|
|
September 30, 2002
Lobby Groups Crank Up Pressure on Bankruptcy Bill
Top business, banking and retail lobbyists cranked up the pressure on
House lawmakers to pass new bankruptcy laws in a meeting last week with
House Majority Whip Tom DeLay (R-Texas), Dow Jones reported. The U.S.
Chamber of Commerce, the American Bankers Association, the Financial
Services Roundtable, the National Retail Federation, the America's
Community Bankers and the Credit Union National Association, among
others, pressed DeLay in a meeting Thursday to put the legislation to a
vote before this November's federal elections.
According to the newswire, DeLay said House leaders would like to bring
the bill up for a vote before November's elections, 'but he didn't make
any commitment,' said Joe Rubin, a lobbyist for the U.S. Chamber of
Commerce. DeLay told lobbyists they need to step up the pressure if they
want the bill on the House floor before lawmakers adjourn this fall.
Creditors such as MBNA America, Sears Roebuck & Co. and Citigroup
have spent more than five years pushing for new bankruptcy laws. Never
have they come so close to actually getting a bill signed into law than
this year. Financial service executives are now turning up the heat on
their own trade groups to get the legislation finished.
At Home Files Lawsuit against Comcast, Cox
At Home Corp., the failed provider of high-speed Internet service, sued
Comcast Corp. and Cox Communications Inc., two former controlling
shareholders that cashed out of the company for a big profit 18 months
before At Home sought bankruptcy protection, The Wall Street
Journal reported. The company, which has ceased operation, charged
in a federal lawsuit filed in the U.S. District Court in Wilmington,
Del., that Comcast and Cox violated their responsibility to the company
by making a deal in spring 2000 that benefited them, but hurt At Home.
The suit seeks damages of at least $600 million.
Bankruptcy Stay Denied for State Claim
In an automatic stay application 'not of the common garden variety,' a
Northern District of New York federal judge has held that while the stay
offers a broad protection in bankruptcy, that protection is not so broad
as to cover a debtor in a state court breach of contract dispute,
law.com reported.
Senior U.S. District Judge Howard G. Munson suggested in Covanta
Onondaga Limited v. Onondaga County Resource Recovery Agency,
02-CV-0497, that the plaintiff was attempting to manipulate his case to
challenge a non-appealable removal order. Munson rejected the attempt
and permanently enjoined Covanta from taking further action with regard
to an adversary proceeding or an automatic stay. To read the full story,
point your browser to
href='http://www.law.com/jsp/article.jsp?id=1032128629729'>http://www.law.com/jsp/article.jsp?id=1032128629729
Court Confirms Archibald Candy's Chapter 11 Plan
Archibald Candy Corp. has won bankruptcy court confirmation of its joint
chapter 11 reorganization plan, setting the stage for the candy maker to
emerge from bankruptcy protection, the Wall Street Journal
reported. Judge Ronald Barliant of the U.S. Bankruptcy Court in
Wilmington, Del., signed the order on Wednesday after the company and
its Fannie May Holdings Inc. parent amended language of the plan to take
into account objections of the U.S. Trustee, the unsecured creditors'
committee and some other creditors. The order said the plan 'provides
adequate means for its implementation,' including appropriate exit
financing.
Under the reorganization plan, general unsecured creditors will share
prorated portions of up to $1.2 million in cash, provided a creditor's
payment doesn't exceed 30 percent of the given claim. Senior secured
noteholders will receive a 29 percent recovery on their claims in the
form of prorated shares of $50 million in new subordinated notes.
Chicago-based Archibald Candy listed assets of $133.2 million and debts
of $210 million in its chapter 11 petition. Fannie May Holdings, which
owns all of Archibald Candy's common shares, listed assets of $40
million and debts of $200 million in its own petition.
US Airways Will Sell Stake to Alabama Pension Fund
A federal judge agreed to let Alabama's public-employee pension fund
spend $240 million for a 37.5 percent stake in US Airways Group, pushing
aside a lower bid from private-equity firm Texas Pacific Group, the
Wall Street Journal reported. U.S. Bankruptcy Judge Stephen S.
Mitchell approved the investment, ending a square off between the two
parties for the large stake in the nation's seventh-largest airline.
