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Court May Grant Creditors' Committee Derivative Standing To
Assert Avoidance Actions
Rejecting the view of the prior Cybergenics panel opinion, a majority of
the Third Circuit, sitting en banc, held that the Bankruptcy Court has
the power to authorize a creditors' committee to assert avoidance
actions on behalf of the estate. Official Committee of Unsecured
Creditors v. Chinery (In re Cybergenics Corp.), No. 01-3805 (3d Cir.)
(5/29/03) (Becker, J.). Although the four dissenting judges contended
that such derivative standing was foreclosed by the Supreme Court's
decision in Hartford Underwriters Ins. Co. v. Union Planters Bank, 530
US 1, 120 S.Ct. 1942 (2000), the majority interpreted Hartford as
limited to the question of whether the language in the relevant avoiding
provision -- 'the trustee may' -- grants a non-trustee a unilateral
right to assert an avoiding action. According to the majority, that
language does not preclude a bankruptcy court from using its 'equitable
power to craft a remedy when the Code's envisioned scheme [of having the
debtor-in-possession pursue avoidance actions] breaks down.' In reaching
its conclusion, the majority relies upon the 'most natural reading' of
Code Sections 503(b)(3)(B), 1103(c)(5) and 1109(b) to demonstrate that
Congress recognized and approved of derivative standing. The opinion
also relies on the 'compelling' pre-Code practice of allowing courts to
confer derivative standing and policy arguments for allowing the
creditors' committee to bring avoidance actions. This opinion resolves
an apparent conflict with the Second and Seventh Circuits, both of which
had issued post-Hartford opinions recognizing derivative standing. See
Term Loan Holder Committee v. Ozer Group, L.L.C. (In re Caldor Corp.),
303 F.3d 161 (2d Cir. 2002); Fogel v. Zell, 221 F.2d 955 (7th Cir.
2000).
Consumers Push U.S. Growth; Jobs Scarce
Stronger consumer spending helped push U.S. growth ahead at a modestly
faster rate than previously thought in the first quarter, but jobs
remain scarce, government reports on Thursday showed, Reuters reported.
The Commerce Department said gross domestic product, the broadest
measure of economic output within U.S. borders, grew at a revised 1.9
percent annual rate in the January-March quarter, better than the 1.6
percent estimated a month ago. That exceeded a slim 1.4 percent rate of
growth posted in the fourth quarter of 2002, but remains well under the
pace of the roughly 3 percent that economists consider necessary to
generate enough jobs to lower the current 6 percent unemployment rate. A
separate report from the Labor Department said even though new claims
for jobless pay fell last week, the number of people continuing to draw
benefits rose to the highest level in about 18 months, reported the
newswire.
NAM Sees Positive Economic Forecast For Later This Year
A National Association of Manufacturers (NAM) forecast released
yesterday said the economy is poised to emerge from the doldrums,
growing during this year's second half at a 3.9 percent rate, fueled in
part by a return to vigor in the manufacturing sector,
CongressDaily reported. While careful to note that the current
economic picture is mixed and that manufacturing 'remains stalled,' NAM
President Jerry Jasinowski told reporters during a briefing that his
members are beginning to increase their orders. An informal NAM survey
of its members this week found that 40 percent increased orders in May,
while only 24 percent reported falling orders. This contrasted with
April when 56 percent of members reported declining orders. For June, 43
percent expect orders to increase, while 12 percent are expecting a
decline. In the fourth quarter, according to the organization's economic
forecast, manufacturing will increase by 5 percent, helping foster a
decline in the unemployment rate from the current 6 percent to 5.9
percent, reported the newswire.
Surprise Jumps in Credit Rates Bring Scrutiny
A provision now built into most card agreements allows the companies to
reset their customers' interest rate based on the size and status of
other debts, the New York Times reported. And improvements in
information technology and a change in federal law have spurred card
companies in the last couple of years to check their customers' data
regularly, not only when they review applications or notice missed
payments. Concerned that consumers have not been adequately informed
about the practice and that the sharp jumps in rates may be
unreasonable, some federal and state legislators are proposing limits.
'Such practices increase the cycle of indebtedness, poison customer
relations and spur bankruptcies that hurt borrowers and creditors,' said
Rep. Carolyn B. Maloney (D-N.Y.), reported the Times.
