In Hafen v. Adams (In re Hafen), 616 B.R. 570 (B.A.P. 10th Cir. 2020), a bankruptcy appellate panel from the Tenth Circuit ("BAP") held that the bankruptcy court is the only court with subject-matter jurisdiction to decide whether a claim or cause of action is property of a debtors' bankruptcy estate. As a consequence, the BAP held that the bankruptcy court abused its discretion by permitting a state court to determine whether creditors had "standing" to sue third-party recipients of allegedly fraudulent transfers. The decision illustrates the distinction between "bankruptcy standing" and "constitutional standing" to sue in federal courts.

Jurisdiction Over Estate Property in Bankruptcy

Federal district courts have "original and exclusive jurisdiction" of all "cases" under the Bankruptcy Code. 28 U.S.C. 1334(a). District courts also have "original but not exclusive jurisdiction of all civil proceedings arising under" the Bankruptcy Code, "or arising in or related to cases" under the Bankruptcy Code. 28 U.S.C. 1334(b). District courts may (and do), however, refer these cases and proceedings to the bankruptcy courts in their districts, which are constituted as "units" of the district courts. 28 U.S.C. 157(a).

A federal district court in which a bankruptcy case is commenced or pending also has exclusive jurisdiction over all of the debtor's property, wherever located, property of the debtor's bankruptcy estate (as defined in section 541(a) of the Bankruptcy Code), and all claims or causes of action involving the retention of bankruptcy professionals. 28 U.S.C. 1334(e). Under section 541(a)(1), the estate includes "all legal or equitable interests of the debtor in property as of the commencement of the case." Accordingly, claims and causes of action belonging to the debtor on the petition date are estate property. See In re Wilton Armetale, Inc., 968 F.3d 273, 280 (3d Cir. Aug. 4, 2020) (citing 11 U.S.C. 541(a)(1); U.S. v. Whiting Pools, Inc., 462 U.S. 198, 205 n.9 (1983); Bd. of Trs. of Teamsters Local 863 Pension Fund v. Foodtown, Inc., 296 F.3d 164, 169 (3d Cir. 2002)).

As the "representative of the estate" with the "capacity to sue and be sued" on its behalf (see 11 U.S.C. 323(a), (b)), the bankruptcy trustee or, by operation of section 1107(a) of the Bankruptcy Code, a chapter 11 debtor-in-possession ("DIP"), has the exclusive authority to assert estate claims and causes of action. Armetale, 968 F.3d at 280. Thus, after a debtor files a bankruptcy petition, the debtor's creditors lack authoritysometimes referred to as "standing"to assert claims that are estate property. Id.; accord In re Emoral, Inc., 740 F.3d 875, 879 (3d Cir. 2014); Highland Capital Mgmt. LP v. Chesapeake Energy Corp. (In re Seven Seas Petrol., Inc.), 522 F.3d 575, 584 (5th Cir. 2008); Logan v. JKV Real Estate Servs. (In re Bogdan), 414 F.3d 507, 51112 (4th Cir. 2005).

In keeping with 28 U.S.C. 1334(e), nearly all courts that have considered the question have concluded that the jurisdiction to determine what qualifies as estate property lies exclusively with the bankruptcy court. See, e.g., Brown v. Fox Broad. Co. (In re Cox), 433 B.R. 911, 920 (Bankr. N.D. Ga. 2010) ("It is generally recognized that '[a] proceeding to determine what constitutes property of the estate pursuant to 11 U.S.C. 541 is a core proceeding under 28 U.S.C. 157(b)(2)(A) and (E),' and that, '[w]henever there is a dispute regarding whether property is property of the bankruptcy estate, exclusive jurisdiction is in the bankruptcy court.'" (citations omitted)); accord Gardner v. U.S. (In re Gardner), 913 F.2d 1515, 1518 (10th Cir. 1990); Brown v. Dellinger (In re Brown), 734 F.2d 119, 124 (2d Cir. 1984); Montoya v. Curtis (In re Cashco, Inc.), 614 B.R. 715, 722 (Bankr. D.N.M. 2020); In re DeFlora Lake Dev. Assocs., Inc., 571 B.R. 587, 593 (Bankr. S.D.N.Y. 2017); In re Brown, 484 B.R. 322, 332 n.2 (Bankr. E.D. Ky. 2012); Mata v. Eclipse Aerospace, Inc. (In re AE Liquidation, Inc.), 435 B.R. 894, 90405 (Bankr. D. Del. 2010); Heolena Chem. Co. v. True (In re True), 285 B.R. 405, 412 (Bankr. W.D. Mo. 2002); Manges v. Atlas (In re Duval Cty. Ranch Co.), 167 B.R. 848, 849 (Bankr. S.D. Tex. 1994).

However, in the interests of justice or comity with state courts, a bankruptcy court may relinquish its exclusive jurisdiction to make that determination by abstaining under 28 U.S.C. 1334(c)(1) in deference to another tribunal better suited to adjudicate the issue. See In re Ament, 2020 WL 354888, at *4 (Bankr. D.N.M. Jan. 21, 2020) ("Construing 1334(c)(1) and 1334(e) together, it is clear that, although the bankruptcy court has exclusive jurisdiction over property of the estate once a petition is filed, the bankruptcy court may choose to abstain from exercising its jurisdiction and modify the stay to allow a state court to divide community property."); accord In re Maxus Energy Corp., 560 B.R. 111, 120 (Bankr. D. Del. 2016); In re Thorpe, 546 B.R. 172, 177 (Bankr. C.D. Ill. 2016), aff'd, 569 B.R. 310 (C.D. Ill. 2017), aff'd, 881 F.3d 536 (7th Cir. 2018).

Hafen

Several years before filing a chapter 7 case in 2004 in the District of Utah, securities broker-dealer Roy Nielson Hafen ("debtor") operated a Ponzi scheme that defrauded investors. Although the debtor's chapter 7 schedules listed the defrauded investors as creditors and the creditors were notified of the bankruptcy filing, the investors did not file proofs of claim or otherwise participate in the bankruptcy case. The debtor received a bankruptcy discharge in 2004.

Alleging that the debtor had concealed assets, several investors sought to reopen the case 13 years later. Without seeking bankruptcy court authority, the investors also sued the debtor, his wife, and several related entitles in state court seeking to avoid and recover fraudulent transfers and undisclosed assets under state law.

The debtor argued that the causes of action in the state court complaint belonged to his bankruptcy estate and filed a motion in the bankruptcy court to sanction the investors for violating the discharge injunction under section 524(a) of the Bankruptcy Code. In connection with the hearing on the motion, the debtor and the investors agreed that the state court could decide whether the investors had standing to sue. The debtor's newly appointed chapter 7 trustee did not weigh in on the matter.

The bankruptcy court denied the motion for sanctions and ruled that whether the investors had standing to sue could be decided by the state court. In so ruling, the bankruptcy court relied on the investors' representation that they did not intend to collect any judgment from the debtor but from third parties, which is permitted under section 524(e). The debtor appealed to the BAP.

