In a decision that will have profound implications for insolvency professionals of all types, the U.S. Supreme Court has agreed to hear an appeal of the 5th U.S. Circuit Court of Appeals’ decision that Section 330 of the U.S. Bankruptcy Code does not allow applicants to seek compensation in connection with successful defenses to objections to fee applications. Continue reading
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Should Attorneys Be Paid for Litigating Their Fee Requests? Supreme Court to Decide if Fee Defense Is a ‘Cost of Doing Business’
California Bankruptcy Judge Rules that State Law Does Not Protect Pension Fund from Municipal Bankruptcies
On October 1, a bankruptcy judge ruled that the pension agreement between Stockton, California and Calpers, California’s massive state-run pension fund for public employees, is an executory contract that can be rejected in bankruptcy. Judge Christopher Klein of the Eastern District of California found that California laws designed to protect Calpers from municipal bankruptcies could not be enforced once a city entered bankruptcy. Continue reading
When Are Goods “Received” by the Debtor? Establishing International Suppliers’ Entitlement to 503(b)(9) Administrative Expense Claim
Section 503(b)(9) of the Bankruptcy Code provides creditors with an administrative expense priority claim for value of goods that were received by the debtor in the ordinary course within the 20 days prior to the bankruptcy filing Because section 503(b)(9) affords administrative priority status to an otherwise unsecured prepetition claim, it is strictly construed by courts. Nowhere was this more apparent than in the bankruptcy court’s recent decision in In re World Imports, Ltd.,
In World Imports, the court denied the 503(b)(9) claims of two Chinese companies, notwithstanding the fact that the debtor admitted to having taken physical possession of the goods within the 20-day pre-bankruptcy filing period, because the Chinese vendors had loaded their goods onto ships for delivery to the debtor outside of the 20-day period. The court concluded that the key factor in determining whether an international shipment of goods is entitled to 503(b)(9) claim status is the date on which title passed from the vendor to the debtor, not the date on which the debtor took physical possession of the shipment.
The court first noted that it was obliged to look to non-bankruptcy law to determine when the goods were “received” by the debtor because the Bankruptcy Code does not define that term in section 503(b)(9). The court then determined that the standard trade definitions used in international sales contracts under the United Nations Convention on Contracts for the International Sale of Goods (the “CISG”) (which the court determined was applicable in lieu of the Uniform Commercial Code by operation of the US Constitution’s supremacy clause and the failure of the parties to opt out of the CISG in their contract) controlled when the subject goods were received. Under the CISG, goods shipped “FOB from port of origin” (like the goods in this case) are delivered by the seller (and “perforce constructively received” by the buyer) when the seller places the goods on the ship and the “risk of loss or damage passes to the buyer.” Because the goods were placed by the Chinese vendors on the ship prior to the 20-day period, they were not eligible for 503(b)(9) treatment.
The holding in World Imports, which is currently under appeal, applies in only limited circumstances. Purely domestic transactions are governed by the UCC (which defines “receipt” as the taking of physical possession). Moreover, international suppliers can circumvent the result in World Imports by specifically writing into their purchase and sale agreements that the UCC, and not the CISG, applies with respect to the definition of “receipt” in connection with the sale and shipment of goods. It is important to note that, in order to opt out of the CISG, it is not enough to simply reference the applicable state law. Parties must explicitly state that the CISG does not apply.
Of course, suppliers with the requisite bargaining power can avoid the bankruptcy claims process altogether and be insulated from the risk of a clawback of any payments made by a debtor on the eve of bankruptcy by demanding payment in advance for all goods shipped or by requiring the purchaser to obtain a letter of credit from its bank against which the supplier can draw down at the same time it delivers the goods “FOB from point of origin.”
In a recent decision from the Delaware bankruptcy court, Judge Christopher S. Sontchi joined the debate over the interpretation of section 547(c)(4)(B) of the Bankruptcy Code, which sets forth the new value defense to a preference claim. Continue reading
Last year, the 112-year old retailer J.C. Penney was regularly in the news – and it was rarely good. The stock was in a free-fall, in the process of dropping from about $20 per share in May 2013 to a low of a little more than $6 dollars per share in late October. Media reports were grim, focusing on the attempt and failure of the former Apple executive Ron Johnson to turn the business around. But now, as we approach the critical holiday season, J.C. Penney’s stock has quietly reached more than $11 per share, with a market capitalization of $3.4 billion on $12.16 billion in revenue for the trailing twelve-month period. While a far cry from J.C. Penney’s all-time high of more than $80 per share in March 2007, the company at least seams to have bought itself some time. Continue reading
In connection with a contentious restructuring, Judge Drain of the Bankruptcy Court for the Southern District of New York, ruled recently that certain lenders to Momentive Performance Materials Inc. (Case No. 14-22503) had no enforceable claim to a so-called “make-whole” premium. Continue reading
Fourth Circuit Issues Reminder to Plan Proponents: Evidentiary Support is Required for Non-Debtor Releases
For some time, there has been a split among the circuit courts as to whether the Bankruptcy Code permits non-consensual releases of non-debtor entities under a plan of reorganization. Continue reading
As we noted last month, the U.S. Supreme Court’s unanimous decision in Executive Benefits Insurance Agency v. Arkison, Case No. 12-1200, 573 U.S. ___ (2014), affirmed the constitutional authority of bankruptcy courts to issue proposed findings of fact and conclusions of law to federal district courts in connection with “Stern claims”. The Executive Benefits Court stopped short of deciding whether litigants could consent to a bankruptcy court entering final judgment on Stern claims. Continue reading
American Apparel has been on the watch-list for those who follow distressed retailers for quite a while. The company, known for its provocative advertising and American-made apparel, has approximately 249 retail stores in the U.S. and 19 other countries. Continue reading