%1

The debate over who deserves to profit from work that originated at a law firm that collapsed comes to a head on Wednesday when New York's highest court will hear arguments in cases stemming from the bankruptcies of Coudert Brothers LLP, which went under in 2005, and Thelen LLP, which closed in 2008, the Wall Street Journal reported today. A decision by the New York Court of Appeals will provide clarity into how much money, if any, should flow back to defunct firms' creditors, including those of the biggest U.S. law-firm failure ever, Dewey & LeBoeuf LLP. At issue is whether the estates of bankrupt law firms have stakes in so-called unfinished business, the assignments taken by partners to a new firm as their old firm dissolves. Bankruptcy administrators have long argued that the failing firms have valid claims. But partners at the nation's top law firms say that client business isn't a commodity that can be bought and sold. They say that clients have the freedom to choose counsel, and lawyers — and their new employers — shouldn't be punished for sticking with an assignment after a law firm collapses.

Energy Future Holdings Corp. is meeting strong headwinds as it attempts to put the financial framework in place for a $42 billion bankruptcy restructuring, the Wall Street Journal reported on Saturday. Objections are piling up from creditors that say the Texas power seller is planning to throw away hundreds of millions of dollars to push through a balance-sheet revamp engineered by lawyers and advisers who rang up $130 million in fees before Energy Future even filed for chapter 11 protection. The objections are aimed chiefly at loans slated for review next week in the U.S. Bankruptcy Court in Wilmington, Del. Creditors take issue with what they say are unnecessary payments in connection with financing arrangements, including at least $105 million to be paid each month to one group of lenders and a $57 million breakup fee Energy Future wants to pledge to another group of lenders.

Longview Power LLC, a West Virginia power plant built at a cost of $2 billion, is seeking a judge's permission to continue to rally support for its latest chapter 11 plan as well as permission to extend the period in which it alone can solicit votes on the plan without interference from outsiders, Dow Jones Daily Bankruptcy Review reported today. At a key hearing today, Bankruptcy Judge Brendan Shannon will consider Longview's requests, which face resistance from two major creditors and an insurance company. The creditors, contractors tied up in long-standing disputes over disrupted operations at the plant, both said that Longview's proposed supplemental chapter 11 plan materials are not ready to be sent out to creditors.

Senior lenders of a major Energy Future Holdings Corp. unit have moved to protect their claim to a $665 million early-payment premium, which was thrown into jeopardy when the company filed for bankruptcy protection, the Wall Street Journal reported on Saturday. Trustees for investors in nearly $4 billion worth of senior bonds want a judge to find Energy Future cannot evade paying the premium because of its chapter 11 filing on April 29. Senior and junior lenders to the Energy Future Intermediate subsidiary say that the premium, more than $1.3 billion between the two debt issues, is the price Energy Future must pay if it wants to refinance $7.7 billion worth of debt. Energy Future disputes that position, but has offered to settle with the lenders for 20 to 50 percent of the amount claimed. The settlement has picked up very little new support since the Texas power company filed for bankruptcy, new court papers say.

A flurry of filings this week in the Evergreen International Aviation bankruptcy case in Delaware has revealed a sharp division among stakeholders, the Oregonian reported today. On one side is an Arizona company that leased 1.5 million square feet to Evergreen to park aircraft. On the other side is a coalition of lenders led by Goldman Sachs. The parties are tussling over who should be first in line when and if the trustee in the case proceeds with a proposed sale of "substantially all" of Evergreen's aircraft assets to Jet Midwest, a Kansas City company.

Unsecured creditors of bankrupt Energy Future Holdings, as well as one group of secured bondholders considered far out of the money, formed a committee yesterday that will play a major role in the restructuring of Texas' biggest power company, Reuters reported yesterday. The seven-member committee, appointed by the Office of the U.S. Trustee, included the Pension Benefit Guaranty Corp. as well as representatives of bondholders and suppliers to the company, which filed for chapter 11 protection on April 29 with $9.6 billion owed to unsecured creditors. The company owes another $32 billion to higher-priority creditors, making it one of the biggest non-financial companies ever to file for bankruptcy. In a rare move, the committee will include a representative of secured noteholders that the company says are so unlikely to get paid that they are essentially involuntarily unsecured.

Energy Future Holdings Corp., the Texas power provider that filed for bankruptcy last month, invited holders of about $4 billion in notes to trade that debt for a share of a loan financing its restructuring, Bloomberg News reported yesterday. The opt-in period ends June 6, subject to a court hearing, Energy Future said today in a filing in bankruptcy court. To get full consideration, the notes, issued by Energy Future Intermediate Holding Co. and EFIH Finance Inc., must be tendered by May 19, the company said. Energy Future filed for bankruptcy April 29, seven years after being taken private in a record $48 billion leveraged buyout. The company has said that it expects to complete its restructuring in 11 months.

A group of landlords and food suppliers expecting to go unpaid in Sbarro LLC's chapter 11 case are set to receive $1.25 million under a settlement reached last week with the Sbarro estate, the Wall Street Journal reported today. Cooley LLP attorney Seth Van Aalten, who represents the creditors, said that Sbarro's lenders have further agreed to continue doing business with the company's vendors and landlords once Sbarro emerges from bankruptcy. The lenders also agree not to sue trade creditors to recover money paid to them in the weeks before Sbarro filed for bankruptcy, Van Aalten said. Sbarro entered chapter 11 protection in March with a proposed bankruptcy exit plan backed by 98 percent of its lenders that swaps $140 million in debt for control of the restructured business. Sbarro said in court filings this week that it intends to go through with that plan after a deadline to bid on the company's assets passed with no potential buyers emerging.

The question at oral argument in the case of Republic of Argentina v. NML Capital Ltd. before the Supreme Court yesterday was whether federal courts in the U.S. may issue subpoenas to banks to help creditors who have won judgments against Argentina find assets around the world, the New York Times reported today. Several justices seemed prepared to allow subpoenas for some information, though some of them suggested the creditors’ requests had been too sweeping. Theodore B. Olson, a lawyer for the bondholders in both cases, said that they were entitled to detailed information because Argentina had been disguising and hiding its assets. “If it’s an airline that says Argentine Air Force on the side of it,” he said, “it still could be commercial property. We need to know what those assets are.” Chief Justice John G. Roberts Jr. said that request went too far. “Doesn’t that seem pretty extraordinary?” he asked, adding: “That’s pretty intrusive at a sovereign level to say you can find out how many jet fighters Argentina happens to have.” Jonathan I. Blackman, a lawyer for Argentina, said the information sought would also intrude on other matters protected by foreign sovereign immunity.

Creditors who say that ReconRobotics Inc. owes them $9.5 million have asked a federal court to put the robotics firm into chapter 11 reorganization, the Minneapolis Business Journal reported yesterday. Edina, Minn.-based ReconRobotics' creditors include Winona, Minn.-based RiverStar Inc. and Rushford, Minn.-based RiverBend, affiliated companies both listing Stephen Craney as president. RiverBend, a manufacturer, said in court filings that it's owed about $3.05 million for unspecified goods. Supply-chain management business RiverStar says it is owed about $5.38 million for goods.