The BAP's Ruling

A three-judge panel of the BAP reversed the ruling and remanded the case below.

Writing for the panel, Judge Terrence L. Michael held that the bankruptcy court erred by not deciding whether the investors had "standing" to assert the claims asserted in their complaint. Judge Michael looked to 28 U.S.C. 1334(e)(1) and the Tenth Circuit's determination in Gardner that lawmakers intended "to grant comprehensive jurisdiction to the bankruptcy courts so that they might deal efficiently and expeditiously with all matters connected with the bankruptcy estate" (internal quotation marks and citations omitted). On the basis of these authorities, he wrote that "[t]he jurisdiction to determine what is property of the estate lies exclusively with the bankruptcy court."

Judge Michael explained that the investors' standing to assert fraudulent transfer claims totally depended on whether such claims constituted property of the bankruptcy estate, "an issue over which the Bankruptcy Court has exclusive jurisdiction." If the fraudulent transfer claims were estate property, he wrote, "only the chapter 7 trustee has standing to pursue those claims." According to Judge Michael, standing to pursue assets that were not disclosed in the debtor's bankruptcy filing also hinged on whether the claims belonged to the estate. In both instances, he ruled, the bankruptcy court did not have discretion to allow the state court to resolve the standing question.

The BAP also faulted the bankruptcy court's denial of the debtor's motion to sanction the investors. The bankruptcy court found no violation of the discharge injunction because the investors sought to establish the debtor's liability only so that they could recover any judgment from third parties. According to Judge Michael, if the claims were property of the estatemeaning that the investors lacked standing"the 524(e) safe harbor applicable to claims against entities separate from the Debtor may not apply." However, because the evidence did not establish whether the claims were estate property, the BAP remanded the case to the bankruptcy court to "determine whether the causes of action are property of the bankruptcy estate, and, after making that determination, determine whether the Investors had standing to bring those claims."

Outlook

The BAP's analysis of the issues in Hafen in terms of "standing" to assert claims belonging to the bankruptcy estate raises an interesting question regarding the confusing nature of "standing" in bankruptcy. "Standing" is the ability to commence litigation in a court of law. It is a threshold issuea court must determine whether a litigant has the legal capacity to pursue claims before the court can adjudicate the dispute. In bankruptcy cases, the concept most commonly arises in connection with: (i) the right of parties-in-interest (e.g., creditors, shareholders, and committees) to participate in chapter 11 cases; and (ii) the ability of parties other than a bankruptcy trustee or DIP to assert claims or causes of action that may be property of the debtor's bankruptcy estate. This "bankruptcy" or "statutory" standing is distinct from the "constitutional standing" to sue, which is jurisdictionalif a potential litigant lacks constitutional stating, the court lacks jurisdiction to adjudicate the dispute.

The distinction between constitutional and bankruptcy standing was recently examined by the U.S. Court of Appeals for the Third Circuit in Armetale, in which the court of appeals held that the ability of a creditor to sue in bankruptcy is not a question of standing but, rather, an issue of statutory authority. The Third Circuit explained that, in accordance with the U.S. Supreme Court's decision in Lexmark Int'l, Inc. v. Static Control Components, Inc., 572 U.S. 118, 125 (2014), constitutional standing has only three elements: (i) there must be "a concrete and particularized injury in fact"; (ii) the injury must be "fairly traceable" to the defendant's conduct; and (iii) "a favorable judicial decision" would likely redress the injury. Armetale, 968 F.3d at 291 (citing Lexmark, 572 U.S. at 125). Once a plaintiff satisfies those elements, the action "presents a case or controversy that is properly within federal courts' Article III jurisdiction." Id.

Guided by Lexmark and the Seventh Circuit's ruling in Grede v. Bank of N.Y. Mellon, 598 F.3d 899, 900 (7th Cir. 2010), where the court observed that bankruptcy "standing" is doctrinally "abnormal," the Third Circuit concluded in Armetale that "a litigant's 'standing' to pursue causes of action that become the estate's property means its statutory authority under the Bankruptcy Code, not its constitutional standing to invoke the federal judicial power." It accordingly ruled that, although a creditor ordinarily would have constitutional standing to pursue a claim belonging to a bankruptcy estate, it may lack statutory authority to assert the claim unless the trustee or DIP has abandoned the claim or the creditor has suffered a direct, particularized injury.

The U.S. Court of Appeals for the Sixth Circuit also recently examined bankruptcy standing in In re Capital Contracting Co., 924 F.3d 890 (6th Cir. 2019). In that case, a law firm withdrew its claim for fees owed by a chapter 7 debtor it had represented in pre-bankruptcy state court litigation as part of a settlement of the chapter 7 trustee's legal malpractice claims against the law firm. After discussing the distinction between bankruptcy and constitutional standing, the Sixth Circuit ruled that the law firm did not have Article III standing to appeal the bankruptcy court's order approving the trustee's final report, based on the report's failure to list the debtor's appellate rights in the state court lawsuit as an asset. According to the Sixth Circuit, the failure to list those rights as an asset could not financially harm the law firm because it had settled with the trustee and withdrawn its fee claim.

Excerpt from:

Tenth Circuit BAP: Bankruptcy Courts Have Exclusive Jurisdiction to Determine Whether Claims Are Estate Property - JD Supra

Street performers in Minnie Mouse costumes pass in front of an AMC movie theater at night in the Times Square neighborhood of New York, Oct. 15, 2020.

Amir Hamja | Bloomberg | Getty Images

For the world's largest cinema chain, bankruptcy could be the best option to survive the coronavirus pandemic.

Thecrisis has battered theaters since March, crunching their bottom lines, but no one has been hit harder than AMC. The cinema chain headed into the pandemic with nearly $5 billion in debt, which it had amassed outfitting its theaters with luxury seating and from buying competitors such as Carmike and Odeon.

Since January, shares of the company have plummeted more than 60%, including 30% over the last five days.

Last Friday, AMC said Mudrick Capital Management agreed to invest $100 million to help the cash-strapped movie theater chain survive the pandemic. However, AMC will still need at least $750 million in liquidity to fund cash requirements through 2021.

"Frankly I believe that Chapter 11 is really the only path that will lead to AMC surviving," said Doug Stone, president of Box Office Analyst. "I cannot imagine that there is an appetite out there for another $750 million of stock sales, and any debt they assume will be at astronomical rates."

AMC has been focused on fundraising for months. It already renegotiated its debt to improve its balance sheet this year and is exploring several ways of acquiring additional sources of liquidity. It is also trying to figure out ways to increase attendance.

"The easy answer is that if they declare bankruptcy, it is likely to be a reorganization rather than a liquidation," said Wedbush analyst Michael Pachter. "In bankruptcy, they can wipe out their lease obligations and renew those leases that make sense, so arguably they can lower their overall operating expense."

As coronavirus cases have spiked in the autumn and winter months, studios have postponed major blockbusters until mid-2021 and some have opted to release major movies in theaters and on streaming platforms at the same time, cutting into potential ticket sales.

