Breaking with a Sixth Circuit decision to the contrary, in a March 2021 decision in Stewart v. Holland, the District Court for the Western District of Pennsylvania held that unfair labor claims brought by the Department of Labor against a debtor under the Fair Labor Standards Act (“FLSA”) were not barred by the automatic stay but could instead proceed under the “police powers exception.”1
A recent New York Times article highlights the challenges oftentimes faced by smaller vendors in large bankruptcy cases. The article profiles a couple, who owns a warehouse leased to Brooks Brothers, who were left holding a $240,000 cleanup fee bill when Brooks Brothers rejected their warehouse lease and refused to clear the equipment and other materials being stored. [The New York Times; April 2, 2021]
Bloomberg reports on Alpha Media’s lawsuit against the Small Business Administration based on the administration’s failure to allow for PPP loans to companies in bankruptcy. Alpha Media, which filed for bankruptcy in January, contends that the SBA is rejecting PPP applications from debtors even though “it was not Congress’ intent for the SBA to use an applicant’s status as a Chapter 11 debtor as a basis to deny it PPP relief.” Several companies in bankruptcy have sued the SBA administrator with similar claims over the past year, with mixed results. [Bloomberg Law; April 7, 2021]
Yahoo Finance reports that China Huarong Asset Management Co. is considering asset sales in an effort to avoid a wholescale restructuring. The state-owned manager of non-performing loans, which spooked investors earlier this month when it delayed its earnings report, is still determining which assets it might consider selling. [Yahoo Finance; April 8, 2021]
Yahoo Finance also reports that the U.S. government posted a March budget deficit of $660 billion, a record high for the month and the third highest U.S. monthly budget deficit on record. Much of the deficit resulted from payments under the recently-approved $1.9 trillion stimulus package and, with more funding from the stimulus package expected to roll out in coming months, U.S. Treasury officials expect deficit levels to remain elevated. [Yahoo Finance; April 12, 2021]
Trial began in the National Rifle Association’s bankruptcy on April 6 on motions seeking appointment of an examiner or an independent trustee over the NRA, or dismissal of the bankruptcy case entirely. The Wall Street Journal reports that, in his testimony, NRA CEO Wayne LaPierre made headlines by acknowledging his failure to disclose overseas yacht trips, paid for by NRA vendors, and other potential conflicts of interest. And Bloomberg Law reports that the NRA is seeking appointment of a chief restructuring officer to help it navigate bankruptcy and other possible reforms. [The Wall Street Journal; April 7, 2021; Bloomberg Law; April 8, 2021]
Bloomberg Law reports that that the U.S. Trustee’s Office is working to combat the recent rise of “pre-packaged” chapter 11 bankruptcy filings. A pre-packaged bankruptcy or a “pre-pack” refers to the circumstances in which a debtor negotiates its reorganizational agreements with key stakeholders before filing its chapter 11 case and then files and confirm its plan of reorganization often within days. This process is theoretically reserved for “extraordinary circumstances”; however, the pace of pre-packaged cases has increased, as has the speed at which they are getting approved. As just two examples in the past year alone, HighPoint Resources Corp. confirmed a reorganization plan in four days in March, while Belk Inc. confirmed a reorganization plan in a mere sixteen hours in February. These expedited cases are attractive to debtors due to the time and cost savings they present, but some academics and judges worry that pre-packs diminish the integrity of the bankruptcy process and do not sufficiently safeguard the rights of creditors. [Bloomberg Law; April 5, 2021].
Per Forbes, after six consecutive years of losses totaling more than $4.5 billion, LG has announced its intention to exit the mobile phone business. Although LG still ranks as the third largest smartphone brand in the U.S. and accounted for 11% of smartphone sales in 2020, it has fallen significantly behind some of its larger rivals. The company had indicated that, going forward, it will be focusing on its electric vehicle components, connected devices, smart home and artificial intelligence businesses. LG expects to have fully exited the mobile phone sector by the end of July. [Forbes; April 5, 2021].
The Wall Street Journal reports that GameStop Corp. – of Reddit and Wall Street Bets fame (or infamy) – has announced plans for an at-the-market stock sale of up to $1 billion over the next several months. Although the exact timing and amount of the sale “will depend on various factors,” the company will look to sell up to 3.5 million shares in the near-term. GameStop’s announcement follows other successful efforts by “meme” companies such as AMC to use their recent popularity among retail investors to raise money through additional stock issuances. WSJ; April 5, 2021].
The Wall Street Journal also reports that the committee representing sex-abuse victims in the Boy Scouts of America bankruptcy case is seeking to gain further leverage in the case by attempting to propose its own reorganization plan. Specifically, in objecting to the debtors’ request for the continued, exclusive opportunity to propose and solicit acceptances of a reorganization plan, the committee, which represents nearly 84,000 sex-abuse victims, argues that the plan most recently proposed by the debtors does not adequately compensate those who suffered abuse and is thus unconfirmable. That plan proposes up to $6,100 in compensation for each victim while the committee has suggested that each victim may be entitled to over $800,000 each. [WSJ; April 2, 2021]
On Friday, March 19, 2021, Congressional lawmakers introduced a bill that would amend the U.S. Bankruptcy Code to prohibit bankruptcy judges from permanently enjoining or releasing legal claims of states, tribes, municipalities or the U.S. government against non-debtors.