Earlier this month, the Retirement Systems of Alabama (RSA), a major
creditor of the airline, made its offer for the 37.5 percent stake in a
restructured US Airways, the first major carrier to file for chapter 11
bankruptcy court protection since the Sept. 11 terrorist attacks.
After US Airways emerges from bankruptcy, which it plans for the first
quarter of 2003, RSA's investment will be coupled with a $1 billion
collateralized loan backed by a $900 million federal guarantee
conditionally approved by the Air Transportation Stabilization Board,
the newswire reported.
Kmart Officials: Company to Emerge from Bankruptcy Next
Summer
Kmart Corp.'s top two officials said they expect the retailer to emerge
from bankruptcy early next summer, Dow Jones reported. Kmart Chairman
James B. Adamson and Kmart President Julian C. Day said they don't
expect additional store closings or employee cutbacks this year. But
that could change before the company files a reorganization plan early
next year.
WORLDCOM
Broadwing Objects to WorldCom Severance Payment
Request
Broadwing Inc. and some related entities on Thursday objected to
WorldCom's request to pay severance benefits to some of its laid-off
employees, arguing the motion is premature and could violate the
superpriority status granted to Broadwing and other utilities in
WorldCom's case, Dow Jones reported. In its objection, the creditor said
it can't determine whether the request to pay severance benefits would
adversely affect Broadwing and its related entities if the bankruptcy
court denies final approval of WorldCom's debtor-in-possession loan
agreement next month. WorldCom is seeking court approval to pay
remaining severance benefits to employees it laid off before the company
filed for bankruptcy and whose employment ended by the July 21
bankruptcy filing.
On Aug. 14, the U.S. Bankruptcy Court in Manhattan granted some utility
companies, including Broadwing, a junior superpriority administrative
claim in WorldCom's chapter 11 case in exchange for not terminating
services to WorldCom. That order said the utility companies' claim will
be junior only to claims of the lenders under WorldCom's DIP financing
agreement and some existing intercompany liens. The bankruptcy court is
set to consider final approval of the DIP financing at a hearing on Oct.
15, two weeks after the court is scheduled to hear WorldCom's severance
motion on Oct. 1.
WorldCom Bankruptcy's Effect on Telecom Market Debated
WorldCom Inc. is unlikely to undercut the prices of its competitors even
if it emerges from bankruptcy debt-free, RHK telecommunications analyst
Shing Yin said Friday at a forum sponsored by the New Millennium
Research Council, Dow Jones reported. But he added that a federal
bankruptcy court in New York should liquidate WorldCom anyway because of
its 'poor operations and alleged malfeasance.' David Lynn, a bankruptcy
attorney on the panel, defended federal bankruptcy law as a way to
preserve the value to society of an economic enterprise. While the
Bankruptcy Code doesn't penalize companies for dishonesty, the criminal
code can do that, he said. In his presentation, he said there is no need
for bankruptcy law to treat telecommunications companies any
differently. Janice Aune, chief executive of a privately held Minnesota
carrier called Onvoy Inc., noted that state and federal regulations
prevent her from cutting off service to a connecting carrier - like
WorldCom - that is in arrears. That has left Onvoy holding the bag when
bankrupt companies discharge their debt in court. Bad debt could have
forced Onvoy to enter bankruptcy itself had the company's own corporate
turnaround not been ahead of schedule, she said.
According to Dow Jones, the FCC is currently reviewing a petition by
Verizon Communications Inc. that would, among other things, hasten the
ability of carriers to collect advance payments and security deposits
from troubled carriers. It would also require troubled carriers to pay
off at least some existing debt, consistent with bankruptcy law, as a
condition of continued service. The FCC isn't expected to act on the
petition for several months. U.S. Bankruptcy Court Judge Arthur
Gonzalez has rejected similar requests for security deposits and
advance payments in the WorldCom bankruptcy.