Congress needs to decide by the end of the year whether to reaffirm a
crucial section of the federal law governing the use of personal credit
reports by lenders. Some lawmakers would like to give states more power
to restrict rate changes, and others want to limit how companies can use
a person's credit information. Hearings began this month and are to
continue this summer. To read the full article, point your browser to
href='http://www.nytimes.com/2003/05/29/business/29CRED.html'>http://www.nytimes.com/2003/05/29/business/29CRED.html
Asbestos Bill May Spur New M&A Activity
An asbestos bill now before U.S. Congress could open the door to a
string of new deals among companies once under a cloud of litigation
uncertainty, Wall Street deal makers said, Reuters reported. The bill,
introduced last week by Sen. Orrin Hatch (R-Utah), aims to set up a $108
billion fund to compensate victims of exposure asbestos, which was
widely used for fireproofing and insulation until the 1970s when
scientists concluded that inhaled fibers could be linked to cancer and
other diseases. If approved, the bill would help companies involved in
asbestos litigation to identify with a greater degree of accuracy the
extent of liabilities they face from claimants. It would also arm them
with enough guidance to craft a mutually acceptable payment pattern. 'If
the legislation passes, then there is no question that the certainty
that comes with it will create a completely new set of circumstances
where companies with asbestos liabilities will be in play,' said Mark
Goodman of Debevoise & Plimpton (New York), Reuters reported. While
some bankers and lawyers remain cautious about the ultimate outcome, the
response of the stock market to the asbestos bill has so far been of
positive anticipation, according to the newswire.
WORLDCOM
WorldCom Bankruptcy Judge Denies Request for MCI Creditor
Panel
The federal judge overseeing WorldCom Inc.'s bankruptcy, the largest
chapter 11 case in history, refused to appoint a panel to represent
creditors of the company's MCI
Communications Corp. long-distance telephone unit, Bloomberg News
reported. HSBC Bank USA Inc., trustee for MCI bondholders owed more than
$700 million, last month asked U.S. Bankruptcy Judge Arthur J. Gonzalez
in Manhattan to appoint a panel to represent creditors of the
long-distance unit. Gonzalez denied HSBC's request and his ruling will
be posted on the bankruptcy court's web site today, said Jackie
DePierola, the judge's deputy. Gonzalez's decision comes as WorldCom is
trying to advance its plan to wipe out most of more than $41 billion in
debts and come out of bankruptcy in October. A hearing on approval of
the plan is scheduled for Aug. 25, reported the newswire.
WorldCom, Allegiance Telecom Get Court Approval Of
Settlement
A bankruptcy court approved an agreement between WorldCom Inc. and
Allegiance Telecom Inc. to settle their existing claims and to allow
them to continue their business relationship, according to court papers.
Judge Arthur J. Gonzalez of the U.S. Bankruptcy Court in Manhattan
signed an order Wednesday approving the settlement. The Manhattan court
is overseeing the chapter 11 cases of both WorldCom and Allegiance
Telecom. WorldCom recently changed its brand name to MCI, but the
company continues to file documents in bankruptcy court and with the
Securities and Exchange Commission as WorldCom Inc.
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href='http://www.djnewsletters.com/dbr2.html'>www.djnewsletters.com/dbr2.html)
Copyright (c) 2003 Dow Jones & Company, Inc. All Rights Reserved
Federal Judge in N.Y. Named Mediator for Enron Litigants
Southern District of New York Senior Judge Kevin T. Duffy was named
mediator in an unusual joint order issued on Wednesday by Southern
District Bankruptcy Judge Arthur J. Gonzalez, who has been overseeing
Enron's chapter 11 bankruptcy, and Judge Melinda Harmon of the U.S.
District Court for the Southern District of Texas, who has been hearing
the shareholder litigation, the New York Law Journal reported.
Manhattan criminal defense lawyer Gerald B. Lefcourt, who has appeared
before Duffy several times, said the judge is an excellent choice for
the mediation role. 'Judge Duffy is a no-nonsense, direct-to-the-point
judge who is not interested in a lot of lawyering,' said Lefcourt. 'He's
very shrewd and has the ability to take a complicated structure and
break it down to its essence,' reported the Law Journal. To read
the full story, point your browser to
http://www.law.com/jsp/article.jsp?id=1052440811081.
AIR CANADA
Air Canada Monitor Says Deficit 'Jeopardizes'
Reorganization
Air Canada's rising operating deficit 'jeopardizes the prospects of a
successful restructuring,'' the court-appointed monitor in the airline's
bankruptcy said, Bloomberg News reported. Ernst & Young Inc. said in
a court filing that without labor and other concessions the
Montreal-based company would have C$188 million ($136.5 million) in cash
by Aug. 22, well 'below the minimum cash the company advises it requires
to operate.'' The forecast was contained in a report by the accounting
firm posted on the web site of the law firm Stikeman & Elliott.
