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Supreme Court Restricts Rights of Creditors
The Supreme Court ruled that companies that provide insurance or other
services to a business during its bankruptcy proceedings cannot attempt
to collect unpaid fees from collateral held by another creditor, the
Associated Press reported yesterday. The unanimous Missouri ruling said
only bankruptcy trustees can invoke a provision of federal bankruptcy
law to collect fees from collateral held by another party. The opinion
by Justice Antonin Scalia said, 'The fact that the sole party
namedthe trusteehas a unique role in bankruptcy proceedings
makes it entirely plausible that Congress would provide a power to him
and not to others.' The Supreme Court ruling stems from Hartford
Underwriters Insurance Co. vs. Union Planters National Bank, 99-409,
in which Hartford tried to collect unpaid premiums for workers'
compensation it provided to Hen House Interstate. In 1991, Hen House
filed for bankruptcy and Hartford provided workers' compensation to Hen
House, which the company needed to continue operating. During that time,
Hen House did not pay more than $50,000 in premiums. The bank argued
that Hartford did not have legal standing under bankruptcy laws to seek
payments.
The Supreme Court also held unanimously that bankruptcy does not
alter the burden of proof imposed by the substantive law, making it
easier for governments to collect back taxes from bankrupt debtors. In
an Illinois dispute over state sales taxes owed on a $12 million jet
(Raleigh vs. Illinois, 99-387), the court, headed by Justice
David Souter, said that if a tax law puts the burden of proof on the
taxpayer instead of the government, that burden remains the same in
bankruptcy court. The justices upheld a Seventh Circuit U.S. Court of
Appeals decision that said Illinois law put the burden on William J.
Stoecker, the president of Chandler Enterprises when the company entered
into a lease/purchase agreement for a plane, moved it to Illinois and
eventually took title. The transaction was subject to the Illinois 'use
tax,' which was unpaid. Stoecker was left to prove he did not willfully
avoid paying sales taxes on a jet owned by his now bankrupt corporation.
The Supreme Court recognized that while Congress may do what it likes
with entitlements in bankruptcy, there is no evidence that Congress
meant to alter burdens of production and persuasion on tax claims.
LINC States It Has No Bankruptcy Plans
Specialty finance company LINC Capital Inc., Chicago, said it is
continuing talks with its lenders and has no immediate plans for
bankruptcy, Reuters reported yesterday. The company states that it has
been successful in selling its Select Growth leasing business, while
retaining ownership of all warrants and equity rights. 'We are aware
that rumors have been circulating about LINC's future,' commented Robert
Laing, LINC's president and chief operating officer. 'We have made the
decision to exit the leasing business and our plans contemplate
continuing as a going concern focused on our profitable distribution and
rental business. We are working diligently to restructure our loan
agreements to accomplish this goal.'
United Companies Signs Purchase Agreements with EMC Mortgage
Corp.
United Companies Financial Corp., Baton Rouge, La., which has been
operating in chapter 11
reorganization since March 1, 1999, announced that yesterday it signed
an asset purchase
agreement and a mortgage loan and REO property purchase agreement for
the sale of substantially
all of its whole loan portfolio and REO properties, assets related to
its mortgage servicing
operations and its interest only and residual interests as of Dec. 31 to
EMC Mortgage Corp. and
EMC Mortgage Acquisition Corp., subsidiaries of The Bear Stearns
Companies Inc., for a cash
purchase price of about $781 million, according to a newswire report.
United Companies' cash on
hand and certain other assets are not included in the sale, and the
sales are subject to bankruptcy
court approval and possibly higher bidding. The agreements stipulate
that the whole loan and REO
properties transaction shall be consummated no later than July 31, and
the other transaction no later
than Sept. 15. 'The EMC transactions will allow the company to
substantially complete its
reorganization efforts,' said Lawrence Ramaekers, chief executive
officer of United Companies.
'We believe that these transactions, and the bankruptcy court approval
process, will maximize the
value of United Companies and ensure parties-in-interest an opportunity
to be heard.' On June 1,
United Companies sold its loan origination platform to Aegis Mortgage
Corp. United Companies is
a specialty finance company that services non-traditional consumer loan
products.