George Mason University Prof. Todd J. Zywicki, noted that the WorldCom
case exposes the flaws in the corporate bankruptcy process, which may
require some significant change. 'Bankruptcy should be used for a 'fresh
start,' not as a means of getting a leg up on the competition.,' said
Zywicki. Speakers' presentations can be found at
href='http://www.newmillenniumresearch.org/archive/event-09-27-2002.html%20'>http://www.newmillenniumresearch.org/archive/event-09-27-2002.html
- agenda
WorldCom DIP Now Seen in Low End of $1.25 Billion-$1.5 Billion
Range
A bankruptcy loan for WorldCom Inc., which originally was expected to be
one of the largest such financings ever at up to $2 billion, now is
expected to come in at the low end of the $1.25 billion to $1.5 billion
range announced earlier this month, Dow Jones reported. WorldCom -- the
nation's second largest long-distance provider -- will need less funding
to continue operating in bankruptcy, the company and its chief bankers
have discovered. WorldCom has about $500 million more in cash than was
originally thought thanks to cost cuts and better customer retention
than had been anticipated since the chapter 11 filing, the person said,
without revealing the company's total cash position.
EDS Seeks to Force WorldCom to Comply with Terms of
Pact
Electronic Data Systems Corp., which is asking a bankruptcy court to
force WorldCom Inc. to turn over almost $15 million it transferred to
WorldCom to pay amounts under an agreement between the two firms, filed
another motion on Friday trying to force WorldCom to comply with the
pact, Dow Jones reported. In early 1999, Electronic Data Systems and
WorldCom signed an 11-year bilateral outsourcing agreement, under which
WorldCom outsourced its information technology functions to Electronic
Data Systems. The pact also called for Electronic Data Systems to
outsource its telecommunications and network functions to WorldCom.
WorldCom on Thursday opposed the prior motion that seeks the turnover of
nearly $15 million, saying Electronic Data Systems 'mischaracterizes the
nature of the contractual relationships' between the two companies. The
unsecured creditors' committee joined in WorldCom's opposition to the
request. In that request from earlier in September, Electronic Data
Systems alleged WorldCom has nearly $15 million that was transferred to
it solely to pay amounts owed to local telephone companies under the
agreement between the two companies. That filing said WorldCom agreed to
hold the funds for the benefit of Electronic Data Systems.
WorldCom, however, is now seeking to use those funds, which don't belong
to the company, the earlier motion said. As an alternative to forcing a
turnover, the motion asks the court to establish a 'constructive trust'
and to determine that Electronic Data Systems has an allowed
administrative claim in WorldCom's chapter 11 bankruptcy case.
Napster Has Letter of Intent for Asset Sale
Napster Inc. said on Friday that it had signed a letter of intent to
sell substantially all of its assets to an anonymous purchaser, Dow
Jones reported. The chapter 11 debtor will file a motion seeking
approval of the sale by Wednesday. Napster will also file a motion
seeking court approval of a debtor-in-possession loan, which will be
supplied by the prospective purchaser. Napster and its creditors panel
reached an agreement with the U.S. Trustee's Office on the appointment
of a chapter 11 trustee to manage Napster's estate. As a result, the
U.S. Trustee's Office is no longer pursuing a conversion of the case to
a chapter 7 liquidation.
'We were unable to resolve corporate governance issues or to get a
responsible officer who was willing to serve,' said Russell C.
Silberglied, an attorney with Richards Layton & Finger, the firm
representing Napster. 'Given the U.S. Trustee's position that it would
oppose such an appointment, the debtor, the committee and the U.S.
Trustee agreed to appoint a chapter 11 trustee.' Judge Peter
Walsh of the U.S. Bankruptcy Court in Willmington, Del. will appoint
the trustee next week.
AHMSA Creditors Seek Bankruptcy Ruling
Creditors of Mexico's No. 2 steelmaker Altos Hornos de Mexico said on
Friday they requested that a judge rule the company bankrupt so that top
company executives can be removed from their posts, Reuters reported.
AHMSA, which ran into trouble following a drop in world steel prices
resulting from the 1998 Asian crisis, suspended debt payments in 1999,
and for three years has been in negotiations with lenders on debt
restructuring.
But in April, AHMSA's 11 creditor banks, including Bank of America and
BBVA-Bancomer and Banamex-Citibank, suspended negotiations. Creditors
said the filing made on Thursday for a bankruptcy ruling was aimed a
facilitating the restructuring talks.