The hope is that with a vaccine, Covid cases will decrease substantially and audiences will be more willing to return to theaters. This, in turn, will give studios confidence to keep major film titles on the calendar. Without fresh content, moviegoers won't return in large enough numbers to give movie theaters a true financial lift.

Still, a vaccine might not be widely available to the public until mid-2021. So while the news is promising, it does not fix the near-term issues that movie theaters are facing.

"I think that now that vaccines are rolling out, creditors and landlords will be willing to work with them," Pachter said."It was hard to offer them more credit when there was no light at the end of the tunnel, but it's likely we will be back to something approaching normal by midyear, so a reorganization makes eminent sense."

AMC did not immediately respond to CNBC's request for comment. The company has reiterated in SEC filings that bankruptcy is a possibility of the company can't raise more funds.

In pre-pandemic times, the theater industry was profitable. In 2019, the domestic box office had its second-best year ever, hauling in $11.4 billion, just shy of the $11.9 billion record posted in 2018. Prior to the global outbreak, 2020 had been poised to reach a similar level.

Now, movie theater chains are desperately renegotiating deals with lenders and landlords and trying to find creative ways to generate revenue. Most major cinemas are now offering cheaper private theater rentals as a way to entice reluctant moviegoers. Others have transformed parking lots into concert venues, launched trivia nights and even negotiated deals with colleges to rent out the space for in-person learning.

Cinema chains face tough headwinds in the first part of 2021, given the limited slate of new films and an expected elevated level of coronavirus cases.

"January is shaping up to be a very challenging month with little of consequence in terms of product," Stone said. "The rollout of vaccines isn't likely, in my mind anyway, to make much of an impact until at least late in Q2. I don't believe AMC can manage without restructuring until then."

But, there is hope for AMC and other domestic movie theater chains, said Eric Wold, senior analyst at B. Riley Securities.

"We have already seen very strong movie-going response within those countries that opened up earlier than the U.S., especially within China, which, we believe, provides a strong early look into what can be expected here in the U.S,." Wold said.

"And given what AMC and many other exhibitors have learned during the pandemic, in terms of operating more efficiently, along with the flexibility of the company's landlord partners, we could actually see AMC emerge from this in a stronger position operationally than prior to the pandemic that would provide a path toward deleveraging the balance sheet once again," he said.

Originally posted here:

AMC could benefit from bankruptcy, analysts say - CNBC

On December 9, 2020, Congressional Democrats, including Elizabeth Warren (D-Mass.) and Jerrold Nadler (D-N.Y.), proposed sweeping legislation that would overhaul consumer bankruptcy law. The proposed changes generally make it easier for consumers to access the bankruptcy system and discharge their debts. Below is a discussion of 10 critical changes proposed in the Consumer Bankruptcy Reform Act of 2020 (CBRA).

The CBRA proposes to replace the current consumer bankruptcy Chapters 7 and 13 with the all-new Chapter 10. Currently, Chapter 7 allows consumers with nominal disposable monthly income to discharge their debts after liquidating any non-exempt assets to repay their creditors. Chapter 13 provides for consumers to discharge their debts after paying their disposable income to creditors under a three- or five-year repayment plan.

Under the CBRA, consumers with debts less than $7.5 million would file under the new Chapter 10. Consumers with debts greater than $7.5 million would seek relief under Chapter 11. To seek relief under Chapter 10, consumers will need to file a petition and some additional schedules and statements, similar to those currently filed pursuant to Bankruptcy Code section 521.

The most recent major amendments to the Bankruptcy Code were passed as the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). Under BAPCPA, consumers discharges were contingent on participation in a credit counseling course and filing a certificate of completion in their bankruptcy cases. The new CBRA eliminates this seemingly arbitrary credit counseling requirement.

Pre-COVID-19, consumers were required to appear in person for section 341 meetings where they were examined under oath by bankruptcy trustees and creditors. As the nation quarantined, 341 meetings began occurring remotely, via conference calls and videoconferencing. Under the CBRA, consumer debtors will still be examined at 341 meetings, but those meetings can be conducted remotely. Additionally, 341 meetings will be scheduled at times that do not conflict with consumers work schedules.

Under the current Bankruptcy Code, consumers bankruptcy cases may be converted to a different chapter or dismissed as abusive if consumers choose to spend their money on certain luxury expenses, such as private school tuition, expensive vehicles payments, and support payments for adult children. The CBRA eliminates the analysis of whether consumers are spending their disposable income on acceptable, non-luxury expenses. Instead, the CBRA looks only to whether consumers have funds to make a minimum payment obligation based on the value of their non-exempt assets and their annual income.

Consumers in Chapter 10 can file one or more plans, including (1) a Residence plan, which addresses mortgages on consumers principal residences; (2) a Property plan, which addresses debts secured by other property; and (3) a general repayment plan, which addresses unsecured debts, such as credit card, medical, and student loan debts. Consumers who must pay a minimum payment obligation will not receive a discharge without confirming a repayment plan.

Residence and property plans under the CBRA allow consumers to change loan interest rates, adjust amortization schedules, and cure defaults. Unlike the current Chapter 13, consumers can change the terms of mortgages on their principal residences under the CBRA. However, unless the residence or property plans are proposed in conjunction with a repayment plan, consumers will not receive discharges with respect to the residence or property debts. Secured creditors retain their liens until receipt of the full amounts owed as of the plans effective dates. Consumers have either 15 years or five years after the maturity date, whichever is longer, to make payments toward secured debts. Significantly, if a consumer defaults under a residence or property plan, the secured creditor is stayed from taking action until the consumer is 120 days delinquent for mortgages and 90 days delinquent for other liens.

Currently, consumers who file for Chapter 7 bankruptcy relief generally receive their discharges in approximately 90 days. Consumers under Chapter 13 receive their discharges after the successful completion of a three- or five-year repayment plan. Instead of these waiting periods, the CBRA provides that consumers who have insufficient non-exempt assets and income to trigger a minimum payment obligation will receive their discharges immediately. Notably, though, certain debts under section 523 of the Bankruptcy Code will still be non-dischargeable. Also, liens on property will continue to survive discharge under the CBRA.

The CBRA evaluates consumers abilities to make payments to their creditors based on the amount of their non-exempt assets and their income. Consumers who must make payments to their creditors will propose repayment plans under which their minimum payment obligation must be paid over a three-year period. Creditors would receive payment under Chapter 10 plans pursuant to the current priority scheme. Plans are confirmed so long as they are feasible, not proposed in bad faith, and pay the full minimum payment obligation amount. Additionally, consumers receive their discharges at the time of confirmation, rather than after the successful completion of plan payments.

Currently, some consumers cannot afford the required pre-filing, lump sum payment for legal representation in a Chapter 7 bankruptcy case. Insufficient cash may lead consumers who would have been eligible for Chapter 7 relief to file under Chapter 13, which allows for debtors attorneys fees to be paid over the course of the case. Consumers in these situations often do not successfully complete their Chapter 13 plans, do not repay their creditors, and do not receive discharges. The CBRA remedies this issue, allowing for consumers attorneys to be paid over time. This provides access to bankruptcy relief for those consumers who would otherwise not be able to afford to file for bankruptcy.

