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Companies on the brink of insolvency are increasingly appointing independent directors to their boards as they prepare for a bankruptcy filing, but their neutrality is disputed by creditors, lawyers and academics, WSJ Pro Bankruptcy reported. The companies label these directors as disinterested experts who act to maximize value for creditors by investigating the reasons for the bankruptcy, dealings between the company and its owner, and other matters. The directors’ input carries significant weight with bankruptcy judges, who tend to defer to their findings that a particular settlement or transaction is fair, years of court rulings show. The problem, according to new research, is that some of these directors are biased in favor of the companies that hired them. The directors have financial incentives to build reputations as friendly to the companies and lawyers that help them land similar gigs in the future, researchers at the University of California Hastings College of the Law and Tel Aviv University said in a study published last month. While such directors are independent from the company, they are also “grateful to the lawyers who brought them into the case,” said Al Togut, a bankruptcy lawyer with Togut, Segal & Segal LLP. Some creditors pay the price for this “structural bias,” according to the study, which examined 770 large chapter 11 filings between 2004 and 2019. It found that independent directors sometimes stifled investigations, rejected potential legal claims and rushed negotiations, resulting in less money recovered for low-ranking creditors with the most to lose. Read more. 

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Offshore drilling contractor Seadrill has taken another step towards emerging from chapter 11 bankruptcy by agreeing with stakeholders to raise $350 million and reduce liabilities by about $5 billion, Upstream reported. Seadrill said that it has entered into a plan support agreement with certain of its senior secured lenders holding about 57.8% of the company's senior secured loans as well as a backstop commitment letter entered into with certain of its consenting lenders.The agreements contemplate a plan of reorganization that will raise $350 million in new financing and reduce the company's liabilities by over $4.9 billion, added Seadrill. Certain of the senior secured lenders have also agreed to backstop a first lien exit facility totaling $300 million. The lenders participating in (and backstopping) the new-money facility will collectively receive 16.75% of new equity in the newly constituted Seadrill, subject to dilution.

The latest round of drama for Hertz Global Holdings Inc. concerns its newly re-launched shares, which can be bought and sold by individuals on the open market for about $17, Bloomberg News reported. But insiders who got their stakes as part of the auto rental company’s recent bankruptcy settlement can trade only with other professionals in private markets, at least for now. Those shares are fetching about $5 less, according to investors with access to trading data.

CrimsonBikes, a bicycle shop in Cambridge, Mass., was forced into involuntary bankruptcy after several parties joined to levy a group lawsuit, Boston.com reported. SmartEtailing, which sets up online stores for bike retailers, sued CrimsonBikes in January for telling customers to ask their credit card companies for refunds for undelivered bikes. An updated suit was filed in May, and alleges that CrimsonBikes owes SmartEtailing over $800,000, which includes almost $700,000 that SmartEtailing paid in customer refunds. According to Bicycle Retailer and Industry News (BRAIN), in March two other parties joined SmartEtailing in filing for an involuntary chapter 7 bankruptcy petition against CrimsonBikes: a non-profit developer that CrimsonBikes allegedly owes more than $200,000 and a customer who says he paid $1,061 for a bike he never received. The shop’s landlord also alleges CrimsonBikes owes about $700,000 in back rent.

The Limetree Bay refinery, which landed in U.S. bankruptcy court on Monday, needs at least $1 billion to finish a massive overhaul to continue as a viable operation, according to bankers, lawyers and restructuring specialists involved in the case, stacking the odds against the Caribbean facility resuming operations, Reuters reported. The St. Croix-based facility’s owners burned through $4.1 billion to resurrect what was once the largest refinery in the Western Hemisphere, hoping to take advantage of rising global demand. Instead, the refinery only operated for three months before U.S. environmental regulators shut it in May due to foul odors and noxious releases that harmed nearby communities. Limetree filed for chapter 11 protection with no clear path to restructure some $1.8 billion in debt. It says it needs “at least $150 million” to restart, but restructuring specialists familiar with the operation put that figure at an additional $1 billion. That grim assessment comes from interviews with several Wall Street bankers, lawyers and restructuring specialists involved in the bankruptcy case or closely familiar with it. These sources did not want their names used in this story because they are not authorized to speak publicly about the matter. The facility also now faces the specter of ongoing investigations by the U.S. Environmental Protection Agency and the U.S. Justice Department.

A Roman Catholic diocese in Connecticut filed for federal bankruptcy protection on Thursday to resolve dozens of lawsuits alleging the abuse of teenage students in the 1990s at the former Academy at Mount Saint John School, a residential treatment center for troubled youth in Deep River, the Associated Press reported. Documents filed by the Diocese of Norwich, which oversaw the residential facility, indicate it has $50 million to $100 million in estimated liabilities owed to 50 to 99 creditors. To date, nearly 60 former residents of the school have sued the diocese and a former bishop for damages, exceeding the diocese's current financial ability to pay, according a statement issued by the diocese. According to the filing, the diocese has $10 million to $50 million in assets. The diocese’s parishes, cemeteries, schools and religious orders are not part of the chapter 11 filing, which is not expected to have a direct impact on the day-to-day operations of those entities or the employment status, salaries and benefits of the diocese's employees or retirees, the bishop said.