Air Canada Asks for Extension on Union Talks
A lawyer for insolvent Air Canada asked a bankruptcy court on Thursday
for more time to hammer out a cost-cutting deal with its mainline pilots
union, the only one of the airline's unions that has not yet agreed to
such a package, Reuters reported. Ontario Superior Court Justice James
Farley did not make an immediate decision on extending the deadline. The
court had initially imposed a Tuesday deadline for Air Canada to reach a
deal on cost cuts with all of its unions. 'Absent of 100 percent of all
the unions, the process cannot move forward,' Air Canada lawyer Sean
Dunphy told the court, adding that the company was burning through about
C$5 million ($3.6 million) a day while it tries to restructure C$13
billion of debt. Air Canada has reached agreements with eight of its
nine domestic unions, with the deals totaling C$609 million of its C$770
million target for labor-cost reductions. The company wants to lay off
10,000 of its 40,000 employees and transfer more flights to its
lower-cost regional affiliate, reported the newswire.
Separately, Bloomberg News reported that the airline wants to fire
one-fourth of
its 3,300 pilots, the only union group that hasn't agreed to concessions
aimed at getting the carrier out of bankruptcy, an attorney for the Air
Canada Pilots Association union said.
3DO Files for Bankruptcy Protection; Shares Fall 68
Percent
Shares of 3DO Co. fell as much as 68 percent yesterday after it filed
for bankruptcy
protection and said it's seeking a buyer for its business, Bloomberg
News reported. The shares of Redwood City, Calif.-based 3DO fell 83
cents, or 62 percent, to 50 cents as of 10:57 a.m. New York time in
Nasdaq Stock Market trading. Shares of 3DO have fallen 91 percent in the
past year. The company had a net loss of $7.69 million for its fiscal
third quarter ended Dec. 31. 3DO makes entertainment software for
personal computers and systems, including Nintendo Co.'s GameCube and
Sony Corp.'s PlayStation 2. 3DO said earlier this month that it would
fire many of its workers on July 1, reported the newswire.
Charles E. 'Sketch' Rendlen III Appointed U.S. Trustee for Missouri,
Nebraska, Arkansas
Charles E. 'Sketch' Rendlen III has been appointed U.S. Trustee for
Missouri, Nebraska, and Arkansas (Region 13), Lawrence Friedman,
Director of the Executive Office for U.S. Trustees announced in a press
release yesterday. Immediately before his appointment Rendlen was
managing partner of the Rendlen Law Firm PC of Hannibal, Mo., a general
practice law firm founded in 1901, handling cases in bankruptcy, real
estate, alternative dispute resolution and other areas. He has
represented trustees, debtors, and creditors in bankruptcy cases ranging
from chapter 7 liquidations to major chapter 11 reorganizations. Rendlen
received his law degree in 1976 from the University of Missouri in
Columbia, Mo., where he also did graduate work in Economics and
Accounting. He received a Bachelor of Science degree magna cum laude in
1972 from William Jewell College in Liberty, Mo.
US AIRWAYS
US Airways Expects to Get Alliance Nod on Saturday
US Airways Group expects to win an invitation this weekend to join a
global alliance led by United, a US Airways spokesman said on Thursday,
Reuters reported. US Airways, which emerged from bankruptcy at the end
of March, formed a broad marketing partnership with No. 2 U.S. carrier
United late last year. It agreed to a similar tie-up with German airline
Lufthansa on May 15. A vote on Saturday by chief executives of airlines
in the Star Alliance, led by United and Lufthansa, could seal US
Airways' bid for inclusion in the partnership. 'The leadership of Star
is meeting in Washington tomorrow and on Saturday, and we're expecting
to be invited to join Star on Saturday,' US Airways spokesman David
Castelveter said. US Airways' President and Chief Executive David Siegel
has said inclusion in the Star Alliance, along with its agreement with
Lufthansa, could boost US Airways' annual revenue by about $75 million
once the alliances are fully rolled out, reported the newswire.
US Airways to Sell Food on Most U.S. Flights Starting in
July
US Airways Group Inc. in July will become the first major U.S. carrier
to sell food on most of its U.S. flights, as airlines test such sales
after cutting back on free meals to reduce costs, Bloomberg News
reported. The airline, which began testing food sales in March, said in
a statement that it will offer coach passengers a $7 breakfast including
a muffin, fruit salad and yogurt, and $10 salad or sandwich entrees. The
sales will be on most flights of at least 700 miles. First-class
passengers will still get free meals. Rivals such as Northwest Airlines
Corp., America West Airlines and UAL Corp.'s United Airlines also have
experimented with food sales on some flights. The carriers want to cut
costs and boost revenue amid an air-travel slump that has lasted more
than two years, reported the newswire.
Troll Files for Chapter 11 But Vows to Keep Fighting
Less than a year after it came under new ownership and management, Troll
Communications has filed for chapter 11 bankruptcy protection, Reed
Business Information reported. The filing set in motion a series of
events that could lead to the sale of a large amount of its assets.
