In Manikan v. Peters & Freedman L.L.P., No. 19-55393, 2020 WL 6938318 (9th Cir. Nov. 25, 2020) the Ninth Circuit Court of Appeals addressed whether a debtor was precluded from bringing a Fair Debt Collection Practices Act (“FDCPA”) claim against his homeowner’s association when the claim at issue was based not on the association’s improper attempt to collect a debt that had been discharged via a discharge order but, instead, on a debt that had been fully paid pursuant to the terms of a confirmed Chapter 13 plan.  With respect to the former, the Ninth Circuit had previously held in Walls v. Wells Fargo Bank, N.A., 276 F.3d 502 (9th Cir. 2002) that the proper remedy for a discharge violation was a contempt proceeding pursuant to 11 U.S.C. § 105(a), not an FDCPA claim.  The homeowner’s association argued that Walls compelled a similar outcome in the debtor’s action against it.

The Ninth Circuit in Manikan, however, disagreed emphasizing that the debt owed to the homeowner’s association had not been discharged via the discharge order but instead via payments that the debtor made prior to entry of the discharge order as part of his Chapter 13 plan.  The debtor, the Ninth Circuit noted, did “not seek to remedy a violation of his discharge order.”  Id. at 3.  Instead, he alleged that the homeowner’s association and its agent “tried to collect a debt that he fully paid nearly two years before his discharge.”  Id. (emphasis added).  Even if the debtor had never received a discharge, he could still assert that the association had “acted unlawfully by attempting to collect a debt that he fully satisfied” which distinguished the Manikan case from Walls. Id.

Business Insider reports that AMC Theaters recently sought to raise up to $844 million through stock sales to improve its financial condition, which has been substantially weakened due to restrictions on indoor gatherings put in place in response to the COVID-19 pandemic. AMC’s stock price took a major hit after Warner Bros. announced it would release its full 2021 movie slate on streaming service HBO Max. AMC reportedly indicated that it will likely need to pursue a strategic restructuring and/or bankruptcy if it fails to reach normalized revenue levels. [Business Insider; Dec. 4, 2020]

Reporting from Reuters shows employment in the U.S. passenger and cargo airline industry falling by roughly 29,000 workers through the month ending mid-October after government restrictions on layoffs expired on September 30, 2020.  Since March of this year, major airlines like United Airlines and Delta Air Lines have each reduced their workforces by approximately 32%.  Meanwhile, American Airlines announced in October 2020 that it would be furloughing more than 32,000 workers.  [Reuters; Dec. 3, 2020]

The Wall Street Journal reports that companies and governments have issued a record $9.7 trillion of bonds and other debt instruments so far this year, fueled by support from the Federal Reserve and other central banks in the form of interest rate cuts and the purchase of fixed-income securities. [WSJ; Nov. 30, 2020]

Reporting from Bloomberg indicates that officials in Japan have started selling bonds to assist smaller businesses as they continue to struggle financially amid the COVID-19 pandemic.  The Tokyo Metropolitan Government priced a 60 billion yen bond (the equivalent of approximately US$577 million) at a 0.01% interest rate, which it will use as loans for ailing small businesses.  740 Japanese businesses have filed for protection under Japan’s Bankruptcy Act for reasons related to COVID-19 so far this year. [Bloomberg; Nov. 26, 2020]

The U.S. Bankruptcy Court for the Northern District of Georgia ruled in In re Serendipity Labs, Inc., 620 B.R. 679 (Bankr. N.D. Ga. 2020) that a debtor was ineligible to proceed under the newly enacted Subchapter V of Chapter 11, designed specifically for small businesses, because it was an affiliate of an “issuer” (as defined in section 3 of the Securities Exchange Act of 1934), even though that issuer owned only 6.51% of the shares authorized to vote on the debtor’s bankruptcy filing.  Subchapter V went into effect in February 2020 and offers an expedited reorganization process for small-business debtors who meet the eligibility requirements under Section 1182(B) of the Bankruptcy Code.  However, Section 1182(B)(iii) precludes Chapter 11 debtors from proceeding under Subchapter V if they are an “affiliate” of an issuer (generally a company that has issued classes of securities required to be SEC-registered or that are publicly-traded or that otherwise are public reporting companies).  An “affiliate” is defined in Section 101(2)(A) of the Bankruptcy Code as an “entity that directly or indirectly owns, controls, or holds with power to vote, 20 percent or more of the outstanding voter securities of the debtor”; thus, if the issuer here had such holdings, the debtor was ineligible.  The debtor argued that because the issuer, while owning 27.36% of the debtor’s voting securities, held less than 20% of the shares actually entitled to vote on the debtor’s bankruptcy filing, it did not qualify as an “affiliate” of the debtor.  The court rejected the debtor’s argument, concluding that an entity that owns more than 20% of the voting securities of a debtor is an affiliate regardless of whether it has the power to vote such securities (or not) on any particular matter.

