%1

Despite a last-minute pardon by former President Donald Trump in his criminal case, tech pioneer Anthony Levandowski's legal woes continue after he was forced to file for bankruptcy protection on the same day he was ordered to pay Google $179 million in a contract dispute last year, FreightWaves reported. Uber Technologies, Inc. is now taking issue with the proposed terms of his bankruptcy, claiming he used "legally dubious techniques to shelter his wealth from creditors," according to an Ars Technica article published earlier Thursday. "I continue to view many of the transactions in which Levandowski engaged immediately prior to the filing of this bankruptcy case with an incredibly jaundiced eye," U.S. Bankruptcy Judge Hannah Blumenstiel said on a phone conference last week, the news outlet reported. Levandowski filed for chapter 11 bankruptcy protection on March 4, 2020, in the U.S. Bankruptcy Court for the Northern District of California. Levandowski's attorney, Neel Chatterjee of Goodwin Proctor LLP, told FreightWaves at the time. He listed $50 million to $100 million in assets, compared with $100 million to $500 million in liabilities, according to the filing. Between 2016 and 2017, Levandowski received $127 million for his work on autonomous vehicle technology at Google. Uber claims in court filings that he "immediately put in motion an elaborate scheme to shield his assets from creditors."

The coronavirus is making it nearly impossible for bankrupt small businesses to predict their future income, adding a surprise wrinkle to a recently enacted law that aims to streamline small debtors’ reorganization, Bloomberg Law reported. Subchapter V of chapter 11 created a new process under which a small business currently with less than $7.5 million in debt can restructure in bankruptcy. The $7.5 million threshold was established by the CARES Act, but sunsets back to the original amount of $2,725,625 unless Congress extends the enhanced limit by March 27. Under the subchapter V, debtors can pay off creditors over a three- to five-year period under a payment plan based on “projected disposable income.” That figure should have been a routine determination based on past business performance. Then the pandemic hit. Covid-19-fueled uncertainty has driven debtors to lowball their projections, while court-appointed trustees have fought to boost creditor recovery. That conflict has become the focal point of bankruptcy cases for small businesses seeking to reorganize under Subchapter V. “Projecting future income is always a trick and the pandemic has made that trick trickier,” said Donald L. Swanson, a bankruptcy attorney at Koley Jessen in Omaha, Neb. Before the law went into effect, bankrupt smaller companies usually overstated their expected income to show they could keep up with payments on secured assets in order to get their plans confirmed, Swanson said. “Subchapter V has flipped that on its ear a little bit,” he said. Debtors with more unsecured debt—such as service-based businesses—now have an incentive to understate projected income to keep plan payments low, Swanson said. Without a committee, the subchapter V trustee may be the only one advocating in court for higher creditor payments in the Chapter 11 plan. Creditors have the right to intervene in a subchapter V case, but many are small businesses themselves and often don’t have the time or resources to do so. Lower payments aren’t all bad news for creditors, however. For many, the real recovery “is not what you’re getting from the distribution in the plan,” said Barbra R. Parlin, an attorney at Holland & Knight LLP in New York, whose practice includes bankruptcy, restructuring, and creditors’ rights. “It’s the fact that they have an ongoing customer. That’s what’s important to them.”

For more news, analysis and statistics on subhcapter V and the Small Business Reorganization Act, be sure to visit ABI's SBRA Resources page.

Knotel Inc. has struck a deal with unsecured creditors that will give potential bidders more time to submit offers to acquire the office-space startup’s assets out of bankruptcy, WSJ Pro Bankruptcy reported. Knotel agreed to push back to March 12 the deadline for submitting asset bids, lawyers for the company and a committee representing unsecured creditors said yesterday during a hearing in the U.S. Bankruptcy Court in Wilmington, Del. The committee includes food-delivery startup DoorDash Inc., technology company Neustar Inc. and landlords. The agreement resolved challenges the committee raised over the tight sales timeline Knotel is pursuing. Knotel originally floated a Feb. 28 bid deadline, which would be about a month after the company filed for bankruptcy. A subsidiary of real-estate services firm Newmark Group Inc. has made an offer to acquire Knotel’s assets in exchange for forgiving up to $70 million in company debt. The bid from the Newmark Group subsidiary, Digiatech LLC, will set the floor for any additional offers Knotel receives in the next few weeks.

