A ppt on bankruptcy basics for business lawyers.

1. Bankruptcy for Business Lawyers Thomas Wallrich and Steven Silton

2. INTERSECTION OF BUSINESS LAW AND BANKRUPTCY

3. INTERSECTIONS OF BUSINESS AND BANKRUPTCY Business client in financial trouble. Trade Debt. Tax Debt. Change in interest rates. Vendor in financial trouble. Vendor in bankruptcy. Vendor not in bankruptcy. Customer or receivable debtor in bankruptcy. Owners and/or Officers in financial trouble. Business opportunities in bankruptcy.

4. Questions What happens to unsecured creditors? What happens to secured obligations? What happens to leases? What happens to unfulfilled contracts? What can be done about tax obligations? Who controls the debtor’s assets? Who can buy the debtor’s assets? What are the risks of doing business with a debtor?

5. Biblical Times 7 Years till forgiveness Deuteronomy 15:1-4

6. Bankruptcy in History IN ROMAN TIMES- 12 tablets 451-450 B.C. Cessio Bonorum BK Law enacted by Julius Caeser

7. U.S. Law Constitution provides for regulation of Bankruptcy laws by congress. Five Bankruptcy Laws. 1800 1841 1867 1898 1978 and amendments.

8. Forms of Bankruptcy Chapter 7 Chapter 11 Chapter 13

9. Automatic Stay11 U.S.C 362 All creditor action and litigation stayed without any further action by debtor.

10. Relief from Stay Section 362 (d)(1). For “cause” including a lack of adequate protection. Considerations for cause: Existence of insurance coverage; Judicial economy; How far has the litigation progressed; Specialized area of law; Is full relief available without the debtors; Creditors probability of success; Interest of the debtor.

11. Cash Collateral Section 363 (a) The most fundamental right a debtor has is to use it’s own cash. Need the consent of creditor or court order. Helpful to have a understanding with secured creditor prior to filing. Contested cash collateral hearing often determines ability to reorganize.

12. Adequate Protection Section 361. All interest in non-cash assets must be protected against loss or diminution in value in Chapter 11. Manners of adequate protection: Periodic cash payments; Replacement lien; Other relief.

13. Executory Contracts-Unexpired Leases Section 365. Debtor has absolute right to assume or reject executory contracts and leases. Breathing spell following filing to review which leases and contracts are profitable and or necessary for the business operations. Debtor may unilaterally choose to reject.

14. Determination of Interest Lease or security interest affects treatment. Determined by state law. If lease, governed by Section 365, otherwise by Section 506 (determination of extent of secured claim) and by Section 361 (adequate protection).

15. Leases and Executory ContractsTiming 120 deadline. Extended only once for 90 days. No further extension without consent of landlord.

16. Sales of Property of the Estate Section 363(f). Allows the debtor to sell property free and clear of liens if: Sale does not violate non-bankruptcy law; Entity consents; Sale price is in excess of outstanding liens; Such interest is in a bona fide dispute; or, Such entity could compelled, in a legal or equitable proceeding, to accept a money satisfaction of such interest.

17. Section 363 and Beyond Additional property can be sold, including: A life estate; Licenses (i.e. Liquor license, profits, etc.); Claims. Reorganization often exists of the sale of property out of a bankruptcy and distribution of proceeds (commonly referred to as a 363 Bankruptcy)

18. Conversion or Dismissal Section 1112(b)(4). Cause includes: Continuing loss; Gross mismanagement; No insurance; Unauthorized use of case; Failure to comply with court order.

19. Plan and Disclosure Statement Section 1123 defines content of plan. Section 1125 defines content of disclosure statement. Contract Between Debtor and Creditors. Plan classifies similar claims and defines distributions. Debtor has exclusive right to file a plan for 120 days.

20. Claims in Bankruptcy Definition. Section 101 (5). Any right to payment. Or any right to an equitable remedy which gives rise to a right to payment. Procedure. Properly filed proof of claim is prima facie proof of validity. Section 502 (b) states grounds for allowance/objections to claims.

21. Secured Claims Section 506. Claim is secured only to the extent of the value of collateral. Adequate protection is provided to the extent of security interest.

22. Priority Claims Section 507 lists which claims have priority treatment: Approved administrative expenses; Taxes; Section 502 (f) gap claims; Certain wages, salaries and commissions up to $10,000. Employee benefit contributions.

23. Preference Claims Section 547: Transfer; To or for the benefit of a creditor; For or on account of an antecedent debt. Made within 90 days (1 year for insiders) of filing; Made will debtor was insolvent; Which gives creditor more than he would have received in a liquidation.

24. Fraudulent Conveyances Section 544 and 548. Transfer for less than adequate consideration. Timing (2 years)or under state law.

25. Bankruptcy Court Litigation Jurisdiction. Venue.

26. 2005 Amendments Ten things you need to know about business bankruptcy after bankruptcy reform

27. 2005 Amendments Automatic Stay A number of exceptions including what could be construed as a good faith exception.

28. 2005 Amendments Changes to the administration of small business bankruptcies. New restrictions on preferences. Venue and other changes to preference litigation. Chapter 15.

29. 2005 Amendments Changes to lease and executory contract provisions. Expanded grounds for appointment of trustee or examiner. Expanded ability to solicit acceptance. Utilities have much greater power. Secured creditors stronger. Unsecured creditors more regulated.

30. Back to the Questions-Intersections

31. INTERSECTION REVISITED Business client in financial trouble. Trade Debt. Tax Debt. Change in interest rates. Answers: Review cash flow without unsecured creditor payments. Review secured creditor structure (cash collateral). Review bad leases and contracts. Review creditor claims. Review pending litigation.

32. INTERSECTION REVISITED Vendor in financial trouble. Vendor in bankruptcy. Vendor not in bankruptcy. Answers: Reviewing existence of security. Analyze potential preferences. Review reclamation issues.

33. INTERSECTIONS REVISITED Customer or receivable debtor in bankruptcy. Answers: Review status of bankruptcy. Don’t pay without court order. Make sure you are paying right person. Owners and/or Officers in financial trouble. Answers: Watch out for tax issues. No key employee compensation arrangements. Monitor pension funds contributions. Avoid fiduciary traps.

34. INTERSECTIONS REVISITED Business opportunities in bankruptcy. Answers: Understand your clients’ markets. Educate your clients’ on ability to purchase property from debtors. Maintain relationship with local trustees, turnaround companies and liquidators.

35. INTERSECTION REVISITED Inform clients that an official letter from a “Trustee” for a demand for a repayment of a preference should not be honored without review. File claims as soon as received. Watch for objection to claims which are often done in bulk. File right claim.

36. The End