Reuters reports that the Brazilian government will forgive approximately US$1.3 billion worth of debt owed to it by telecommunications firm Oi SA, which has been involved in a pending bankruptcy proceeding in Brazil since 2016. [Reuters; Nov. 27, 2020]

Reporting from Bloomberg indicates that boutique apparel chain Francesca’s Holdings Corp. is preparing to file for bankruptcy and could do so as early as this week of November 30, 2020. Francesca’s has reportedly been evaluating strategic alternatives since September of 2020. [Bloomberg; Nov. 27, 2020]

Hertz Global Holdings Inc. has entered into a stock and asset purchase agreement to sell substantially all of the assets of its wholly-owned subsidiary, Donlen Corporation, to Athene Holding Ltd. for an anticipated cash payment of $825 million, which is subject to adjustments for fleet equity, assumed debt, and working capital, reports Yahoo Finance. Hertz reportedly expects the purchase price at closing to be at least $875 million. [Yahoo Finance; Nov. 25, 2020]

The Wall Street Journal reports that lumber manufacturer Northwest Hardwoods Inc. filed for chapter 11 bankruptcy relief in the U.S. Bankruptcy Court for the District of Delaware on November 23, 2020. The Company has cited escalating trade disputes between the U.S. and China and operational disruptions stemming from the COVID-19 pandemic as its primary reasons for seeking bankruptcy protection. [WSJ; Nov. 24, 2020]

 

Reporting from Bloomberg shows that during the first eight months of the COVID-19 pandemic, approximately $52 billion of rent under retail leases went unpaid.  The reporting further indicates that in many instances, these rent obligations have been deferred through out-of-court agreements between landlords and tenants and that there may be an appetite for further relief in light of recent news concerning a COVID-19 vaccine. [Bloomberg; Nov. 19, 2020]

Reuters reports that Norwegian Air has filed an examinership proceeding (the equivalent of a US Chapter 11 reorganization) in Ireland, where Norwegian Air’s primary aircraft assets are registered. The filing comes after Norway’s government elected not to advance additional financial support last week, after having already guaranteed approximately $135 million worth of the company’s debt earlier this year. [Reuters; Nov. 18, 2020]

Reporting from Yahoo Finance indicates that “zombie companies” in the United States have added roughly $1 trillion in debt to their balance sheets since the pandemic began. Zombie companies are those that do not earn enough to cover their interest expenses. The reporting indicates some of the “nation’s most iconic companies” like Boeing, Delta Air Lines, Exxon and Macy’s could be classified as zombie companies given their current financial positions. [Yahoo Finance; Nov. 17, 2020]

The Wall Street Journal reports that nearly 300 companies that collectively received up to half a billion dollars in government aid from the federal Paycheck Protection Program have filed for bankruptcy since receiving such funds. According to the Small Business Administration’s inspector general, the agency has seen growing evidence of fraud and abuse among borrowers, which he attributes to the administrative ease with which borrowers were able to obtain such funds. [WSJ; Nov. 17, 2020]

Mayer Brown partners Sean Scott and Aaron Gavant and associates Tyler Ferguson and Alexander Berk discussed the United States Bankruptcy Court for the Southern District of Texas’ most recent decision arising out of the Ultra Petroleum Corp. bankruptcy case and its rulings that (1) make-whole premiums are allowed by the Bankruptcy Code under appropriate circumstances and (2) a solvent debtor must pay post-petition interest at the contractual default rate under the Bankruptcy Code in an article available here.