The CBRA amends section 523 to allow consumers to discharge certain previously non-dischargeable debts, including student loan debts. This includes both private and federal student loans. Under the CBRA, student loan debts are generally treated like other unsecured consumer debts.

Beyond amending the Bankruptcy Code, the CBRA also revamps some federal consumer protection financial laws. A new unclean hands provision provides for claims to be disallowed if the claimholder, or its predecessor, violated a federal consumer financial law with regards to the consumer. Additionally, the Fair Debt Collection Practices Act (FDCPA) is amended to provide that filing a proof of claim in bankruptcy for stale debt (i.e., debt that is non-collectable under the applicable statute of limitations) is an unfair practice. The FDCPA is further expanded to provide that collection of or attempts to collect discharged debts, other than those voluntarily paid by consumers, are also unfair practices. To watch over federal consumer protection financial laws in connection with bankruptcies, the CBRA creates a new Consumer Bankruptcy Ombuds at the Consumer Financial Protection Bureau (CFPB).

We will keep you updated of new developments as the CBRA makes its way through Congress.

Link:

Top 10 Changes to Consumer Bankruptcy Proposed in the Consumer Bankruptcy Reform Act of 2020 - JD Supra

There were dozens of retail bankruptcies in 2020, and experts say the pain isnt over yet.

S&P Global Market Intelligence tallied 49 bankruptcies in the retail space as of mid-November, including Ann Taylor parent Ascena Retail Group Inc. ASNAQ, +4.07%, luxury department store Neiman Marcus, home goods specialists Sur La Table Inc. and Brooks Brothers Group Inc.

Thats the largest number of bankruptcies since 2009, during the financial crisis.

COVID-19 was the straw that broke many ailing retailers.Companies that were already struggling to keep up with trends, invest innecessary digital upgrades and shift to modern customer experiences simplycouldnt cope with the added pressure of store closures, a massive shift toe-commerce, safety protocols and other side effects of the coronavirus.

The pandemic has accelerated what was going to happen in anumber of years in a shorter period of time, said Mickey Chadha, Moodys vicepresident. The names that have filed for bankruptcy probably were pulledforward.

Read: U.S. will remain biggest retail market as government stimulus, e-commerce push the nation ahead of China

In addition to stores closing due to bankruptcy and restructuring, many retailers have been using the pandemic period to reconsider their fleet of stores. Gap Inc. GPS, +2.07% and Childrens Place Inc. PLCE, +1.22% are just two of the retailers that have talked of rightsizing their store fleets.

Coresight Research counted 8,401 store closures year-to-date in a Dec. 4 report.

With vaccine distribution ramping up and 2021 around thecorner, a retail recovery isnt going to happen like the flip of a switch.Instead, experts and analysts say there are more retail bankruptcies loomingbefore things get better.

There are still a lot of names that are in distress and weak in retail and apparel, said Chadha. The pandemic will accelerate the trends making the weak weaker and the strong stronger.

Watch: How to pick winners in the retail sector amid the pandemic

On a positive note, the bankruptcy process is intended togive businesses that need it a second chance.

In a general sense there might be a stigma about a bankruptcy. We view the bankruptcy process as a tool to help companies restructure their business and balance sheets, said Dan Guyder, partner at international law firm Allen & Overy.

And its a positive for investors to help a company moveback to growth. There might be some broken glass along the way, but thats thecycle of life for some companies.

In recent weeks, J.C. Penney Co. Inc. JCPNQ, +7.63%, for example, has emerged from bankruptcy and has a number of plans to grow the business, including a new womens brand and a beauty strategy.

Consumers need torecover as well

Its not just retailers that have to recover from the coronavirus-induced economic slump. Shoppers do as well. With government protections against foreclosure and eviction expiring and with the additional government stimulus measures still very uncertain, consumers now have to rethink personal budgets and perhaps tighten up spending habits.

This could throw even the best-laid retailer plans intodisarray.

And: Americans are draining their checking accounts as stimulus talks drag on

Theres more pressure on consumers to redirect availablecash to meet those obligations, said Guyder.

Under normal circumstances, the retail industry is a very organized one, which makes the uncertainty brought on by the pandemic - and a bankruptcy perhaps more difficult for retailers to manage.

Retail is a business of seasonality, depending oncategories and time of year, you see growth or margin deterioration, said MattKatz, managing partner at global advisory SSA & Co. Bankruptcy doesnthave a season.

Taking into account that consumers are going to need time to recover as well is something that retailers have to consider.

People are going to have to replenish savings and nest eggs. Theyll probably owe money to landlords and other obligations, said Katz. [T]heres some catch-up theyre going to have to do to put their finances back in place. Thatll taking some time. Were building that thought process into client plans.

Keeping balancesheets in check will be key in 2021

To be sure, some retail categories thrived during the pandemic, including essential retailers like Walmart Inc. WMT, +0.46% and Target Corp. TGT, -0.26% (shares up 22.4% and 34%, respectively), warehouse retailers like Costco Wholesale Corp. COST, +0.23% and BJs Wholesale Club Holdings Inc. BJ, +2.45% (shares up 25.7% and 63.4%, respectively) and home goods retailers including Wayfair Inc. W, +4.38% and At Home Group Inc. HOME, +3.07% (up 202.2% and 190.6%, respectively).

The Amplify Online Retail ETF IBUY, +2.06% has skyrocketed 121.2% for the year to date and the SPDR S&P Retail ETF XRT, +1.88% is up 35.6% for the period. Both have far outpaced the benchmark S&P 500 index SPX, +0.58%, which has gained 14.6%.

And experts see improvement coming in 2021, particularly forthose categories that took a big hit in 2020.

Moodys is forecasting 516% year-over-year operating profit growth at department stores next year, reaching $1.2 billion; a 489% operating profit boost at off-price retailers, to $4.9 billion; and a 114% increase in operating profit growth at apparel and footwear retailers, to $3.2 billion.

But November retail numbers demonstrate that that path to recovery wont be a smooth. Despite the holiday shopping season, sales fell 1.1% and October sales were revised down.

See: Retail sales sink 1.1% in November as COVID-19 buffets restaurants and economy

For the retailers thathaveexcelled during theCOVID-19 pandemic, wrote Bank of America analysts led by Elizabeth Suzuki, thecomparisons in 2021 get particularlytoughin the middle of the year.The relativelydisadvantaged retailers (non-essential and away-from-homecategories) will have easier year-over-year comparisons in 2021 and couldexperience outsized growth relative to the 2020 winners.

It will be critical for retailers to keep their balancesheets in check going forward.

A lot of names that are weak in the space are private-equityowned, said Moodys Chadha. The leverage of these names is high. The only wayto avoid some sort of distress exchange or bankruptcy will be to improveprofitability, which will be difficult.

