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July 28, 2006
w:st='on'>
name='1'>Texas
face='Times





New
Roman' size='3'> Court Holds Part of
BAPCPA Unconstitutional
w:st='on'>A Federal District
Court
size='3'>Texas
declared that part of the new bankruptcy law unconstitutional,
specifically §526(a)(4)'s restrictions on legal advice, as
violating a debtor attorney's First Amendment rights.
size='3'>This is the subsection that states that a debt-relief agency
shall not advise a prospective debtor to incur more debt in
contemplation of filing for bankruptcy. The
court found the section unconstitutional on its face and dismissed the
petitioner's other First Amendment claims on debt-relief agencies under
§527 and 528. The case is
Hersch v.
size='3'>, No CV-2330-N, decided July
26.
href='/pdfs/hershvusopinion.pdf'>Click here
to review the court’s opinion.
Click here to read an
analysis of the court's opinion in ABI's BAPCPA blog.
name='2'>Congress May Let Hedge Funds Manage More Pension
Money
A little-noticed provision in
the pension bill moving through Congress would allow hedge funds to
manage significantly more pension-fund money, the Wall Street
Journal reported today. The change is the latest sign of the
growing influence of the loosely regulated investment pools in all
corners of the financial system -- even as most hedge funds resist
proposals to tighten government oversight or supervision. The hedge-fund
industry, which sits on assets of about $1.2 trillion, already manages
billions of dollars for employer- and government-sponsored pension
plans. But most hedge funds limit to 25 percent of their total assets
the amount of pension-fund money they'll take as going above that
ceiling generally requires a hedge fund to become a fiduciary that
triggers broader scrutiny and limits the flexibility and fees of
hedge-fund managers. The provision likely to emerge in the pension bill
would alter existing law so that hedge funds wouldn't have to count
assets of public-employee or foreign pension plans toward that 25
percent ceiling, according to congressional aides and hedge-fund
lobbyists. That would allow funds to accept unlimited amounts from
public or foreign funds, even if they continue to limit the amount they
accept from private-employer pension funds to 25 percent of total
assets.
href='http://online.wsj.com/article/SB115404790198019912.html?mod=home_whats_…'>Read
more. (Registration required.)
In related news,
negotiations on a long-awaited pension overhaul package collapsed
Thursday night amid a standoff between House and Senate conferees over
whether to include extensions of expired tax provisions in the
package,
size='3'>CongressDaily reported today. Work on
the pension measure, as well as the tax provisions, is likely on hold
until after the August recess. House GOP conferees declined to show up
for a conference meeting called Thursday night by Health, Education,
Labor and Pensions Chairman Mike Enzi (R-Wyo.). Senate Finance Chairman
Charles Grassley (R-Iowa) and Sen. Max Baucus (D-Mont.) have pushed to
keep the tax extenders in the pension package, while House Ways and
Means Chairman Thomas has sought to move them as an attachment to a
permanent reduction in the estate tax.
Spike
in Corporate Bankruptcies on the Horizon
Bankruptcy experts say
that the trend of declining chapter 11 filings that has taken place
since 2002 is not sustainable,
size='3'>Portfolio Media reported yesterday.
“It looks like there’s going to be a big wave of bankruptcy
cases,” said
Skeel
and a law professor at the
w:st='on'>
size='3'>University
size='3'>Pennsylvania
The first six months of 2006 saw a total of 2,473 chapter 11 filings,
down 21 percent compared with the corresponding period last year and 51
percent compared with five years ago. “The bottom line is that
over the past three to five years there’s been an abundance of
cash available to distressed businesses in the form of second-lien and
even third-lien types of securities,” said
face='Times New Roman' size='3'>Michael Eisenband
size='3'>, senior managing director and leader of the creditor rights
practice at restructuring firm FTI Consulting Inc. He added that
many companies that received loans to allay problems that grew out of
poor management or being in a tough industry will eventually have to
face reality.
