March 16, 2000
Justice Department Opposes Expansion of Chapter 12
In a letter this week to House and Senate negotiators, the
Justice Department commented on proposing the expansion of chapter 12 in
S. 625 and said, 'it would be undesirable to begin creating exceptions
for special interest groups,' according to the Associated Press. The
department said the law requiring taxes to be paid first is 'intended to
deter tax evasion.' Chapter 12, which is due to expire on June 30, was
created for farmers during an economic downturn during the 1980s. Under
current law, when farmers sell land or equipment, they must pay up front
and in full any income taxes due on the proceeds before settling with
other creditors. Attorneys say the resulting taxes often force farmers
to liquidate when they could have possibly stayed in business by
downsizing. A provision of S. 625 would allow some or all of the taxes
to be discharged as unsecured debt.
Sen. Charles E. Grassley (R-Iowa) said yesterday, 'It's offensive to
have the administration dismiss family farmers in bankruptcy as nothing
more than a special interest group.' He also said that there is no point
in farmers selling their property if the government takes a lot of the
proceeds. S. 625, which Grassley co-sponsored, would make chapter 12 a
permanent part of the Bankruptcy Code and allow more farms to use it.
Chapter 12 does not require a farmer to obtain the consent of creditors
before reorganizing. House and Senate negotiators are attempting to
reconcile S. 625 with the House's version of bankruptcy reform, H.R.
833, to make chapter 12 permanent but not change it.
Dot.Coms May Find Bankruptcy Counsel Elusive
Undoubtedly, some Internet companies will consider bankruptcy
protection, and The Miami Daily Business Review reported that
finding bankruptcy counsel may not be so easy for such companies. Local
bankruptcy practitioners have said that law firms will be reluctant to
take on such clients without significant material assets, brand name
recognition and the backing of investors. Arthur Rice,
a managing partner with Rice & Robinson, said, 'An Internet company
considering chapter 11 with no hard assets and no positive cash flow
will have a difficult, if not impossible, time convincing the U.S.
Trustee's office to allow it to file for chapter 11.' Rice said the U.S.
Trustee's office has a negative view of chapter 11 debtors who cannot
meet current debt on an ongoing basis. 'None of the existing Internet
companies would be able to do that now,' Rice said, and he said that his
firm would only take on such bankruptcy cases if company management
could convince him that the business can become profitable. 'The way I
would be convinced [to take the case] is if they came in with an
underwriter who says 'Put the company in chapter 11, and I can sell its
stock as part of the reorganization,'' Rice said.
Other attorneys, however, see the potential for a niche market among
the dot.coms. Michael Goldberg of Akerman Senterfitt in Fort Lauderdale,
Fla. said, 'One of the benefits is that Internet bankruptcy is a
wide-open field. If you develop a niche, it could lead to new business.'
He did say, however, that a bankruptcy attorney would only benefit if
the Internet client base has substantial assets. Mark
Bloom of Greenberg Traurig, Miami, said his firm would try to
distinguish between two situations: Internet companies with very little
assets facing total liquidation, and cash-strapped Internet companies
with a worthwhile concept. 'We would try to help both in any way we
could with the recognition that chapter 11 might be the perfect solution
for the latter company but offers no advantage at all for the former
company,' Bloom said.
Iridium Receives Extension; New Hearing Date Is March 27
On the verge of being liquidated, Iridium LLC was granted an
extension by the bankruptcy court overseeing its chapter 11 case to find
a new financial backer, the Associated Press reported last night.
Iridium was two hours away from its deadline that would have forced the
satellite-based mobile phone company to begin withdrawing its satellites
from orbit and liquidate. The company would have ceased doing business
on Friday. The Washington Post reported this morning that
Crescent Communications Inc. has made a formal bid for Iridium's assets,
but Iridium has said that it would not know if any bids were made until
today. Iridium now has until at least March 27 when the next hearing
will be held; at that time, the company may request an additional 45-day
extension.
Crown Vantage Seeks Chapter 11 Protection
Crown Vantage Inc., which provides papers for printing,
publishing and speciality packaging, announced that it filed chapter 11
yesterday, according to a newswire report. The Cincinnati-based company
also announced that it has arranged for $100 million in
debtor-in-possession financing from Morgan Guaranty Trust Co., Chase
Manhattan Bank and a group of institutional lenders. Earlier this month,
Crown Vantage had said that it had not received anticipated financing
from a bank credit agreement, but that it was continuing to explore
options. The company's U.K. operations were not included in the
filing.
Paracelsus Healthcare Subsidiary Files Chapter 11
PHC Finance Inc., a second-tier subsidiary of Paracelsus
Healthcare Corp., Houston, has filed for chapter 11 protection in the
Southern District of Texas, according to a newswire report. The
subsidiary's principal assets are several medical office buildings; it
does not own or operate and hospital facilities, and neither the
subsidiary or any of the Paracelsus hospital corporations are guarantors
for any obligations of PHC Finance. The parent company also announced
that it does not expect to pay by today its scheduled interest payment
of $16.25 million, which was originally due Feb. 15. The company has
been in negotiations with major holders of the notes for which the
interest is due. Paracelsus said the notes are unsecured claims against
the company only, and that the note holders have no claim against any of
its hospital operating subsidiaries or their assets.
