Two Opinions on Disallowance of Compensation After Appointment of a Trustee
‘Conflict preemption’ bars retaliation by a professional whose fees are disputed.
%1
Commercial Chapter 11 Filings Increased 68 Percent in the First Half of 2023
The 2,973 total commercial chapter 11 bankruptcies filed during the first six months of 2023 represented a 68 percent increase over the 1,766 filed during the same period in 2022, according to data provided by Epiq Bankruptcy, the leading provider of U.S. bankruptcy filing data. Individual chapter 13 filings increased by 23 percent during the same period. Overall commercial filings registered 12,107 for the first half of 2023, representing an 18 percent increase from the commercial filing total of 10,258 for the first half of 2022. Small business filings, captured as subchapter V elections within chapter 11, totaled 814 in the first six months of 2023, a 55 percent increase from the 525 elections during the same period in 2022.
Year-over-year bankruptcy filings have shown solid increases across most chapters through the first six months of 2023. What trends have emerged this year in consumer and business filings? How do filings compare among different stakeholders and regions of the U.S., and will the trends continue for the second half of 2023? Join ABI and statistical partner Epiq Bankruptcy Analytics for a special abiLIVE webinar on July 12 during which experts will discuss first-half filings, and in what direction bankruptcies may be headed. Click here for complimentary registration.
MediaMath Seeks Bankruptcy Protection
MediaMath is filing for bankruptcy protection, an emergency proceeding that took place after it failed to successfully negotiate terms with potential buyers in recent weeks, Digiday reported. It’s a development that will have serious repercussions felt throughout the digital media landscape leaving hundreds out of work, and dozens of sell-side ad tech companies, mostly publishers, out of pocket, with tens of millions worth of debts. Executives at supply-side platforms scurried for information as word filtered out that MediaMath’s financial backers failed to agree a deal with potentially interested acquirers late this week. Staffers were told of MediaMath’s imminent closure with a skeleton crew retained to administer proceedings in the coming weeks. MediaMath’s recent negotiations, facilitated by Houlihan Lokey, began in earnest in mid-May. Among the names strongly linked with a potential MediaMath takeover were fellow demand-side platform Viant and Verve Group, a full-stack ad tech company owned by Media Games Invest. These talks were the result of a “quick-sale process” that had emerged in recent weeks after representatives of MediaMath contacted outside parties that may have been interested in the DSP. MediaMath is one of the longest-standing names in ad tech, but its finances have become complicated in recent years, with its founder and original CEO Joe Zawadski exiting in early 2022.
U.S. Manufacturing Slump Deepens, Factory Gate Price Pressures Subdued
U.S. manufacturing slumped further in June, reaching levels last seen when the nation was reeling from the initial wave of the COVID-19 pandemic, but price pressures at the factory gate continued to deflate, a silver lining for the economy, Reuters reported. Shrinking activity left factories resorting to layoffs, the survey from the Institute for Supply Management (ISM) showed. ISM Manufacturing Business Survey Committee Chair Timothy Fiore described the practice as happening "to a greater extent than in prior months." At face value, the ISM survey is consistent with an economy that is in recession. But the so-called hard data such as nonfarm payrolls, first-time applications for unemployment benefits and housing starts, suggest the economy continues to grind along. Risks of a downturn have increased as businesses and consumers deal with the 500 basis points worth of interest rate increases from the Federal Reserve since March 2022, when the U.S. central bank embarked on its fastest monetary policy tightening campaign in more than 40 years. The ISM's manufacturing PMI dropped to 46.0 last month, the lowest reading since May 2020, from 46.9 in May. That marked the eighth straight month that the PMI stayed below the 50 threshold, which indicates contraction in manufacturing, the longest such stretch since the Great Recession.
Monster Beverage to Acquire Bang Energy Out of Bankruptcy for $362 Million
Monster Beverage agreed to acquire bankrupt beverage maker Bang Energy in a deal that would bring the beleaguered brand under control of one of the industry’s largest players, The Wall Street Journal reported. Monster said in a bankruptcy court filing that it agreed to purchase Bang’s assets from bankruptcy proceedings for $362 million. The deal is subject to approval by bankruptcy court. Vital Pharmaceuticals, the owner of Bang, filed for chapter 11 protections in October after a jury ordered the company to pay Monster a $293 million settlement. Monster sued its smaller competitor in 2018, claiming that Bang had misled consumers and overstated the health benefits of its drink. Pending approvals from bankruptcy court and regulators, Monster will acquire Bang’s assets and its production facility in Phoenix. Bang filed for bankruptcy last year after facing mounting costs from litigation. In addition to the suit from Monster, the company also said in its October filing that it agreed to a $115 million settlement with PepsiCo after a distribution deal between the two ended. Legal battles have continued in the company. In March, the company sued its ousted chief executive, Jack Owoc, for allegedly refusing to return control of Bang’s social-media accounts on Twitter, Instagram and TikTok. Monster, a large player in the energy drink industry, has faced increased competition and an inflation-pinched consumer in recent years. The company raised its prices as it faced falling profits and increased costs.