On the day that the Roman Catholic Diocese of Rochester, N.Y., filed for bankruptcy protection in September 2019, Bishop Salvatore Matano renewed his apology to those who had suffered sexual abuse by priests or other church personnel, the Rochester Democrat and Chronicle reported. The volume of sexual abuse claims and the diocese's bankruptcy case are inextricably linked. Its chapter 11 filing came just a month after New York state opened a one-year legal window to file civil lawsuits for past instances of sexual abuse. Nearly two years have now passed since the Rochester diocese filed its chapter 11 petition with the diocese and victims still at an impasse. The deadline to file claims against the Diocese of Rochester came and went last August, but there have been few signs of any progress towards a resolution. Instead, the two main parties in the case have become deadlocked, filing a series of competing legal motions last month asking U.S. Bankruptcy Judge Paul Warren to intervene and complaining that the other side was being unreasonable in the court-ordered mediation process. Last week, Judge Warren made it clear that he’d had enough. At the outset of a hearing conducted by telephone July 9, Warren noted that he’d read every word of the more than 1,000 pages of legal filings, urging the parties to keep their oral arguments brief. What followed was each side explaining in great detail why the other side was responsible for the lack of progress in mediation. A lawyer representing abuse survivors accused the diocese of trying to make “backroom deals” with insurance companies to limit the amount of money available to pay survivors. Another lawyer, representing the diocese, countered that the amount of money being sought was “out of the stratosphere” and “completely unrealistic.” Eventually, Judge Warren appeared to tire of the back and forth and interjected. Judge Warren made clear that he expected to see some significant progress in the short term, and that if he were called upon again to resolve a stalemate, it was likely that everyone would walk away unhappy. “The court wishes to remind the parties that if the path to non-consensual resolution persists, all parties are at risk for an unfavorable outcome,” Judge Warren said.

Puerto Rico’s financial oversight board struck a bankruptcy deal with the main group of the island’s unsecured creditors, a breakthrough that promises to make it easier to win final court approval of its plan for cutting $35 billion of the government’s debt, Bloomberg News reported. The board and the unsecured creditors reached the understanding on Monday, Brian Rosen, a lawyer at Proskauer Rose LLP, told U.S. District Judge Laura Taylor Swain during a hearing Yesterday. The deal may put pressure on the remaining bond insurers that are among the last still fighting a proposed debt-restructuring plan. At the hearing, Puerto Rico and creditors are discussing the island’s plan for restructuring the last major chunks of debt to be dealt with in the four-year-long bankruptcy, including the government’s general-obligation bonds. On the eve of the hearing, Puerto Rico and the unsecured creditors reached an agreement that would increase their payouts to $575 million from $125 million, Rosen said.

U.S. Bankruptcy Court Judge Alan Koschik gave Akron-based Energy Harbor a three-month delay in filing documents that detail how four hired guns intervened in Ohio Statehouse politics and House Bill 6, the Columbus Dispatch reported. Last year, Judge Koschik told four men at Akin Gump Strauss Hauer & Feld to give him answers about their involvement in legislative races and getting the energy bill passed. Energy Harbor hired Akin Gump, an international law firm, to help with its bankruptcy and lobbying efforts. In January, Judge Koschik agreed to a six-month delay to getting answers. Energy Harbor attorney Jonathan Streeter yesterday told Judge Koschik that the men completed the "declarations" but making those statements public while Energy Harbor cooperates with federal prosecutors would be detrimental. Energy Harbor needs more time to cooperate with federal prosecutors in secret, he argued. Energy Harbor, formerly known as FirstEnergy Solutions and owner of two nuclear power plants in northern Ohio, filed for chapter 11 bankruptcy in March 2018 and emerged in February 2020. During that time, state lawmakers passed a $1.3 billion bailout bill that would provide a subsidy to keep the nuclear plants operating as well as other perks to utilities.

West Virginia Attorney General Patrick Morrisey said he will oppose OxyContin maker Purdue Pharma’s bankruptcy plan, arguing that his state, one of the hardest hit by the opioid epidemic, would get shorted in settlement money, the Associated Press reported. “I remain vigorously opposed to a proposed allocation formula that would distribute settlement funds largely based on a state or local government’s population — not intensity of the problem,” Morrisey said yesterday. Purdue’s plan to reorganize into a new entity that helps combat the U.S. opioid epidemic got a big boost last week as 15 states that had previously opposed the new business model gave their support. The agreement from multiple state attorneys general, including those who had most aggressively opposed Purdue’s original settlement proposal, was disclosed last Wednesday in a filing in U.S. Bankruptcy Court in White Plains, New York. It followed weeks of intense mediations that resulted in changes to Purdue’s original exit plan.