In an earlier blog piece we reported on the Third Circuit’s 2015 decision in In re Jevic Holding Corp. where the Court approved a settlement, implemented through a structured dismissal, which allowed junior creditors to receive a distribution prior to senior creditors being paid in full.  The decision was appealed and the Supreme Court agreed to hear the case and decide whether structured dismissals are permissible in bankruptcy.  More to come…

By LEN WEISER-VARON and BILL KANNEL

Today’s U.S. Supreme Court decision in Commonwealth of Puerto Rico v. Franklin California Tax-Free Trust puts an end to one of Puerto Rico’s multi-pronged efforts to deleverage itself.  Given the comprehensiveness of the First Circuit’s intermediate appellate opinion upholding the district court’s invalidation of Puerto Rico’s Recovery Act, it was surprising that the highest court took the case, a decision apparently prompted by Justice Sotomayor’s interest in obtaining a reversal.  Comments of some other Justices at oral arguments raised the possibility of Sotomayor attracting a majority for the proposition that the preemption provisions of Section 903 of the U.S. Bankruptcy Code were inapplicable to Puerto Rico, but in the end only Justice Ginsburg joined what turned out to be Sotomayor’s dissenting opinion in a 5-2 ruling upholding the relegation of the Recovery Act to the dustbins of history.

As  we have written previously, the Recovery Act was damaged goods from the beginning: even if the fairly clear preemption argument had not prevailed, the Contracts Clause constraints on non-federal bankruptcy legislation would have severely constrained, if not eliminated, the effective use of  the Recovery Act to break bond contracts. In any event, the Recovery Act, and the Supreme Court’s decision, were  a couple weeks away from being moot, as it appears evident that Congress will pass PROMESA, the federal oversight and debt restructuring legislation that has always constituted the logical legal mechanism for those favoring a less chaotic denouement to Puerto Rico’s debt woes.

BY STEPHEN M. WEINER

Price disparities among hospitals pose one of the more intractable issues for policy makers, regulators and the government. That they exist is indisputable. Why they exist is a source of much contention.  And the issue creates great disunity within the hospital world, causing fissures especially between academic medical centers and community hospitals.

Continue Reading Tackling the Dragon of Hospital Price Disparity: Massachusetts’s On-Going Efforts to Address Price Equity

Shareholders who received nearly $8 billion from the Tribune Company leveraged buyout (LBO) do not have to give back that money as a constructive fraudulent transfer. Although the possibility remains that the creditors can recover this money through the pending intentional fraudulent transfer claims, which are much more difficult to prove, the Second Circuit recently held that the Bankruptcy Code preempts creditors from recovering under state constructive fraud theories when shareholders receive distributions under securities contracts effectuated through financial institutions.

Continue Reading TRANQUIL WATERS ONCE AGAIN IN THE SAFE HARBOR: Bankruptcy Safe Harbor Protects Shareholders From State Constructive Fraud Claims

A recent bankruptcy court decision from the influential Southern District of New York permitted a debtor to reject executory contracts with midstream gathers as an exercise of sound business judgment. In In re Sabine Oil & Gas Corporation, the court issued an advisory ruling in which it determined that certain provisions of the rejected contracts were not covenants that ran with the land, and thus could be rejected thereby relieving the debtor of a financial hardship.

Continue Reading Oil, Gas and Mineral Companies Take Note: Agreements Purporting to “Run with the Land” may be Rejected in Bankruptcy

By LEN WEISER-VARON and BILL KANNEL

A few thoughts on Tuesday’s oral arguments before the U.S. Supreme Court in the litigation over whether Puerto Rico’s Public Corporations Debt Enforcement and Recovery Act, an insolvency statute for certain of its government instrumentalities, is void, as the lower federal courts held, under Section 903 of the U.S. Bankruptcy Code:

Continue Reading You Can Lead a Horse to Water, But You Can’t Call it an Airplane: Supreme Court Oral Arguments Suggest Puerto Rico’s Recovery Act May Recover

While secured creditors are entitled to special rights in bankruptcy, those rights may differ depending on whether creditors have a statutory or consensual lien on their collateral.  This is primarily because section 552(a) of the Bankruptcy Code provides, in part, that “property acquired by the estate or by the debtor after the commencement of the case is not subject to any lien resulting from any security agreement . . . .”  In other words, consistent with the concept that a debtor receive a ‘fresh start’ following a bankruptcy discharge, section 552(a)* strips certain secured creditors of liens in the post-petition property received by a debtor.  However, section 552(a) does not apply if a creditor is secured by a statutory lien; a statutory lien ‘flops over’ the petition date and attaches to post-petition receipts of a debtor.

Continue Reading Statutory Liens vs. Consensual Liens: Why it Matters and When it may Not

In the Ultimate Escapes bankruptcy case, the U.S. District Court for the District of Delaware recently held that the “business judgment rule” may protect fiduciaries who negotiate and enter into unconventional financing agreements in an attempt to save the company. In short, a failed business strategy by itself does not lead to liability for breach of fiduciary duty.

Before the Great Recession, Ultimate Escapes was a luxury destination club providing members with access to high-end vacations. Membership involved a high one-time initiation fee and annual membership dues.

Prior to the bankruptcy, James Tousignant served as President, CEO, and a member of the Board. Richard Keith served as Chairman of the Board. Ultimate Escapes owed its senior lender approximately $90 million secured by all assets of the company. Tousignant and Keith had personally guaranteed the loan.

Continue Reading DIRECTORS AND OFFICERS’ ULTIMATE ESCAPE FROM PERSONAL LIABILITY

By LEN WEISER-VARON and BILL KANNEL

A draft of the U.S. Treasury’s proposed debt restructuring legislation began circulating earlier today.  The draft legislation would give Puerto Rico, as well as other U.S. territories, and their municipalities access to U.S. bankruptcy court under a new chapter of the U.S. Bankruptcy Code (so-called “Super Chapter 9”) as well as making Puerto Rico’s instrumentalities (but not Puerto Rico itself) potentially eligible to file for bankruptcy under existing Chapter 9. The prospects for bipartisan cooperation on some form of such legislation appear somewhat more promising than those for the confirmation of a new Supreme Court justice, but whether this trial balloon will fly remains uncertain.

Some initial observations:

Continue Reading Draft Treasury Legislation Would Give Puerto Rico Access to “Super Chapter 9” and Chapter 9 Bankruptcy

Mintz Levin was recently honored at the 10th Annual M&A Advisor Awards dinner with the Restructuring Community Impact Award in connection with the Acquisition of Assets of Alsip Acquisition, LLC by Paper Mill Acquisition LLC.  Mintz Levin’s Richard Mikels, Kevin Walsh, Charles Azano and Eric Blythe served as debtor counsel during the transaction.

Continue Reading Mintz Levin Receives M&A Advisor’s Restructuring Community Impact Award