Universal Health Services To Acquire Behavior Health
Operations
Universal Health Services Inc. (UHS), King of Prussia, Pa., announced
yesterday it has received
approval to buy 11 behaviorial health units from Charter Behavioral
Health Systems LLC as well
as related real estate and one other facility from Crescent Real Estate
Equities Co. (CEI) for $105
million, including working capital, according to a Dow Jones newswire
report. Universal Health
said a Delaware bankruptcy court approved the transactions, which the
hospital operator plans to
complete on or about July 1. In February, Charter Behavioral Health
filed to seek its second
chapter 11 in eight years, and on May 19, Crescent Real Estate agreedto
sell 23 of the 37
behavioral healthcare facilities leased to Charter for about $110
million.
Let's Talk Cellular To Receive $15 Million in DIP Financing
Let's Talk Cellular & Wireless Inc., one of the nation's largest
specialty cellular and wireless
retailers, announced yesterday that it has filed for chapter 11 in the
District of Delaware, and that it
has received a $15 million debtor-in-possession (DIP) financing
commitment from a syndicate of
banks led by Chase Manhattan Bank, according to a newswire report. 'New
inventory made
available by our new DIP facility should be arriving in stores
immediately,' said founder Brett
Beveridge, who returned to Let's Talk as chief executive officer in
March. 'By providing our
customers with the full range of inventory and service options on which
our company was founded
and implementing our new cost-saving strategies, we anticipate moving
forward quickly through a
reorganization process that will maximize value for the benefit of all
creditors and stockholders.' Let's Talk reported in its petition that it
had exhausted its working capital and accumulated total
debt of approximately $52 million. Operating 259 retail outlets in 21
states, the District of
Columbia and Puerto Rico, the company reported consolidated net sales
for the nine months
ending April 30 of $88.6 million.
WorldClass Processing Sale Proceeding
With the approval of U.S. Bankruptcy Court Judge Judith
Fitzgerald, the sale of WorldClass
Processing Inc., the steel processing facility located in the Port
Ambridge Industrial Park in
Ambridge, Pa., is moving forward and should be completed by June 30,
according to a newswire
report. Neal Dugan, WorldClass Processing president and chief executive
officer, and Jack Teitz,
the company's chief financial officer, said they will assist in the
transition in ownership to Samuel
Manu-tech of Mississauga, Canada, but will not remain with the company.
'We want to make this
as smooth a transition as possible,' said Dugan and Teitz. 'We have an
extremely dedicated group
of employees who have done an exceptional job under some dire
circumstances to keep this
company alive, and we are extremely pleased that Samuel Manu-tech wants
to keep the group
intact, and is currently negotiating with key staff members to keep them
on board,' they added.
Samuel Manu-tech has promised to honor the WorldClass contract with the
United Steel Workers
Union. Founded in 1991, the steel processing facility opened in 1992 and
currently employs more
than 70 people, but has been ensnared in a five-year legal dispute with
two former partners that
resulted in a chapter 11 bankruptcy reorganization filing 18 months ago.
Hurricane Hydrocarbons Emerges from Bankruptcy, Reverses
Losses
Hurricane Hydrocarbons Ltd., Calgary, Alta., newly emerged from
creditor protection, said on
Monday it had reversed its quarterly loss from a year earlier, according
to Reuters. Hurricane,
which runs a big oil operation and refinery in the former Soviet
republic, said operating earnings
were $17.5 million, or $0.39 a share, up from a loss of $15.3 million,
or $0.34 a share, in the first
quarter of 1999. The company purchased 88.36 percent of the refinery for
$51 million and 33
percent of its stock as part of its restructuring plan, which it
completed in late March; the
arrangement enabled the company to emerge from bankruptcy. Revenues more
than tripled to $60
million from $18.9 million a year earlier. 'Currently, we have more than
a third of that production
going to export, so that's becoming an important component as well,'
said Hurrican Spokesman
Ihor Wasylkiw.
Hikari Hit With Another Agency Failure
In Tokyo, shares in Japan's Internet investor Hikari Tsushin Inc. fell
after its 10th-largest franchise cell phone agent filed for bankruptcy,
according to Reuters. Following the announcement, Hikari's shares
plummeted by their 16.4 percent daily limit. Last month, the company
revised its business plan for the current year to August, including a
revision reduction of phone sales and a reduction in the number of
shops. Advance International, a company in which Hikari invested roughly
$5.44 million, became Hikari's third agent to file for bankruptcy. 'We
shouldn't view this news so negatively,' said Tsuyoshi Segawa, general
manager at Sakura Securities's equity derivatives division. 'Hikari is
doing what it can to survive, although we shouldn't look at it as the
same company that once enjoyed a high-flying share price.'
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