Since the start of the financial crisis, the number of problem loans has increased as real estate values declined, credit markets tightened, and various companies struggled to survive and stay in business during this recession. For lenders who made loans secured by real estate or personal property collateral during better economic conditions, these lenders are now being faced with loan defaults and having to decide whether to workout the loan (e.g., by giving an extension of maturity date, or restructuring the interest rate or other loan terms, or waiving certain defaults) or to exercise its rights and remedies (e.g., by foreclosure, appointment of a receiver, action against the guarantor, etc.). The following identifies ten best practices and issues for consideration by lenders when dealing with a problem loan.…

Continue Reading Top 10 Best Practices For Lenders On Problem Loans

With bankruptcy filings up by more than 25% in the recent past, and with the promise of many more to come in the near future, an increasing number of businesses and individuals may find themselves listed amongst the largest unsecured creditors of a debtor and with much to lose in a bankruptcy case. As one of the largest creditors, these same businesses and individuals may also find themselves being solicited to serve on “official” unsecured creditors’ committees. While a creditor who is already owed significant amounts of money by a debtor may consider any further time or effort expended in connection with a debtor to be a waste of resources, serving on a creditors’ committee can often be a valuable opportunity to be involved in the direction a debtor’s case and reorganization (or ultimate liquidation) will take and to ensure the maximum recovery for all unsecured creditors, including itself. This article provides a brief overview of what a committee is, who may serve on a committee, what service entails, and some of the pros, cons and other considerations of and for serving on a creditors committee.…

Continue Reading Considerations for Service on an Unsecured Creditor’s Committee

Most maritime shipping companies were operating profitably through the summer of 2008 until the "perfect storm" of the credit crisis and the worldwide recession struck, leading to the collapse of both the commodity and freight markets.  The resulting upheaval has affected trade credits, shipbuilding deliveries, orders, chartering, and sales-and-purchases, among other things, for shipping companies worldwide.  Reports of bankruptcy, insolvency, liquidation and complex debt restructurings of shipping and other maritime industry companies have begun surfacing in the trade press, with more to come.

As a result of the turmoil in the shipping industry, actions seeking attachments under Supplemental Admiralty Rule B of the Federal Rules of Civil Procedure have risen dramatically, further exacerbating the problems facing cash-strapped shipping companies.  As the recent U.S. bankruptcy filings of Armada (Singapore) Pte. Ltd. and Atlas Shipping A/S demonstrate, Chapter 15 bankruptcy proceedings under the U.S. Bankruptcy Code may provide struggling shipping companies with a powerful tool for protecting their assets from Rule B Attachments.…

Continue Reading Shipping Industry Problems

A common strategy for acquiring the business of a troubled company is to purchase assets rather than acquire all outstanding capital stock of the target, based on the general principle that a purchaser of assets is not responsible for liabilities of its seller absent an express or implied assumption.  Does the strategy work?  Depending on the liability and circumstances, the answers are "No" and "Maybe," and sometimes a qualified "Yes."  In troubled economic times, buyers may reconsider whether they are willing to rely upon indemnity by the seller or its owners, particularly since doctrines of public policy may render such an indemnity unenforceable in certain situations.…

Continue Reading Dealing With Troubled Companies – Does Purchasing Assets Avoid Seller Liabilities?

Bankruptcy filings are skyrocketing as more and more companies are going deep into the red.  For retailers or their landlords holding leases in commercial property, there are special considerations to keep in mind.  This post will provide some basic information on the rights of non-debtor tenants and landlords under unexpired non-residential property leases when a debtor–landlord or –tenant, respectively, files a chapter 11 bankruptcy petition.…

Continue Reading When Red is the Color of the Season: Commercial Property Leases and Bankruptcy

On June 7, 2006, Senator Arlen Specter, the chairman of the Senate Judiciary Committee, and co-sponsor Senator Patrick Leahy, convened a Senate Judiciary Committee hearing to consider proposed amendments to the Fairness in Asbestos Injury Resolution Act of 2006 (or the FAIR Act of 2006, S. 3274), the controversial asbestos reform legislation originally introduced on May 26, 2006. In November of 2005, the bill had fallen one vote shy of the 60 votes needed to waive objections that the FAIR Act would violate Senate budget rules. Notwithstanding the proposed amendments, the bill continues to face significant opposition from numerous parties, including small and medium-sized companies that have used insurance to pay asbestos judgments and assert that they would face financial hardship if forced to make annual contributions to the fund based on their past liability. The general consensus of a number of experts is that the bill will not pass Congress this year, and instead, a medical criteria bill may be the focus of Congress next year.…

Continue Reading Asbestos Reform: The Senate Judiciary Committee Considers Proposed Amendments to the FAIR Act

When a company files for bankruptcy protection, its vendors risk not getting paid for outstanding invoices, and getting sued by the estate for return of payments received shortly before the petition date. Vendors may also have concerns about continuing to do business with the debtor. In order to address some of these issues, a vendor may be able to persuade the debtor to seek a court order providing that it is “critical” to the debtor’s ongoing operations. Such a “critical vendor order” protects the vendor by allowing the debtor to pay most or even all of its outstanding invoices, as well as providing some assurance of payment for ongoing sales. What these orders very often do not provide is protection from so-called “preference” claims for recovery of amounts paid to the vendor during the 90 days prior to bankruptcy.
Continue Reading Critical Vendor Orders: Boon or Bane in Preference Cases?

Traditionally, serving on a committee has ensured that committee members’ interests were represented and provided members with access to confidential information that would otherwise be inaccessible. Several new provisions under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005?which will increase flexibility in the composition of committees and significantly expand the duties that a committee and its members owe to non-committee members?raise the issue of whether it will even be necessary to serve on a committee after October 17, 2005. But creditors may not want to shun committee membership quite yet.
Continue Reading The 2005 Amendments Will Have Significant Ramifications For Creditor And Equity Committees And Their Members