Sunterra Reports $58.4 Million Loss, Sees Liquidity Risk
Sunterra Corp., Orlando, Fla., reported a net loss of $58.4
million for the three months ending Dec. 31, as compared to net income
of $11.5 million for the same period a year earlier, according to
The Wall Street Journal. The company attributed most of the
loss to a $43 million charge for mortgage receivables, or mortgages that
time share owners had stopped paying. Although the charge was in the
range the company expected, the earnings were significantly less than
anticipated. Sunterra has cut staff and implemented expense controls to
result in a savings of $15 million annually. It also has reorganized its
U.S. business. But the company also said it 'continues to face liquidity
risks' because it has exceeded 'triggers' on several credit facilities.
It is negotiating with lenders for waivers and advances. Sunterra has
arranged with Finova Capital Corp. a $25 million expansion of an
existing credit line. Sunterra is one of the largest time share resort
companies with 88 locations around the world.
Homemaker Industries to Sell Assets at Bankruptcy Auction
Homemaker Industries Inc., a debtor-in-possession in chapter
11, yesterday filed an application to sell substantially all of its
assets, free and clear of the claims and liens of creditors, according
to a newswire report. A&M Inc., a company formed by Homemaker's CEO,
Arthur Miller, has proposed a purchase price of not more than $7.5
million. Hon. Jeffrey Gallet, S.D.N.Y., will hold a
hearing on the bid and higher bids on April 4. The court issued an order
dated March 14 approving the form, manner and notice of the motion,
approving certain bidding procedures. Copies of the motion and other
documents are online at
href='http://www.nysb.uscourts.gov/'>http://www.nysb.uscourts.gov.
Bidders interested in the assets may contact Harvey
Tepner at Loeb Partners Corp. in New York, Alec P.
Ostrow of Salomon Green & Ostrow P.C. in New York, or the
chambers of Judge Gallet.
Fruit of the Loom Reschedules Bond Interest Payments
Fruit of the Loom Ltd., which filed for chapter 11 protection
late last year, said that its interest payments on three public bond
issues have been rescheduled, according to Reuters. The underwear and
intimate apparel maker will now make quarterly interest payments on the
three bonds; previously the payments were scheduled on a semi-annual
basis.
Three Pennsylvania Hospital Officials Charged
Pennsylvania Attorney General Mike Fisher yesterday accused
three top officials of the Allegheny Health, Education and Research
Foundation (AHERF) of skimming more than $52 million from charitable
donations in a futile effort to stave off bankruptcy and the eventual
collapse of AHERF, the Associated Press reported. Fisher also accused
former AHERF CEO Sherif Abdelhak with making illegal campaign
contributions to political candidates and illegally donating $50,000 for
the renovation of a locker room at his son’s high school.
Abdelhak, former CFO David McConnell and former general counsel Nancy
Wynstra were accused of participating in a scheme to pay AHERF’s
growing debts and daily operational expenses between February and July
1998 with money drawn from funds that were to be used only for purposes
such as scholarships or medical research. Fisher said, “They stole
millions in charitable dollars in an effort to save this mismanaged
systems.” Abdelhak and McConnell were arraigned yesterday and
released after posting 10 percent on a $100,000 bond. Wynstra is
expected to surrender to authorities on Monday. Last month Fisher
initiated a civil suit against the three and five foundation trustees in
an effort to get $78 million drawn from charitable accounts for various
purposes to be paid back.
Court Approves Equalnet's Purchase of ATCALL
The Bankruptcy Court for the Eastern District of Virginia this
week approved the sale of substantially all of the assets of Arlington,
Va.-based ATCALL Inc. to Equalnet Communications Corp., Houston,
according to a newswire report. Total consideration will be the
assumption of about $2.7 million of secured debt and the issuance of
$250,000 of restricted Equalnet common stock. The transaction is
expected to close on or before March 20. ATCALL is a long distance
company that sells one plus service and prepaid telephone debit cards to
national retailers. Equalnet is a nationwide supplier of
telecommunications services.
CellNet Signs Asset Purchase Agreement
CellNet Data Systems Inc., San Carlos, Calif., yesterday signed
an Asset Purchase Agreement for the sale of substantially all of its
assets and business operations and the agreement has been filed with the
bankruptcy court in Wilmington, Del., according to a newswire report.
CellNet and its subsidiaries filed chapter 11 on Feb. 4 and now plan to
sell its assets to Schlumberger Resource Management Services Inc. and
Schlumberger Technology Corp., its parent company, or the highest
bidder. Higher offers must be submitted by April 12, and an auction will
be held April 14 if there are other offers. The final hearing on the
Asset Purchase Agreement is April 19; pending higher offers, CellNet
expects to complete the transaction by the end of the first week of
May.
SubMicron Systems Receives Court Approval for Mailing
Liquidation Plan to Creditors
SubMicron Systems Corp., Allentown, Pa., announced that the
Bankruptcy Court for the District of Delaware has granted approval for
the company to mail its liquidating plan of reorganization and
disclosure statement, according to a newswire report. The ballots must
be received by April 17, and a hearing on confirmation of the plan is
scheduled for May 3. SubMicron filed chapter 11 on Sept. 1, 1999, and
consummated sale of substantially all of its assets pursuant to a court
order in October.
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