In Big Tech Layoffs, Cooks and Janitors Are Hit Hardest
For years, tech giants like Facebook and Google have been known for generous perks like free food and massages, outfitting their sprawling campuses in Silicon Valley and beyond to attract the best engineering talent and keep them in the office as long as possible, The Washington Post reported. Many of those services — plus others, from janitorial tasks to content moderation and engineering — are provided by an army of largely invisible contractors, who are employed by outside firms and don’t receive the same benefits or compensation as direct employees. Now, amid steep tech layoffs and cutbacks, due in large part to weaker spending on digital ads, those workers are some of the most vulnerable. Google, in an email to staff earlier this year, said it would cut down on the number of “microkitchens” that dot its offices and are stocked by contract workers. Others who provide support for the company’s army of engineers are being hit, too, as the firm cuts down on the free perks that defined its work culture for years. When Google laid off 12,000 employees in January, among them were two dozen massage therapists. Tech companies often tout the generous benefits they offer the full-time workers they lay off, including several months of severance pay, post-employment health care, immigration assistance and job search resources. But many temporary workers and subcontractors don’t get the same lifeline when tech companies cut or modify their jobs.
Commercial Chapter 11 Filings Increased 68 Percent in the First Half of 2023
Commercial Chapter 11 Filings Increased 68 Percent in the First Half of 2023
Individual Chapter 13 Filings Increased by 23 Percent
July 03, 2023 —The 2,973 total commercial chapter 11 bankruptcies filed during the first six months of 2023 represented a 68 percent increase over the 1,766 filed during the same period in 2022, according to data provided by Epiq Bankruptcy, the leading provider of U.S. bankruptcy filing data. Individual chapter 13 filings increased by 23 percent during the same period.
Overall commercial filings registered 12,107 for the first half of 2023, representing an 18 percent increase from the commercial filing total of 10,258 for the first half of 2022. Small business filings, captured as subchapter V elections within chapter 11, totaled 814 in the first six months of 2023, a 55 percent increase from the 525 elections during the same period in 2022.
Overall commercial filings increased 12 percent in June 2023, as the 2,123 filings were up from the 1,891 commercial filings registered in June 2022. The 404 commercial chapter 11 filings in June represented a 9 percent increase from the 371 filings in June 2022. Total subchapter V elections within chapter 11, experienced a 111 percent increase from 94 in June 2022 to 198 in June 2023.
"The increase in commercial and individual bankruptcy filings during the first half of 2023 underscores the economic challenges faced by businesses and individuals,” said Gregg Morin, Vice President of Business Development and Revenue at Epiq Bankruptcy. “Our objective is to provide bankruptcy professionals with timely and accurate data necessary for analyzing stakeholder volumes and trends for making informed business decisions."
Total bankruptcy filings were 217,420 during the first six months of 2023, a 17 percent increase from the 185,352 total filings during the same period a year ago. Total individual filings also registered a 17 percent increase, as the 205,313 filings during the first half of 2023 were up from the 175,094 filings during the first six months of 2022. The 85,390 individual chapter 13 filings in the first half of 2023 represent a 23 percent increase over the 69,367 filings during the same period in 2022.
All chapters increased in June 2023 compared to June 2022, with 37,700 total bankruptcy filings representing an increase of 17 percent from the 32,198 filed in 2022. Total commercial filings were up 12 percent from 1,891. Total Individuals were up 18 percent from 30,307.
“The growth in filings is reflective of more families and businesses facing surging debt loads due to rising interest rates, inflation, and increased borrowing costs,” said ABI Executive Director Amy Quackenboss. “Bankruptcy provides a shield to the economic challenges being experienced by financially struggling individuals and companies.”
The substantial year-over-year increase in subchapter V elections reflects statutory developments that took place last year. The Bankruptcy Threshold Adjustment and Technical Corrections Act was quickly enacted in June 2022 to restore the debt eligibility limit for small businesses back to $7.5 million while also increasing the debt limit for individual chapter 13 filings to $2.75 million and removing the distinction between secured and unsecured debt for that calculation. The increased eligibility limits for both Subchapter V and Chapter 13 were currently set to sunset on June 21, 2024. ABI formed the Subchapter V Task Force to study small business reorganization and make recommendations in a report to be released in April 2024.
Epiq and ABI will host an abiLIVE webinar at 2 p.m. ET July 12 featuring experts providing insights on 2023 filing trends. Deirdre O’Connor, Managing Director for Corporate Restructuring at Epiq, will serve as the moderator with speakers including Morin, ABI President-Elect Chris Ward of Polsinelli and ABI's Ed Flynn. Click here for complimentary registration.