The other option is to cut debt, which will require cash.Either way, these companies need to right their balance sheet to besustainable, Chadha said.

If a company needs to take on more debt, Greg Portell, headof global consumer industries and retail at global management consulting firmKearney, says intentionality of the debt is significant.

If youre going to put debt on your balance sheet, you wantto make sure its driving expansion and growth, he said. Many that filed forbankruptcy had debt that was financing mechanism not growth.

Portell thinks disappointing earnings from the holidays will drive more bankruptcy filings.

We will see another wave in the first and second quarter based on the fallout from the holiday season, he said. Consumer spending is strong and doing its part, but not everyone is going to win.

Dont miss: No one likes to admit theyre struggling: Americans are feeling guilty this Christmas about their finances. Heres why

And while many are waiting for things to get back tonormal, it may be more accurate to look towards a new normal.

Looking ahead, retailers are hoping that the vaccinerollout will return some normality to our lives heading into 2021, allowingretailers to recoup their losses from 2020, said MarwanForzley, chiefexecutive ofVeem,a payments platform that works with thousands ofU.S.retailers.

However, while brick-and-mortar stores may regain some oftheir popularity as things start to look more normal again, the pandemic hascertainly altered the way we shop forever and e-commerce will still be anessential revenue stream for retailers, regardless of their size.

Follow this link:

Retail bankruptcies in 2020 hit the highest levels in more than a decade, and experts say there are more to come - MarketWatch

The coronavirus pandemic may have been the last straw for the struggling J.C. Penney company. Wochit

J.C. Penney will close more stores in the springafter alreadyclosing 150-plus stores since filing for bankruptcy.

The retailer, which emerged from bankruptcy this month after beingacquired by mall owners Simon Property Group and Brookfield Asset Management, Inc., will close another 15 stores by the end of March, officials confirmed to USA TODAY Thursday.

"As part of our store optimization strategy that began in June with our financial restructuring, we havemade the decision to close an additional 15 stores," J.C. Penney said in a statement to USA TODAY. "These stores will begin liquidation sales later this month and will close to the public in mid to late March."

Target Christmas Eve 2020: Target announces Christmas Eve ordering deadline for pickup and same-day delivery services

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The department store chain was one of the the largest retailers to file for bankruptcy protectionduring thecoronavirus pandemic. J.C. Penney filed forChapter 11in mid-May 2020 after years of sales declines and two months of disruption from the pandemic.It originally said it plannedto close about29% of its 846 stores or 242 locationsin bankruptcy.

"While store closure decisions are never easy, our store optimization strategy is intended to better position JCPenney to drive sustainable, profitable growth and included plans to close up to 200 stores in phases throughout 2020," the company said in its statement to USA TODAY.

According to a recent report from real estate data tracker CoStar, more than 40 major retailers have declared bankruptcy and more than 11,000 stores have been announced for closure in 2020, which beats past store closings records.

Liquidation sales have been handled differently during COVID-19 with fewer shoppers allowed into stores based on state and local regulations.

The following stores are slated to close in mid to late March and will begin liquidation sales later in December.

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Contributing: Nathan Bomey, USA TODAY

Follow USA TODAY reporter Kelly Tyko on Twitter:@KellyTyko

Read or Share this story: https://www.usatoday.com/story/money/shopping/2020/12/17/jcpenney-stores-closing-march-2021-list-coronavirus-bankruptcy/3940925001/

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J.C. Penney closing more stores after exiting bankruptcy. Will your store close in March 2021? See the list. - USA TODAY

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Cuker Interactive, LLC filed a Chapter 11 bankruptcy petition onDecember 13, 2018, in the United States Bankruptcy Court for theSouthern District of California. Because it was solvent atconfirmation, the debtor proposed to pay secured creditors in full,with interest at the contract rate, and general unsecured creditorsin full, with postpetition interest at the "legal rate,"or a rate determined by the Court that leaves the creditorsunimpaired.1 But what rate is that?

Section 1124(1) provides that where a Chapter 11 plan, and notthe Bankruptcy Code, "impairs" a claim or interest, theimpaired class is entitled to vote on the plan unless it"leaves unaltered the legal, equitable, and contractualrights" of the holders.2 In this case,unsecured creditors argued that they were "impaired"because the plan did not require the debtor to pay postpetitioninterest at the contractual rate or a higher state law judgmentrate.3 Bankruptcy Judge Adler disagreedwith the unsecured creditors' characterization of the plan,noting that the plan instead calls for either the federal judgmentrate, or a "rate determined by the Court for their claims tobe 'unimpaired.'"4

Thus, the "discrete issue here is what is the rate ofpostpetition interest that must be applied for the Creditors'unsecured claims to be unimpaired?"5 InIn re Cardelucci, 285 F.3d 1241 (9th Cir. 2002), the NinthCircuit held that the "interest at the legal rate" due togeneral unsecured creditors of a solvent chapter 11 debtor is thefederal judgment rate.6 While the generalunsecured creditors argued that In re Cardelucci isinapplicable because the Ninth Circuit addressed impairment under 726(a)(5) and 1129(a)(7), not 1124(1), JudgeAdler disagreed, noting that the "Ninth Circuit phrased itsholding broadly to apply to all unsecured claims."7 In reaching their conclusion, theNinth Circuit also relied heavily on In re Beguelin, 220B.R. 94 (BAP 9th Cir. 1998), wherein a Bankruptcy Appellate Panellikewise held that solvent debtors must pay postpetition interestto unsecured creditors at the federal judgment rate.8 Both the Ninth Circuit and the BAPstated that they favored applying the federal judgment rate becauseit promotes uniformity and efficiency.9

Further, in In re PG&E Corp., 610 B.R. 308 (Bankr.N.D. Cal. 2019), another bankruptcy court directly addressed theapplicability of In re Cardelucci to"impairment" under 1124.10There, reasoning that (1) the Ninth Circuit did not narrow theapplication of its holding to "impaired claims," and (2)a uniform rate ensures equitable treatment of creditors, thePG&E court determined that it was bound by In reCardelucci.11

The creditors argued that Judge Adler should adopt the"solvent-debtor exception" applied by several otherCircuit Courts, which "enforces the state law rights ofunsecured creditors in a solvent-debtor case, including their rightto receive postpetition interest at their contractual rate."12 On remand, the UltraPetroleum court held that "where the claims of unsecuredcreditors are 'unimpaired' they must receive postpetitioninterest at their contractual rate, or otherwise be given theopportunity to vote on the plan."13There, the bankruptcy court reasoned that the principle behind the"solvent-debtor exception" is that a "debtor mustrepay its debts in full when it has the means to do so", andthat for solvent debtors, "a bankruptcy court's role ismerely to enforce the contractual rights of the parties.14

While Judge Adler "understands the rationale forapplying" the exception, she noted both that she is bound bythe Ninth Circuit's decision in Cardelucci, and thatthe application of the solvent-debtor exception to larger casesposes a significant administrative issue.15 Asa result, Judge Adler held that the applicable "legalrate" at which a solvent debtor must repay unsecured creditorsis the federal judgment rate.16

Footnotes

1. In re Cuker Interactive, LLC, No. BR18-7363-LA11, 2020 WL 7086066, at *1 (Bankr. S.D. Cal. Dec. 3,2020).

2. Id. (citing 11 U.S.C. 1124(1)).

3. In re Cuker Interactive, 2020 WL 7086066,at *2.

4. Id.

5. Id.

6. In re Cuker Interactive, 2020 WL 7086066,at *2 (citing In re Cardelucci, 285 F.3d at1234-35).

7. Id. (citing In re Cardelucci, 285F.3d at 1234).

8. In re Cuker Interactive, 2020 WL 7086066,at *2 (citing Beguelin, 220 B.R. at101).

9. Id.

10. Id. at *3.

11. Id. (citing In re PG & E,610 B.R. at 312-13, 315).

12. Id. at *3 (citing In re UltraPetroleum Corp., 943 F.3d 758 (5th Cir. 2019) (remanding,acknowledging potential applicability of solvent-debtor exception)(additional citations omitted).