CEC Entertainment, the parent company of kid-friendly and iconic “dinnertainment” restaurant and arcade chain—Chuck E. Cheese—sought and received Bankruptcy Court approval for three very unique settlement agreements, earlier this year, under which it will pay $2.3 million to three vendors to destroy roughly seven BILLION prize tickets –  i.e.,  enough tickets to fill approximately 65 forty-foot cargo shipping containers.1 The backlog was caused by Chuck E. Cheese placing orders for tickets at pre-COVID utilization rates, the resulting pandemic and rapid fallout in sales, and, most generally, Chuck E. Cheese’s efforts to transition from physical tickets to contactless transactions, like “e-Tickets.”2

Continue Reading The Costs of Destruction: Bankruptcy Court Authorizes Chuck E. Cheese to Spend Millions on Destruction of Prize Tickets

Bloomberg reports that Revlon Inc. was able to exchange approximately $236.5 million of its $343 million in outstanding bonds that were scheduled to mature in 2021 in a deal that the company said should eliminate the need for a chapter 11 bankruptcy filing in the near future. [Bloomberg; Nov. 11, 2020]

The Washington Post reports that banks in the United States, which hold approximately $2 trillion in commercial real estate debt, are preparing for a substantial number of bankruptcy filings and defaults by borrowers caused by extended coronavirus-related economic restrictions. The reporting indicates that Signature Bank set aside $53 million last month to cover loan losses related to pandemic’s negative impact on the U.S. commercial real estate market. [WaPo; Nov. 11, 2020]

The Financial Times reports that Peabody Energy, the world’s largest private sector coal producer, could file bankruptcy for the second time in five years if it is unable to implement certain strategic alternatives that it is currently pursuing. Despite reducing its debt by approximately $5.2 billion as a result of its confirmed plan of reorganization in 2017, Peabody Energy is again facing financial difficulties, reporting a net loss of $67.2M for Q3 2020. [Financial Times; Nov. 9, 2020]

Reporting from the Wall Street Journal shows that the news about Pfizer’s possible COVID-19 vaccine breakthrough lifted stock prices for several companies that have experienced acute financial difficulties as a result of the COVID-19 pandemic. AMC Entertainment Holdings, Inc., Carnival Corp., Dave & Buster’s Entertainment Inc., Hertz Global Holdings, Inc., and Royal Caribbean International are among those who saw a lift following the positive vaccine news. [WSJ; Nov. 9, 2020]

 

In Henry Hobbs Jr. v. Buffets LLC the United States Court of Appeals for the Fifth Circuit upheld the constitutionality of a recent increase in United States Trustees fees that are charged to Chapter 11 debtors. The decision overruled a decision by the bankruptcy court, which held that the fee increase resulted in the application of non-uniform laws to debtors in different jurisdictions because debtors in the six jurisdictions not covered by the United States Trustee program were not required to pay such fees. [5th Cir.; Nov. 3, 2020]

In the November 2020 statement issued by its Federal Open Market Committee, the Federal Reserve committed to use the full range of tools available to it to alleviate the economic hardship caused by the COVID-19 pandemic. To that end, the Federal Reserve indicated that it intends to keep the target range for the federal reserve rate between 0 and 0.25% to help achieve maximum employment in the labor market. [Federal Reserve; Nov. 5, 2020]

The Wall Street Journal reports that Furniture Factory Outlet LLC,  a private-equity owned retailer of discounted home furnishings, filed for Chapter 11 bankruptcy relief in the United States Bankruptcy Court for the District of Delaware on November 5, 2020. The retailer and certain affiliates will reportedly sell substantially all of their assets to competitor American Freight. [WSJ; Nov. 5, 2020]

CNN Business reports that CBL Properties and Pennsylvania Real Estate Investment Trust, two major U.S. REIT mall owners, each filed for chapter 11 bankruptcy protection on Sunday, November 1, 2020.  Some of their respective largest tenants include JC Penney, Tailored Brands, and Ascena Retail Group, all of which also filed for bankruptcy earlier this year. [CNN; Nov. 2, 2020]

Analysis by Bloomberg applying the Z-score method to commercial information available on various airlines addressed which airlines that have not yet restructured following the COVID-19 pandemic were likely to need to restructure as pandemic-related restrictions continue to impact air travel.  Bloomberg found that air carriers in Africa, Latin America, and Asia were the most likely to restructure in the near term. [Bloomberg; Nov. 1, 2020]