Bankruptcy Law Insights

Commentary & Analysis on Current Events & Issues in Large & Mid-Market Chapter 11 Cases

The impact of COVID-19 is being felt at all levels of the economy and will work its way through bankruptcy courts for years to come.  In these early days, many creditors who are themselves suffering are providing assistance to troubled companies.  Suppliers and commercial landlords are agreeing to various forms of relief, including modified credit terms and rent relief to allow customers to bridge this period of unprecedented disruption.  While these corporate good Samaritans are…
The economic fallout from the COVID-19 pandemic will leave in its wake a significant increase in commercial chapter 11 filings. Many of these cases will feature extensive litigation involving breach of contract claims, business interruption insurance disputes, and common law causes of action based on novel interpretations of long-standing legal doctrines such as force majeure. These issues could be particularly problematic to resolve because of questions stemming from recent Supreme Court decisions regarding the constitutional
Last week, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law, implementing broad relief for individuals and businesses affected by COVID-19.  One of the sections of the CARES Act receiving less attention is a temporary amendment to the Bankruptcy Code to provide streamlined reorganization procedures for businesses with debt of less than $7.5 million.  In February 2020, President Trump signed into law the Small Business Reorganization Act (SBRA) designed to decrease…
As the nation hunkers down to combat the novel coronavirus (COVID-19), bankruptcy courts throughout the country have moved quickly to implement procedures to preserve access to the courts while limiting in-person interaction during the crisis.  Each court’s specific COVID-19 procedures are different, but they largely prohibit in-person hearings, recognize the need for flexibility and adjournments for non-emergent matters whenever possible, and encourage the creative use of technology to allow as many matters to go forward…
Social distancing.  Elbow bumps.  Flatten the curve.  These are the new phrases and behaviors we have learned to avoid exposure to the novel coronavirus (COVID-19).  This epic struggle forces us to reexamine and reevaluate our daily habits, lifestyles and customs as we work collectively to minimize the harm to our families, friends and neighbors throughout the United States.  While some of the lifestyle changes and limitations will be temporary, the human and economic effects of…
U.S. Bankruptcy Judge Dennis Montali recently ruled in the Chapter 11 case of Pacific Gas & Electric (“PG&E”) that the Federal Energy Regulatory Commission (“FERC”) has no jurisdiction to interfere with the ability of a bankrupt power utility company to reject power purchase agreements (“PPAs”). Although this question has divided courts which have considered it, Judge Montali made clear that he would not allow FERC to limit either PG&E’s rights under the U.S. Bankruptcy Code,…
If it sounds too good to be true, it probably is. But does that age-old maxim apply to a bankrupt customer offering to pay you 100% of your unsecured claim through a “prepackaged” bankruptcy or under a critical vendor program? The answer can be complicated. Partner Eric Wilson and senior associate Maeghan McLoughlin were featured in the Credit Research Foundation’s CFR News with their article which explores what it means to be “unimpaired” and paid…
The Supreme Court this week resolved a long-standing open issue regarding the treatment of trademark license rights in bankruptcy proceedings. The Court ruled in favor of Mission Products, a licensee under a trademark license agreement that had been rejected in the chapter 11 case of Tempnology, the debtor-licensor, determining that the rejection constituted a breach of the agreement but did not rescind it.  The decision means that a holder of rights under a trademark license…
Few issues in bankruptcy create as much contention as disputes regarding the right of setoff. This was recently highlighted by a decision in the chapter 11 case of Orexigen Therapeutics in the District of Delaware.  Judge Kevin Gross denied a motion to allow a “triangular” setoff, whereby a corporate parent sought to have an obligation that it owed to the debtor applied against a claim owed by the debtor to the parent’s subsidiary. (Kelley Drye…
The judicial power of the United States is vested in courts created under Article III of the Constitution. However, Congress created the current bankruptcy court system over 40 years ago pursuant to Article I of the Constitution rather than under Article III.  The Supreme Court has long held that Article I courts are limited to territorial courts, military tribunals, and courts created to hear cases involving “public rights” (e.g., cases involving claims of citizens against…