13. Id.

14. Id.

15. Id. at *4.

16. Id. at *5.

The content of this article is intended to provide a generalguide to the subject matter. Specialist advice should be soughtabout your specific circumstances.

POPULAR ARTICLES ON: Insolvency/Bankruptcy/Re-structuring from United States

Cadwalader, Wickersham & Taft LLP

With bankruptcies poised to hit a decade-long high as a result of the economic impact of COVID-19, we offer these materials that detail key bankruptcy tax issues.

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Another Bankruptcy Court Weighs In On Postpetition Interest - Insolvency/Bankruptcy/Re-structuring - United States - Mondaq News Alerts

Independence-based Covia Holdings Corp. (OTC PINK:CVIAQ), a minerals and materials supplier for industrial and energy markets that filed for Chapter 11 bankruptcy protection, expects to emerge from bankruptcy at the end of the year.

Covia said in a news release issued Monday afternoon, Dec. 14, that the U.S. Bankruptcy Court for the Southern District of Texas, in Houston, has confirmed the company's reorganization plan. The confirmation order "marks a key milestone in the company's reorganization process," Covia said in the release. The company said it anticipates completing the process "at the end of 2020."

In a statement, Richard Navarre, Covia's chairman, president and CEO, said, "We are pleased with the results of this hearing, and thank our employees, customers, vendors, lenders and creditors for helping us achieve this positive outcome. Upon emergence, we will reduce our long-term obligations by over $1 billion, which will significantly improve our capital structure and cash flow profile and allow us to be an even stronger partner to our stakeholders."

Covia's bankruptcy petition, filed at the end of June, showed it had assets and liabilities each in the range of $1 billion to $10 billion. At the time, Bloomberg reported that holders of the term-loan claims and swap agreement claims "will receive $825 million in take-back debt and 100% of the equity in a reorganized company."

Court documents related to the bankruptcy can be found here, at a website hosted by the company's claims agent, Prime Clerk.

The company's shares at present are virtually worthless, trading at less than a penny per share.

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Covia expects to exit bankruptcy protection by the end of the year - Crain's Cleveland Business

Brick-and-mortar retailers have been acutely challenged in 2020, with the pandemic precipitating monthslong business closures across the U.S., along with business-dampening (but necessary) safety measures including limitations on store foot traffic and opening hours.

This year, Black Fridaytypically the most lucrative retail day of the calendar yearexemplified how dire the environment has become for retailers. According to analytics firm Sensormatic Solutions, shopper visits on Black Friday dropped by 52.1% compared to 2019. Online spending was strongand has been throughout the pandemicaccording to several reports. But that isnt offsetting the losses retailers are experiencing in stores.

Twenty-nine major retailers have filed for bankruptcy in 2020, including a handful that sell jewelry, both fine and fashion: Neiman Marcus, Lord & Taylor, J. Crew, and J.C. Penney.

Here are all the corporate retailers that filed for bankruptcy in 2020, with the dates on which they filed for protection:

SFP Franchise Corp. (filed Jan. 23)Pier 1(filed Feb. 17)Art Van Furniture(filed March 9)Bluestem Brands(filed March 9)Modells Sporting Goods(filed March 11)True Religion (filed April 13)Roots USA(filed April 29)J. Crew(filed May 4)Aldo(filed May 7)Neiman Marcus(filed May 7)Stage Stores(filed May 11)J.C. Penney(filed May 15)Centric Brands(filed May 18)Tuesday Morning(filed May 27)GNC(filed June 23)G-Star Raw(filed July 3)Lucky Brand(filed July 3)Sur La Table(filed July 8)Brooks Brothers(filed July 8)Muji USA(filed July 10)RTW Retailwinds(filed July 13)The Paper Store(filed July 14)Ascena(filed July 23)Tailored Brands (owner of Mens Wearhouse, Jos. A. Bank, Moores Clothing for Men, and K&G Fashion Superstore; filed Aug. 2)Lord & Taylor(filed Aug. 2)Stein Mart(filed Aug. 12)Century 21(filed Sept. 10)Furniture Factory Outlet(filed Nov. 5)Guitar Center(filed Nov. 21)

Top: Neiman Marcus at Hudson Yards (photo courtesy of Neiman Marcus)

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Here Are the Major Retailers That Have Filed for Bankruptcy in 2020 - JCK

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With a handful of prominent companies already buckling under the economic fallout from the coronavirus, new research indicates that bankruptcies are set to rise even higher as debt-laden businesses succumb to the effects of COVID-19.

Given that U.S. GDP contracted by 9.5% in the first two quarters of 2020, the authors of a working paper, Sizing Up Corporate Restructuring in the COVID Crisis, set out to determine how many firms will fail, list the challenges those bankruptcies will present to courts and financial markets, and identify potential policy solutions.

To estimate the upcoming increase in financial distress, the researchers tracked the U.S. unemployment rate and the frequency of businesses going bankrupt from 1980 to the first quarter of 2020. (Historically, bankruptcies in the U.S. have closely tracked the unemployment rate.)

The researchers also forecast bond ratings downgrades and defaults and examined the impact of reduced revenues and profits on corporate balance sheets.

Their findings: The impact from COVID-19 on firm profits and revenues so far is comparable to the worst quarter of the 2008 2009 financial crisis.

Based on a 9.2% unemployment rate in the fourth quarter of 2020 (as projected in September by the Survey of Professional Forecasters), the authors initially predicted that bankruptcies would finish the year 140% higher than they were a year ago, with the bulk yet to come.

Better news than anticipated on the unemployment front through the fall (but not most recently) might bring that number down a bit, saidDavid Thesmar,one of the studys co-authors and a professor of financial economics at MIT Sloan. But given the severity of the recession, it remains that by all metrics, corporate financial distress is set to increase, he said.

Many companies entered 2020 already carrying a heavy debt load, and this put them at a great disadvantage when COVID-19 hit, Thesmar said.

By all metrics, corporate financial distress is set to increase.