According to media reports, the bill, which is named the “SACKLER Act,” (i.e., the “Stop Shielding Assets from Corporate Known Liability by Eliminating Non-Debtor Releases Act”) is specifically designed to prevent members of the Sackler family, who own OxyContin-maker Purdue Pharma LP, from using the bankruptcy process to obtain legal releases from government lawsuits. Purdue Pharma LP filed for bankruptcy in September 2019, but none of the members of the Sackler family have filed for bankruptcy as individuals. Nevertheless, the Sacklers have offered to contribute roughly $4.28 billion as part of a proposed bankruptcy plan to fund payouts to victims who suffered injuries linked to Purdue Pharma’s opioids over the next decade in exchange for legal releases that would enjoin claims against the Sackler family. If approved, those legal releases would shield the Sackler family from further liability related to the opioid crisis, something that many state attorneys general have ardently opposed. Continue Reading Wither Non-Debtor Releases? Purdue Pharma and the Proposed SACKLER Act
The American Bankruptcy Institute reported that President Biden signed the “COVID-19 Bankruptcy Relief Extension Act” into law Saturday, March 27, 2021, which extends through March 27, 2022, provisions providing financially distressed consumers and small businesses with greater access to bankruptcy relief. The provisions were included in the original CARES Act that was passed in the wake of the Covid-19 outbreak and were originally set to expire this month. [ABI; March 29, 2021].
In mid-February, Winter Storm Uri brought frigid air across the US from the Pacific Northwest to the Gulf Coast. Most notably, Winter Storm Uri passed through Texas, resulting in large snowfalls and reducing temperatures to historic levels. In advance of the storm, plants and utilities responsible for providing vital electricity and natural gas to Texas residents sought to prepare for the extreme conditions—but then, diesel fuel began to gel, generators and turbines froze, and electricity became scarce—leaving many market participants and end-user consumers with astronomical bills for power. Some entities have since disputed the bills, while others have even declared bankruptcy or indicated the need for future bankruptcy court protection.
Continue Reading Texas Utilities Continue to Deal With Aftermath of Winter Storm Uri: CPS Energy Sues the Electric Reliability Council of Texas Alleging One of the “Largest Illegal Wealth Transfers” in Texas History
Restructuring partner Matt Wargin and counsel Monique Mulcare joined intellectual property partner Richard Assmus and senior tax associate Julian Dibbell on the Mayer Brown Tech Talks podcast to discuss protecting against vendor bankruptcy in service and license agreements. Listen here.
Bloomberg reports that HighPoint Resources Corp. received approval for its chapter 11 reorganization plan, clearing the way for its merger with Bonanza Creek Energy Inc. less than one week after filing for bankruptcy protection. The fully-consensual plan, which carried the support of more than 99% of impaired claimants, deleverages HighPoint’s balance sheet by approximately $625 million vis-à-vis an unsecured debt-for-equity swap and an issuance of new unsecured notes totaling $100 million. Existing equityholders are even slated to receive 1.6% of the new equity in the combined company. [Bloomberg; Mar. 18, 2021].
On March 10, 2021, the parent company of sports club and gym-operator Town Sports International, LLC, filed a motion seeking to set aside a purported $250,000 settlement agreement between Town Sports and the New York Attorney General arguing that the agreement (1) was barred by the terms of Town Sports’ confirmed chapter 11 plan and (2) in any case, not authorized by Town Sports but instead only by one of its prior attorneys.
As noted in our prior post on the case, Town Sports has been embroiled in litigation with the New York Attorney General since September 2020, when the attorney general’s office filed a lawsuit against Town Sports arguing that it improperly failed to honor certain of its members’ cancellation requests, and instead continued to assess monthly membership fees, during the disruptions caused by the COVID-19 pandemic and related government shutdown orders. The parties appeared to have settled their lawsuit on March 4, 2021, when a New York state court Continue Reading Settled or Not? Town Sports Challenges Settlement it Purportedly Entered into with New York Attorney General
Reporting from CNBC indicates that Purdue Pharma, the maker of OxyContin, has proposed a $10 billion plan to exit bankruptcy. According to sources, the exit plan not only includes a significant contribution of more than $4 billion from members of the Sackler family who own the Connecticut-based pharmaceutical giant, but also calls for the pharmaceutical giant to be transformed into a different kind of company that plans to funnel profits into the fight against the nation’s intractable opioid crisis. [CNBC; Mar. 16, 2021].
Bloomberg reports that the US Supreme Court recently declined to hear an appeal regarding how the lending industry reports canceled debt on consumer credit reports, an issue central to the “fresh start” that consumers receive after bankruptcy. The appeal sought to restrict consumers from joining together in class action lawsuits accusing the banks of violating individuals’ bankruptcy discharges by continuing to include old, discharged debt on credit reports. By declining to hear the appeals of lower court rulings, the US Supreme Court effectively left intact those rulings that bankruptcy law blocks banks from using provisions in credit card agreements to force such claims into mandatory arbitration. [Bloomberg; March 8, 2021].
The Wall Street Journal reports that HighPoint Resources Corp. filed for chapter 11 protection on March 15, 2021, with hopes that a quick stint in chapter 11 will foster a merger with Bonanza Creek Energy Inc., another Colorado oil-and-gas operator. Citing Highpoint’s unmanageable $765 million debt-load and last year’s oil-price war between Russia and Saudi Arabia last as the catalysts for Sunday’s filing, recent court papers indicate that HighPoint’s bankruptcy plan and merger with Bonanza Creek is designed to swap $625 million in unsecured debt for equity in the combined company. [WSJ; Mar. 15, 2021].
Forbes analyzes the challenges and prospects of AMC Entertainment Holdings Inc., the nation’s largest movie theatre chain, following a $917 million cash infusion completed in December 2020 and recent signs of lifting of global lockdowns. [Forbes; Mar. 5 2021].