Kirkland & Ellis LLP is showing up in a special role in the National Rifle Association’s tangled bankruptcy case as the gun-rights group faces challenges over its decision to seek court protection, WSJ Pro Bankruptcy reported. The NRA on Wednesday filed court papers seeking permission to hire Kirkland as special litigation counsel after it said that lawsuits drove it to file for bankruptcy. New York has accused the NRA of allegedly misusing charitable funds, adding to a number of other legal fights over alleged mismanagement. Managing the litigation is the chief goal of the bankruptcy case, the NRA has said. Some Kirkland partners, including former U.S. Solicitor General Paul Clement, have handled Second Amendment matters for the NRA for years as part of its business with the gun rights organization. The bankruptcy rules being invoked to tap Kirkland as a special litigation counsel limit the purposes for which the law firm could work, and indicate it won’t be involved in restructuring the organization. The move to hire Kirkland as a special litigator in chapter 11 comes after federal bankruptcy watchdogs challenged the qualifications of the NRA’s longtime lead law firm, Brewer, Attorneys and Counselors, to serve as special counsel in the bankruptcy case for work on matters different than Kirkland would.

Gym chain YouFit Health Clubs LLC got a new leader and owners as the company wraps up its bankruptcy case, Bloomberg News reported. The fitness chain, which filed for chapter 11 in November, will be run by a group of former lenders that took control through the court reorganization process, according to a statement Thursday. Birch Grove Capital is the majority shareholder. YouFit also appointed Brian Vahaly as its new chief executive officer. Vahaly was formerly chief financial officer of strength-training studio chain Solidcore and earlier worked in private equity and venture capital roles. The fitness industry is seeking to recover from pandemic-induced forced closures and limits on capacity. Chains including Gold’s Gym International Inc., 24 Hour Fitness Worldwide Inc. and the owner of New York Sports Clubs also sought bankruptcy protection last year. Youfit filed for bankruptcy with a tentative deal to sell itself to lenders in exchange for debt forgiveness, court papers show. It won approval of the sale in December after agreeing to notify gym-goers that their memberships would be transferred to the new owners. The company has 80 locations in the U.S., many of them in Florida, according to its website. YouFit was founded in St. Petersburg, Florida in 2008 and remains headquartered in the state.

The owners of 70 Missouri and Illinois Jack in the Box restaurants filed for bankruptcy this week, citing competition and the coronavirus pandemic, the St. Louis Post-Dispatch. The chapter 11 filings potentially affect 57 restaurants in Missouri, with 1,338 full- and part-time workers, and 13 restaurants in Illinois, with another 332 workers, but the filings say major creditors “have tentatively agreed to attend mediation” after the bankruptcy case is filed and lawyers have submitted motions so employees will still be paid. Tuesday’s filing in St. Louis says the companies, Missouri Jack LLC and Illinois Jack LLC, were already feeling financial pressure from increased fast food competition that reduced market share and made it hard to find employees. The companies fell behind in payments on a loan from City National Bank, their largest creditor, and the bank filed a complaint earlier seeking more than $15 million due on several loans. Then the coronavirus pandemic struck, the filings say, hurting business more. The companies were negotiating, and proposed closing seven or eight unprofitable restaurants, but couldn’t strike an agreement with the bank, the filings say. Missouri Jack owes $927,000 to its top 20 creditors, other than the bank and Jack in the Box, including $115,000 to Ameren and nearly $168,000 to American Express, according to court records. Illinois Jack owes nearly $170,000 to its top 20 creditors.