ABI has partnered with Epiq Bankruptcy to provide the most current bankruptcy filing data for analysts, researchers, and members of the news media. Epiq Bankruptcy is the leading provider of data, technology and services for companies operating in the business of bankruptcy. Its Bankruptcy Analytics subscription service provides on-demand access to the industry’s most dynamic bankruptcy data, updated daily. Learn more at https://bankruptcy.epiqglobal.com/analytics.
###
About Epiq
Epiq, a global technology-enabled services leader to the legal industry and corporations, takes on large-scale, increasingly complex tasks for corporate counsel, law firms, and business professionals with efficiency, clarity, and confidence. Clients rely on Epiq to streamline the administration of business operations, class action, and mass tort, court reporting, eDiscovery, regulatory, compliance, restructuring, and bankruptcy matters. Epiq subject-matter experts and technologies create efficiency through expertise and deliver confidence to high-performing clients around the world. Learn more at www.epiqglobal.com.
About ABI
ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes nearly 10,000 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit www.abi.org. For additional conference information, visit http://www.abi.org/calendar-of-events.
J&J Fights to Save Legal Strategy That Would End Cancer Lawsuits
Johnson & Johnson wrapped up a trial today to determine if the health care giant is misusing the bankruptcy system for the second time in less than two years in a bid to force an end to about 40,000 cancer lawsuits, Bloomberg News reported. A bankrupt unit of J&J has been in federal court this week fighting a group of cancer victims who want juries around the country to decide whether their diseases were caused by tainted talc in baby powder the company sold for years. J&J is using the unit’s chapter 11 case to try to force holdouts to accept an $8.9 billion settlement offer. In the coming weeks, Bankruptcy Judge Michael Kaplan, who is based about 25 miles from J&J’s headquarters, must decide whether to throw out the bankruptcy of LTL Management, a unit created to try to end all current and future health claims related to the talc. Earlier this year, a federal appeals court ordered Kaplan to dismiss the first LTL bankruptcy. Judge Kaplan did not say when he would rule on the new bankruptcy case, but told lawyers they can submit a final round of written arguments in July. Since J&J first put LTL into bankruptcy in 2021, victims have been blocked from taking their cancer claims to trial. The bankruptcy strategy was developed after J&J lost some big trials, including one verdict in which the company was forced to pay out $2.5 billion to about 20 women.
Christmas Tree Shops to Liquidate All Stores
Discount home-goods retailer Christmas Tree Shops is headed for liquidation after defaulting on a loan that funds its bankruptcy, the Wall Street Journal reported. The 82-store chain filed for bankruptcy in May with plans to close a small number of underperforming stores and to exit chapter 11 by August. The plan was to restructure the company’s finances while keeping its ownership intact. The retailer took out a $45 million bankruptcy loan, including roughly $20 million in fresh capital, from its lenders. But the creditors terminated the loan after the company defaulted on the terms due to worsening revenues and liquidity, according to a notice filed with the U.S. Bankruptcy Court in Wilmington, Del., on Thursday. The company and its stakeholders have reached an agreement this week to liquidate the remaining roughly 70 stores unless a buyer emerges within the next week or so, according to the filing. “Unfortunately, circumstances have resulted in the plan really not being able to go forward because quite simply, the debtor doesn’t have the time nor the money to go forward with the plan,” said Harold Murphy, a lawyer for the retailer, during a Thursday court hearing. The retailer will no longer present a plan to exit bankruptcy because of the change of course, said Murphy.
Lucky Bucks Noteholders Score a Win in $250 Million Dividend Dispute
A U.S. bankruptcy judge on Friday said she would not allow slot machine operator Lucky Bucks to settle legal claims arising out of a $250 million dividend to insiders, siding with noteholders who are seeking to claw back those payments, Reuters reported. The noteholders, including investment managers BC Partners, Marathon Asset Management and Monarch Alternative Capital, said that Lucky Bucks should not be allowed to settle their claims for a mere $15 million. They asked U.S. Bankruptcy Judge Karen Owens in Wilmington, Del., to liquidate Lucky Bucks Holdings, the corporate parent company that sold them their notes, and separate it from the reorganization of the operating company Lucky Bucks LLC. Owens agreed, ruling that Lucky Bucks Holdings could be converted to a chapter 7 liquidation because it had no creditors other than the aggrieved noteholders. Those noteholders have already voted to reject the company’s chapter 11 settlement, making a chapter 11 reorganization impossible, she said. Judge Owens delayed her ruling from immediately taking effect, however, saying that a premature chapter 7 conversion of the parent company might trigger change-in-control regulations that would make it harder for the operating subsidiary to maintain its slot machine licenses.
