Pharma; District Court Commits to Shielding Case from Equitable Mootness Concerns

Reuters interviews Representative Cheri Bustos with respect to a bill she proposed last week, which would prevent executives of bankrupt companies who make more than $250,000 per year from receiving bonuses during or in the six months before a bankruptcy.  [Reuters; October 19, 2021]

CNBC reports on supply chain issues exacerbated by panic ordering from retailers and manufacturers, which can lead to distorted demand forecasts and unfulfilled orders.  [CNBC; October 20, 2021]

The WSJ analyzes the recent bankruptcy filing of Johnson & Johnson’s newly-formed subsidiary, the venue-selection rules of U.S. bankruptcy law that allow the company to file in Charlotte, North Carolina, and congressional efforts to reform the law.  [WSJ; October 18, 2021]

Reporting from Yahoo Finance indicates that corporate bankruptcy filings in the United States are set to increase in 2022, according to S&P Global Market Intelligence Data. Despite a dip in filings in 2021, experts predict that there will be a wave of filings in 2022 brought on as money from the federal stimulus and lenders runs out, in addition to other issues (including labor shortages and supply chain issues).  [Yahoo Finance; October 12, 2021]

CNBC discusses the Labor Department’s latest report on the U.S. labor market.  According to the report, a record 4.3 million workers left their jobs in August, with workers in food service and retail industries leading the way.  The number of job openings also saw a sharp decline during the month as hiring fell.  [CNBC; Oct. 12, 2021]

Bloomberg examines the stablecoin Tether and the increasing regulatory and public concerns over its liquidity.  The $69 billion worth of “stable coin” in circulation is supposed to be backed by one U.S. dollar for each issuance, but the size of Tether’s dollar reserves, which some critics argue do not exist, now threatens wider, systemic risk to the financial system.  [Bloomberg; Oct. 7, 2021]

The Wall Street Journal reports that a New York bankruptcy judge overseeing the chapter 11 case of the owners of the Williamsburg Hotel rejected attempts by the U.S. Trustee to replace hotel management and to convert the case to a chapter 7 liquidation, allowing the case to proceed with a proposed restructuring plan.  [WSJ; Oct. 6, 2021]

Reuters reports on a recent decision from the Tenth Circuit finding that a 2017 law that increased fees payable to the U.S. Trustee is unconstitutional because it fails to apply the fees uniformly in all states, including the states that have bankruptcy administrators instead.  This decision deepens a split among the circuits on this issue, with the Second and Tenth Circuits finding violations of the U.S. Constitution’s bankruptcy uniformity requirement on the one hand, and the Fourth and Fifth Circuits upholding the 2017 law on the other.  [Reuters; Oct. 5, 2021]

On October 10, 2021, Judge Colleen McMahon of the U.S. District Court for the Southern District of New York entered a temporary restraining order, delaying implementation of Purdue Pharma’s plan of reorganization, which was confirmed by Bankruptcy Judge Robert Drain on September 17th, pending argument on the U.S. Trustee’s motion for a stay pending appeal (our prior post on Judge Drain’s confirmation order is available here). The temporary restraining order will remain effective until October 12, 2021, when Judge McMahon has scheduled argument on the U.S. Trustee’s motion.

Federal Rule of Bankruptcy Procedure 3020(e) provides for a 14-day automatic stay of plan confirmation orders, unless the court orders otherwise.  Given that Purdue Pharma’s plan was confirmed on September 17th, this stay was therefore set to expire on October 1, 2021.  In advance of that deadline, the U.S. Trustee filed a motion for a stay pending appeal before Judge Drain in the Bankruptcy Court as it seeks to appeal Judge Drain’s confirmation order to either the District Court and/or the Second Circuit Court of Appeals.  Despite the impending October 1st deadline, however, Judge Drain did not schedule a hearing on the U.S. Trustee’s motion until November 9th, indicating at a status conference on September 30th that an earlier hearing was “unnecessary.”

Concerned as to what might happen in the interim period between the expiration of the automatic stay of plan confirmation on October 1st and Judge Drain’s hearing on a stay pending appeal on November 9th, and in particular the potential for the debtors to implement their plan in the interim and argue that any future appeals were “equitably moot,” the U.S. Trustee filed a second motion for a stay pending appeal, this time on an emergency basis before the District Court.  Acknowledging that the same request was still pending before Judge Drain at the Bankruptcy Court, the U.S. Trustee nonetheless claimed an ability to simultaneously move before the District Court based on Federal Rule of Bankruptcy Procedure 8007(b)(2)(B), which provides that parties can move for a stay from the District Court if a similar motion is first made before the Bankruptcy Court and “the court has not yet ruled on the motion.”

While not yet having heard argument on that motion, on Sunday, October 10th, Judge McMahon entered a temporary restraining order, preventing any implementation of Purdue Pharma’s confirmed plan until she had a chance to consider the U.S. Trustee’s request for a stay pending appeal, emphasizing that she had “no intention of allowing the critically important issues on appeal to be ‘equitably mooted.’”  Judge McMahon also confirmed that she would hear argument on the U.S. Trustee’s motion for a stay pending appeal on Tuesday, October 12th, and that she “fully” intended to grant that motion so long as she had jurisdiction to do so.  Judge McMahon also emphasized that the stay would be conditioned on an expedited briefing schedule in the appeal.

Separately, the U.S. Trustee, along with several other objecting parties, have asked the Bankruptcy Court to certify their appeal directly to the Second Circuit Court of Appeals, bypassing the District Court, noting, among other things, that no matter how the District Court rules a further appeal by the losing party is certain.

Stay tuned to the Real Bankruptcy Intel blog for continued updates.