Autos
face='Times New Roman' size='3'>
name='4'>Delphi
size='3'> Creditors Aim to Use SEC Data in GM
Lawsuit
The creditors of a
bankrupt auto parts maker said Thursday that they plan to use
confidential information from a U.S. Securities and Exchange Commission
probe to prepare for a lawsuit against General Motors Corp.,
Portfolio Media
reported yesterday. An attorney for Delphi Corp.’s
creditors asked the court to allow a draft of the lawsuit to be sealed,
saying that if the information was made public it could hinder
size='3'>Delphi
negotiations. The request to seal the documents was approved by
Judge Robert E.
Gerber on Thursday. Earlier this year, the
U.S. Securities and Exchange Commission sent target letters to at least
seven former
size='3'>Delphi
accounting practices.
size='3'>Delphi
financial mistakes, has issued earnings restatements and has
acknowledged improper accounting that helped it meet earnings goals. The
unsecured creditors' committee is looking to sue General Motors for
billions of dollars related to costs that GM allegedly passed off
on
size='3'>Delphi
spin-off.
name='5'>High Gas Prices Continue to Hurt
w:st='on'>
size='3'>Detroit
size='3'>Automakers’ Sales
With gasoline prices of
$1.36 a gallon on average four years ago, Detroit automakers’
designers and engineers continued to pursue development of top-selling
sport utility vehicles and big pickup trucks, but that strategy is now
affecting the automakers' lineups and bottom lines, the
face='Times New Roman' size='3'>New York Times
size='3'>reported today. With the United States experiencing a spike in
gasoline prices, consumers are starting to react like their counterparts
across the word in choosing fuel-efficient cars, as the sales of
SUV’s and other big vehicles lag. “The cost is not only in
lost sales, but more broadly, in reputation,” said John Paul
MacDuffie, a co-director of the International Motor Vehicle Program, a
research group studying the auto industry, and a professor of marketing
at the
size='3'>Wharton
face='Times New Roman' size='3'>School
size='3'>of the
w:st='on'>
size='3'>University
size='3'>Pennsylvania
With gasoline selling for $3 and more across the country, all
three
size='3'>Detroit
losses or sharp declines in their profits in
w:st='on'>North
America
consumers’ interest in fuel economy was nearly three times as
great as it was in 2002, when the decisions about the vehicles
size='3'>Detroit
this year were essentially made.
href='http://www.nytimes.com/2006/07/28/business/worldbusiness/28auto.html?re…'>Read
more.
name='6'>Northwest, Striking Mechanics to Resume
Talks
Bankrupt Northwest Airlines
Corp. and its striking mechanics union have agreed to resume
negotiations on a new contract, the union said on Thursday, according to
a report today from Reuters. The mechanics, who are represented by the
Aircraft Mechanics Fraternal Association (AMFA), went on strike on Aug.
20 last year after earlier contract negotiations failed. Northwest
continued flying by using replacement labor. A bargaining session is
scheduled for Aug.15, the union said in a statement. A Northwest
spokesman said the union had asked it to resume negotiations and the
airline agreed, consistent with its legal obligations. Neither side has
set any conditions to resume talks, the union said. The two sides have
not met for talks since November last year.
href='http://www.nytimes.com/reuters/business/business-airline-northwest.html…'>Read
more.
name='7'>Sixth Circuit Nixes Dow
w:st='on'>
size='3'>Corning
Interest Rate
The Sixth Circuit Court
of Appeals ruled Wednesday that bankruptcy
creditors of Dow Corning Corp. may be entitled to a higher rate of
interest on the roughly $1 billion in debt they hold,
face='Times New Roman' size='3'>Portfolio Media
size='3'>reported yesterday. The court threw out a lower court ruling
that granted creditors an interest rate at the federal judgment rate of
6.28 percent, compounded annually, and remanded the case to the U.S.
District Court for the Eastern District of Michigan for a new ruling.
The Sixth Circuit ruled that the lower court erred in finding that the
creditors could only collect post-petition interest at the nondefault
contract rate rather than at the contract’s default rate,
according to the lawsuit.
size='3'>The creditors are also entitled to attorneys’ fees, costs
and expenses in the case, the court ruled, overturning the lower
court’s decision.