The judge presiding over the Boys Scout of America bankruptcy is weighing a request by insurance companies for permission to serve document requests on 1,400 people who have filed sexual abuse claims and to question scores of them under oath in an effort to determine whether there is widespread fraud in the claims process, the Associated Press reported. The insurance companies maintain that tens of thousands of sexual abuse claims that have been filed in the case appear to be barred by the passage of time based on statutes of limitation in many states. Thousands more lack essential information needed to determine their validity, such as identifying a connection with the Boy Scouts or the name of a perpetrator, according to the insurers. In addition to wanting to question alleged abuse survivors, the insurance companies on Wednesday requested permission to question and collect documents from 15 plaintiffs’ attorneys who personally signed hundreds of claims. Claim forms typically must be signed by the claimants themselves, but in the days leading up to the deadline last November, some attorneys signed several hundred claim forms a day. The insurers contend that a large percentage of attorney-signed claims are missing critical information, and that many appear to be submitted “machine-gun style,” with photocopied attorney signatures and signature pages generated before the proofs of claim were even created. Bankruptcy rules state that by signing a document submitted to the court, an attorney certifies that he or she has reviewed the contents to ensure it has evidentiary support.

Tyson Foods Inc.’s meat-producing unit and bankrupt Easterday Ranches Inc. have a court-approved pact that will keep cattle moving toward the market while the ranch operation and Tyson try to settle their differences in bankruptcy court, WSJ Pro Bankruptcy reported. Tyson Fresh Meats Inc. has accused Easterday of a $200 million fraud involving allegedly phony billing by the ranching business that was supposed to be caring for its cattle. More than 50,000 head of cattle were left on Easterday’s Washington state property earlier this month when the family-run ranch business filed for chapter 11 protection. Tyson had sued, accusing Easterday of billing for feed and care for nonexistent cattle. At that session, Judge Whitman Holt approved the settlement, after hearing from Easterday Ranches that it had few options. With no long-term source of financing in sight, Easterday Ranches lawyer Maxim Litvak said the business had no choice but to allow Tyson to take some of its cattle away. Tyson is the ranch’s sole customer and the $1.4 million that Easterday will receive as part of the pact is the only ready cash coming in right now, the ranch’s lawyer said.

Chinese coffee chain Luckin Coffee said yesterday that its board had found no evidence of misconduct by Chief Executive Jinyi Guo during a month-long investigation into allegations made by some employees, Reuters reported. Guo, who took over after the competitor to Starbucks ousted co-founder and chairman Charles Zhengyao amid an internal fraud investigation, had denied the allegations. The coffee chain’s explosive growth was halted last year by an investigation into its accounts for overstating 2019 revenue and understating net loss. This resulted in a penalty of $180 million to settle the fraud charges and the company seeking bankruptcy protection. The latest investigation found that some members of the company’s former management had participated in the planning of the petition letter sent to the board on Jan. 4. Luckin said that the special panel of the board reviewed more than 50,000 transaction documents, emails and other documents, and interviewed nearly 40 individuals, both external parties and staff. The investigation team included board members, outside counsels and forensic accounting experts.

Discount department store Century 21 is plotting a comeback. The New York City-based retailer, known for its designer deals on Chanel, Prada and Valentino, is relaunching this year after going bankrupt in 2020 and liquidating its stores, in part as a result of the coronavirus pandemic, FoxBusiness.com reported. The first store to reopen, meanwhile, will be overseas. The Gindi family, owners of the store for 60 years, bought back the intellectual property of the Century 21 brand, which had 13 store locations in New York, New Jersey, Pennsylvania and Florida. The store will continue operate as a family-run business, Century 21 said. The first store to reopen, meanwhile, will be located in South Korea, a move the company says was in place before the pandemic. The retailer will launch in the city of Busan this summer, whileeying a relaunch in the U.S., starting with New York. Details are slated to be announced in the coming weeks.