Some firms should have disappeared as the natural result of competition forces, but most firms will be failing because they just have too much debt, some of it born in COVID-19, Thesmar said.

U.S. corporations owed $10.5 trillion to creditors earlier this year by one estimate, a figure 30 times higher than it was half a century ago. A few of those companies that carried significant debt include Hertz as well as Neiman Marcus and J. Crew, which filed for bankruptcy this year.

The researchers expect more to follow, with smaller firms at greater risk.

The reason: Bigger companies usually file for bankruptcy to restructure and settle on new repayment terms for their debts so they can remain open; small and medium-sized enterprises restructure very rarely.

This is especially worrisome as the balance sheets of small firms are hit the hardest by the current recession, the researchers wrote.

The authors warned that if historical trends repeat themselves, a massive number of bankruptcies is looming on the horizon. The courts will be stretched thin, and judge backlog will increase.

However, the authors suggested that the surge would be manageable: To keep the caseload to the level of the last crisis, in 2009, the authors estimated that the U.S. court system only needs an additional 250 more judges. Some retired judges could be recalled, they suggested.

If this is not done, courts will be crowded, and it will mostly hurt small firms. Thesmar said that as bankruptcy judges become busier, they tend to prioritize larger firms, making those more likely to be able to emerge from bankruptcy, whereas smaller firms are more likely be dismissed from court and left to liquidate without court protection.

The working paper presented a number of policy options that could help address some of the friction:

Despite the grim forecast, the current number of bankruptcies remains relatively low, with recent data indicating thatbankruptcy filings have slowed to a halt.

So far, there are very few failures, Thesmar said. Fewer than usual, actually.

Thesmar said that the CARES Act, the Paycheck Protection Program (PPP), the Main Street Lending Program, and the extension of unemployment insurance may have helped keep businesses afloat and out of bankruptcy. Economists have cited the benefits of these programs, noting that the PPP, for instance, provided much needed flexibility to small businesses by allowing them to apply for low-interest loans through their banks to cover some of their expenses. Unfortunately, the first round of federal loans allocated for small businesses didnt always reachthose who needed it most, other research showed.

Another round of assistance is necessary, Thesmar said. Without it, many businesses may have to close up shop.

Thesmar also said that while many companies have missed making their payments to creditors, theres been some evidence suggesting that lenders have been lenient, which has also helped companies avoid filing for bankruptcy. The authors cited a Census Small Business Pulse survey that showed that 11.5% of all small businesses had missed a loan payment by the first week of May, while 23.6% had missed other payments, such as rent.

If lenders have willing to be lenient, many firms that have missed payments may avoid bankruptcy, at least in the short run, the authors wrote. If these factors are only temporary, low bankruptcy numbers seen so far are a period of calm before the storm. On the other hand, if these factors actually prevent financial distress for many firms, our forecasted number of bankruptcies could be too high.

Going forward, Thesmar said that debt holders should be flexible with businesses to minimize the damage and give firms more time to come up with doable plans. Some economists have said that giving small businesses a little more flexibility can go a long way.

If a business is financially sound, debt holders should agree to reduce the amount owed, Thesmar said. Something is better than nothing. The risk is that too many viable firms go under, and they will only reemerge slowly and slow down the recovery.

The working paper, which was prepared for the Brookings Papers on Economic Activity, was co-authored by Robin Greenwood of the Harvard Business School and Benjamin Iverson of Brigham Young University-Provo.

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The coming wave of COVID-19 bankruptcies and how to mitigate them - MIT Sloan News

Executive Summary

A recent decision from the United States Bankruptcy Court for the Northern District of Texas, In re Care Ctrs., LLC, No. 18-33967, 2020 Bankr. LEXIS 3205 (Bankr. N.D. Tex. Nov. 12, 2020), examined (1) the scope of bankruptcy court subject-matter jurisdiction for post-confirmation actions filed in state court and removed to bankruptcy court; and (2) when the court must or should abstain and remand a proceeding back to the court where the action was originally brought.

The bankruptcy court held that it had subject matter jurisdiction in the current case, and that the well-pleaded complaint rule does not apply to actions that arise in a bankruptcy case pursuant to 28 U.S.C. 1334. In addition, the court concluded that it is not required to abstain from the action nor should it according to the doctrine of permissive abstention.

Background

Senior Care Centers, LLC (SCC) is a nursing home and senior care operator headquartered in Dallas, Texas. As part of its business, it leased and operated 11 properties from TXMS Real Estate Investments, Inc. (TXMS). The lease agreement (the Lease) between SCC and TXMS had a change of control provision permitting, if triggered, TXMS to terminate the Lease. Due to shifts in the industry and tightening terms with various creditors, SCC filed for bankruptcy protection in 2018.

SCCs reorganization plan (the Plan) provided for the restructuring of its business around a subset of its facilities. SCC assumed the Lease as part of the Plan. In addition, SCC would transfer all of its equity to a newly created entity called Abri Health Services, LLC (Abri). On the Effective Date of the Plan, 80% of the equity in Abri would be transferred into a Liquidating Plan Trust (the Trust) to pay unsecured creditors. The purpose of the Trust was to liquidate assets that could not be readily converted into cash. While TXMS raised an objection stating that the Lease should be amended to include Abri as party (now the owner of SCC), it did not raise any change of control issue.

At a status conference the day before the Plan went effective, the Unsecured Creditors Committee notified the court that it was in discussions to sell the equity in the Trust. A few weeks later, TXMS sent a letter to SCC and Abri (collectively the Debtors) indicating that any sale of the equity would violate the change of control provision and constitute an Event of Default. TXMS filed suit in Texas state court, seeking to enjoin the Debtors from taking any action that contravenes the change of control provision. The Debtors subsequently removed the action to bankruptcy court.

Subject Matter Jurisdiction

TXMS took the position that the bankruptcy court lacked subject matter jurisdiction because this action arose post-confirmation and the complaint is based on state law.

Supreme Court Travelers Test

The bankruptcy court first articulated the standard under Travelers Casualty & Surety Co. of America v. Bailey, where the Supreme Court held that a bankruptcy court plainly has jurisdiction to interpret and enforce its own prior orders, even decades after a plan is confirmed. The Court added that explicit retention of jurisdiction in the confirmation is further evidence that post-confirmation jurisdiction exists. 557 U.S. 137, 151 (2009).

In the current case, because the bankruptcy court explicitly retained exclusive jurisdiction over all matters arising out of, and related to the Chapter 11 Cases, including all matters relating to the assumption of unexpired lease, the court concluded that it had subject matter jurisdiction under the Travelers test.

Fifth Circuit U.S. Brass and Craigs Store Tests

The bankruptcy court then moved to Fifth Circuit cases, which interpret the scope of bankruptcy court post-confirmation jurisdiction more narrowly than in other Districts.