IRS
Reviewing Companies in Options Inquiries
The Internal Revenue
Service is examining as many as 40 companies ensnared in various stock
options investigations to determine whether they owe millions of dollars
in unpaid taxes, the New
York Times reported today. In the last few
weeks, the agency has directed its corporate auditors to start reviewing
the tax returns of dozens of executives and companies, which may have
improperly reported stock option grants. These preliminary
investigations are expected to take months, but if there is early
evidence of widespread tax trouble, IRS officials said they were
prepared to step up their efforts. The IRS auditors are focusing on the
potential tax obligations from backdated stock options that have been
cashed out since 2002. Federal rules bar the IRS from opening cases that
are more than three years old. Still, tax lawyers estimate the agency
could reap hundreds of millions of dollars from civil penalties, unpaid
taxes and interest payments if widespread wrongdoing is found.
href='http://www.nytimes.com/2006/07/28/business/28options.html?_r=1&oref=slo…'>Read
more.
SGI
Continues on Path to Emerge from Bankruptcy This Year
Silicon Graphics (SGI)
announced today that its disclosure statement has been approved by the
U.S. Bankruptcy Court for the Southern District of New York, enabling
the company to potentially emerge from chapter 11 by the end of
September, according to an SGI press release yesterday. Judge
Burton R. Lifland
ruled that SGI's Disclosure Statement contained adequate
information for the purpose of soliciting creditor approval of SGI's
reorganization plan, which is supported by the official creditors'
committee and the ad hoc committee of senior secured note-holders. A
hearing for the court to consider confirmation of the plan has been
scheduled for Sept.19.
href='http://biz.yahoo.com/prnews/060727/sfth134.html?.v=1&printer=1'>Read
more.
name='10'>Bankruptcy Trustee Sues New
w:st='on'>
size='3'>Jersey
Lenders
A bankruptcy trustee
overseeing the liquidation of NJ Affordable Homes is suing the
lenders that doled out millions of dollars in mortgages to NJ
Affordable and related companies, the Newark Star-Ledger
reported today. A
size='3'>couple weeks ago, the trustee sued the company's owner,
several attorneys and others accused of a massive fraud that collected
about $40 million from investors. Attorneys for trustee
face='Times New Roman' size='3'>Charles Forman
size='3'>have been busy filing some 250 complaints in bankruptcy court,
many of them against lenders such as Washington Mutual and investors who
have properties titled in their names. Securities regulators sued NJ
Affordable and owner Wayne Puff in September, alleging that he
operated a multi-faceted fraud that took in almost 500 investors. Puff
promised 15 percent returns to some investors, while others agreed to
let NJ Affordable use their name and credit in real estate transactions
in exchange for a share of profits when a home was sold. The latest
complaints could have a significant impact on that second set of
investors, who in many cases signed promissory notes along with
mortgages.
href='http://www.nj.com/business/ledger/index.ssf?/base/business-4/1154068067…'>Read
more.
International
name='11'>Competition Heats Up for Yukos' Assets
Competition heated up for
the foreign assets of shattered oil company OAO Yukos on Thursday, while
its board chairman hinted that a mystery investor could make a
last-minute offer to buy the company's billion-dollar debts as
bankruptcy loomed, the Associated Press reported yesterday. Yukos'
battered shares jumped by more than 30 percent to nearly 20 rubles (74
U.S. cents) on
size='3'>Moscow
a report that
w:st='on'>
size='3'>Slovakia
size='3'>'s government was considering buying the company's 49 percent
stake in the national pipeline operator Transpetrol. Earlier in the day,
a Yukos spokeswoman confirmed that the company had also received a $105
million bid from
w:st='on'>
size='3'>Russia
state-controlled gas giant OAO Gazprom for the stake. The Transpetrol
stake is held by Yukos' Dutch-registered subsidiary and therefore does
not fall under Russian bankruptcy hearings. Yukos is expected to be
formally declared bankrupt by a Russian court on Aug. 1 after a meeting
of its creditors this week approved a report by the company's bankruptcy
supervisor that said liabilities of $17 billion exceeded the value of
its assets and recommended declaring it bankrupt.
href='http://www.nytimes.com/aponline/business/AP-Russia-Yukos-Bankrutpcy.htm…'>Read
more.
href='http://www.nytimes.com/aponline/business/AP-Russia-Yukos-Bankrutpcy.htm…'>