PREFERENCE MAY DISQUALIFY PROFESSIONALS
By: Prof. G. Ray Warner, Robert M. Zinman Resident Scholar - American
Bankruptcy Institute
In re Pillowtex, Inc., No. 01-2775, ___ F.3d ___, 2002 WL
31104187 (3d Cir.) (9/23/02) (Sloviter, J.). Invalidating a common
practice in larger cases, the Court holds that a professional cannot
avoid disqualification based on the receipt of potentially preferential
payment of fees through the procedure of deferring the preference
question and agreeing to repay any preference later found to exist and
to waive any resulting claim. Instead, the bankruptcy court must
evaluate the preference before it can authorize employment under S327.
If the court finds a 'facially plausible claim of a substantial
preference,' then the professional has an 'actual' conflict of interest
that is disqualifying. The court discusses, but does not decide, whether
a less clear preference claim would be a mere 'potential' conflict that
would not per se bar employment. The court reads the Code as prohibiting
all conflicts with the estate, but only 'material' conflicts with
creditors. Since preference law focuses on the relationships among
creditors rather than the relationship between creditors and the debtor,
the court suggests that the professional's receipt of a preference may
create a conflict only with creditors and not with the estate. The court
also suggests that payment for bankruptcy preparation services may not
be disqualifying, but does not identify any Code support for that view.
Note that some courts have held that the S329 power to review
pre-petition attorneys fees for services 'in contemplation of
bankruptcy' pre-empts preference attack of such payments. See In re
Creative Restaurant Management, Inc., 139 B.R. 902 (Bankr. W.D. Mo.
1992). In addition, the court reads S307 as a broad grant of standing to
the U.S. Trustee to pursue this appeal; and the court suggests in a
footnote that the U.S. Trustee might even have standing to bring the
preference action. Note that such an expansive reading of S307 is
inconsistent with the court's narrow reading of the same language in
In re Cybergenics Corp., 2002 WL 31102712 (3d Cir. 9/20/02)
(creditors' committee lacks authority to assert avoidance actions).
Judge Puts Shareholder Lawsuits Against Adelphia On Hold
A federal judge in Pennsylvania has tabled shareholder class actions
filed against Adelphia Communications Corp., Dow Jones reported. Under
the order, handed down Wednesday by Judge Herbert Hutton in the
Eastern District of Pennsylvania, investors will have to wait until
pending criminal cases against Adelphia executives and the company's
bankruptcy proceedings are resolved, before their securities fraud
claims will be heard. In his ruling, Hutton said that he had 'been
previously advised' that the cases couldn't go forward because of the
concurrent actions pending in federal court in New York. Further
information wasn't immediately available.
South Korean Court/Daewoo Motor: after Creditors OK Plans
South Korea's Incheon District Court said Monday that it has approved
Daewoo Motor Co.'s debt repayment and reform plans, paving the way for
General Motors Corp. to open its planned joint venture in Korea next
month, Dow Jones reported. The court's final approval comes after a
majority of creditors of the bankrupt car maker voted to approve the
plans Monday afternoon, said the court. A delay in the approval of
Daewoo Motor's reform plan, largely stemming from disputes on debt
payment terms, had kept GM from closing its acquisition deal signed in
April.
ACandS Granted Preliminary Injunction from Asbestos
Lawsuits
A bankruptcy court Friday granted a preliminary injunction to ACandS
Inc., three of its affiliates, and its pre-petition trustee that shields
them from having to participate in personal-injury asbestos litigation,
Dow Jones reported. ACandS said the preliminary injunction is vital to
its reorganization efforts. The former subsidiary of Armstrong World
Industries Inc. filed for chapter 11 bankruptcy protection on Sept. 16.
The order signed by Chief Judge Peter J. Walsh of the U.S.
Bankruptcy Court in Wilmington halts litigation in more than 4,000
personal-injury lawsuits filed by plaintiffs who claim they were harmed
by exposure to asbestos fibers in insulation products the company used
between 1958 and 1974. Asbestos is a fire-retardant material that can
lead to the development of fatal respiratory diseases.
Thanks for visiting
Today's Bankruptcy Headlines. New articles are posted here
each business day.
|