Troll once had $130 million in revenue and was considered the
second-largest school book-club operator in the country. But when the
Mahwah, N.J.-based firm filed for bankruptcy, it marked a new low point
in what had already been a tumultuous six years, reported the news site.
According to court papers, the company is looking to sell a substantial
portion of its assets and repay unsecured creditors, the biggest of
which, printer Quebecor, is owed more than $3 million. About $4 million
in club assets may already be on its way to Scholastic, which has put in
a bid. More assets may be unloaded soon. It's still possible the company
could reorganize itself while under chapter 11, though insiders
acknowledged it was not likely, reported the newswire.
Court Approves Peregrine Reorganization Plan
San Diego-based Peregrine Systems Inc. said on Thursday that a Delaware
judge approved its disclosure statement, which paves the way for the
bankrupt software company to submit its reorganization plan to
creditors, Reuters reported. The company filed for chapter 11 bankruptcy
protection last September. Since then, its former chief financial
officer has pleaded guilty to securities fraud. Peregrine, whose
software helps companies monitor costs and track inventory, said that in
two weeks the bankruptcy court would hear evidence to determine the
company's enterprise value and that a confirmation hearing for the
reorganization plan is scheduled for July 8 and 9, the newswire
reported.
NRG Bankruptcy Judge Asked by U.S. Regulatory to Delay
Ruling
The U.S. Federal Energy Regulatory Commission (FERC) has asked the judge
in NRG Energy's bankruptcy filing to delay any ruling on a disputed
electricity contract with Northeast Utilities to give the regulator time
to decide the matter, Bloomberg News reported. NRG Energy and Northeast
Utilities' Connecticut Light & Power Co. unit are disputing 'matters
that are at the heart of FERC's regulatory responsibilities'' because
they affect rates for customers, commission attorney Dennis Lane said in
a letter to U.S. Bankruptcy Court Judge Prudence Beatty. Lane
asked Beatty to await a commission decision before making rulings in the
bankruptcy case that may affect the electricity contract. A hearing is
scheduled for today in the U.S. Bankruptcy Court in Manhattan, reported
the newswire.
Princeton Video Seeks Bankruptcy; Will Sell Assets
Princeton Video Image Inc. filed for chapter 11 protection and agreed to
sell its
assets to an entity owned by creditors and stockholders, Bloomberg News
reported. Princeton Video will sell its assets to the PVI Virtual Media
Services LLC, owned by Princeton Video's secured creditors Cablevision
Systems Corp. and Presencia en Medios SA, Princeton video said in a
statement distributed on Business Wire. The new
entity will finance the Lawrenceville, N. J.-based company's operating
expenses during the bankruptcy. The financing will 'allow the delivery
of services to PVI's customers and clients to continue without
interruption,'' the company said in the statement, reported the
newswire.
USG Seeks To Replace DIP Loan With $100 Million Letter Of
Credit
USG Corp. is seeking bankruptcy court permission to replace its
debtor-in-possession financing with a new, $100 million letter of credit
from LaSalle Bank N.A. The new facility, which could save the company
$625,000 annually, is a more favorable form of financing that addresses
only the company's letter of credit needs, lowers the cost of satisfying
those needs and eliminates restrictive operating covenants that are
present in the existing DIP facility, USG said a motion filed May 19. A
hearing on the proposed facility is set for June 10.
Provided by Daily Bankruptcy Review (
href='http://www.djnewsletters.com/dbr2.html'>www.djnewsletters.com/dbr2.html)
Copyright (c) 2003 Dow Jones & Company, Inc. All Rights Reserved
United Shifts Focus on Low-cost Airline
United Airlines is backing off from its strategy to make a separate
low-fare carrier the linchpin of its plan to emerge from bankruptcy,
saying now that the operation will be only one aspect of its eventual
revamping proposal, the New York Times reported. Executives
repeatedly stressed the need for the operation during the months
immediately after United's chapter 11 bankruptcy filing last December.
But since then, competitors like Delta Airlines and American Airlines,
have stepped in with their own efforts to combat Southwest, JetBlue and
other low-fare carriers. And United's unions, while granting $2.56
billion in annual wage and benefit cuts, did not agree to a different
pay scale, which would have maximized the efficiency of a low-fare
operation. In a telephone interview yesterday, Frederic Brace III,
United's chief financial officer, said: 'The low-cost carrier is not the
centerpiece of our strategy. The centerpiece of our strategy is about
serving business travelers and their needs profitably.' Brace said
United was completing a business plan to present to its creditors'
committee on June 11, as well as to its board and to potential lenders,
reported the Times.
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