In re U.S. Brass Corporation used a four-factor standard to explain why it had jurisdiction: (1) while the plan had been substantially consummated, it had not been fully consummated; (2) there was a dispute over whether the relief requested was consistent with the plan or an improper modification of a substantially consummated plan and bankruptcy law would ultimately determine the dispute; (3) the outcome of the dispute could affect the parties post-confirmation rights and responsibilities; and (4) the proceeding would impact compliance with, or completion of, the plan. 301 F.3d 296, 305 (5th Cir. 2002). In addition, In re Craigs Stores of Texas limited the scope of its post-confirmation jurisdiction to matters that bear on the interpretation, implementation, or execution of the plan. 266 F.3d 388, 390-91 (5th Cir. 2001).

The bankruptcy court concluded that the current proceeding satisfies both tests. Like U.S. Brass, there is substantial consummation of the plan, but not full consummation, as the general unsecured creditors have not yet received distributions. Bankruptcy law will determine whether the Trust is allowed to liquidate the stock and distribute the proceeds. The bankruptcy court will have to look at the Plan and related orders entered during the bankruptcy case to resolve the issue. Finally, this proceeding will impact compliance with the Plan. As a result, the court concluded that this proceeding pertains to the Plans implementation or execution, satisfying the Craigs Stores test for post-confirmation jurisdiction as well.

Collateral Attack

The bankruptcy court then noted that the injunctive relief sought by TXMS is, in substance, a collateral attack on the confirmation order and the courts subject matter jurisdiction. The court cited In re Linn Energy, L.L.C., which held that final bankruptcy orders are res judicata to the parties as to any admissible matter which might have been offered to sustain or defeat a claim or demand. 927 F.3d 862, 867 (5th Cir. 2019) (quoting Travelers, 557 U.S. at 152). Because TXMS had a fair chance to challenge the relevant portion of the Plan that authorized the Trust to sell the stock and distribute the proceeds but failed to do so, the court held that TXMS cannot retroactively challenge the courts order through a collateral attack.

Well-Pleaded Complaint

The well-pleaded complaint rule requires that a federal question appear on the face of a well-pleaded complaint in order for a court to have federal question jurisdiction. TXMS argued that the Debtors cannot remove the case because there was no federal issue on the face of TXMSs complaint filed in state court. Fifth Circuit courts have held that the well-pleaded complaint doctrine only applies to federal question arising under jurisdiction. In re Brooks Mays Music Co., 363 B.R. 801, 807 (Bankr. N.D. Tex. 2007).

According to the bankruptcy court, bankruptcy court jurisdiction under 13341 extends further than the 28 U.S.C. 1331 federal question jurisdiction. While federal question jurisdiction applies to cases arising under a federal law, bankruptcy jurisdiction extends to matters arising under the bankruptcy code or arising in or related to a bankruptcy case. For reasons articulated below, the court held that this case arises in a bankruptcy case and is not based on arising under jurisdiction. Consequently, the court concluded that the well-pleaded complaint rule is not applicable here.

The bankruptcy court then held that when the well-pleaded complaint rule is inapplicable, the court may consider unfiled claims of a defendant, provided that they are not (1) immaterial; (2) made solely for the purpose of obtaining jurisdiction; or (3) wholly insubstantial and frivolous, to determine whether a bankruptcy court has jurisdiction over a removed action.

During the course of the proceeding, the Debtors made clear that it will file a declaratory judgment determining that the sale of Trust assets is allowed under the Plan and that TXMSs attempt to prevent the sale is an inappropriate, post-confirmation modification of the Plan. The bankruptcy court concluded that the Trusts claims are not immaterial, made solely for the purpose of obtaining jurisdiction, or wholly insubstantial and frivolous. Therefore, they are sufficient to give jurisdiction over this matter.

Abstention

TXMS argued, in the alternative, that even if the bankruptcy court has subject matter jurisdiction, it must abstain from adjudicating the case and remand the proceeding back to Texas state court.

Mandatory Abstention

The Fifth Circuit has articulated that mandatory abstention applies where: (1) the claim has no independent basis for federal jurisdiction, other than 1334; (2) the claim is not a core proceeding pursuant to 28 U.S.C. 157, i.e., it is not related to a case under the bankruptcy code; (3) an action has been commenced in state court; and (4) the action could be adjudicated timely in state court. In re Senior Care Centers, LLC, 611 B.R. 791, 800 (Bankr. N.D. Tex. 2019). According to U.S. Brass, a proceeding is core under 157 if it is invokes a substantial right provided by the bankruptcy code (arises under the bankruptcy code), or if it is a proceeding that, by its nature, could arise only in the context of a bankruptcy case (arises in a bankruptcy case). 301 F.3d at 304.

The bankruptcy court found that arising under jurisdiction does not exist here. According to the court, proceedings arise under the bankruptcy code when the section itself confers substantive rights to the party who is making the claim. Here, the court found that there is no bankruptcy code provision that confers substantive rights to either TXMS or the Debtors.

However, the court found that arising in jurisdiction does exist since TXMSs claims could only arise in the context of bankruptcy. More specifically, any action to enjoin Trust assets would be preempted by the confirmation order and TXMS would need to seek modification or clarification of that order in bankruptcy court. Consequently, the court held, this proceeding can be characterized as core and mandatory abstention is inappropriate.

Permissive Abstention

Explaining that permissive abstention may be appropriate even when the matter before the court is core, the bankruptcy court then analyzed whether it should remand the current case. The court enumerated 14 factors to consider in making this determination:

According to the bankruptcy court, these factors weighed heavily against permissive abstention. Determining whether the Trust may liquidate stock in the reorganized company requires interpretation of complex aspects of bankruptcy law, the Plan, and prior court orders. Because bankruptcy issues overwhelm state issues in this case, the court held that permissive abstention is not appropriate.

Conclusion

The bankruptcy court in In re Care Ctrs., LLC articulated a very broad view of post-confirmation bankruptcy court subject matter jurisdiction. Ultimately, it appears Fifth Circuit courts will have jurisdiction if the Plan has not been fully consummated, and adjudication of the dispute requires interpretation of bankruptcy law, the Plan, and prior bankruptcy court orders.

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Yeah, We Can Take It - Texas Bankruptcy Court Defines the Scope of Its Post-Confirmation Jurisdiction - Lexology

The restaurant industry is set to end 2020 with more distressed businesses than it had during the Great Recession, according to an AlixPartners report. As of October, 50% of limited-service restaurants and 63% of full-service restaurants were distressed. Comparatively, at the end of the recession, 33% of LSRs and 17% of FSRs were at risk of not meaning their financial obligations.

"The industry has really taken a beating,"Edward Webb, advisory partner at BPM, said. BPM specializes in accounting, taxes and financing. "[For] independents, particularly the smaller independents, it's really been catastrophic."

Traffic in urban centers has largely disappeared, putting businesses that rely on heavy foot traffic in a difficult situation, Webb said.

Now, with PPP loans all but dried up, a new round of COVID-19 restaurant restrictions and little hope of federal aid until January, restaurant owners and operators face a grim outlook. Many will have to consider whether to close their operations for good.

Restaurant Dive spoke with Webb about what restaurant owners need to know when they consider their next steps whether that means closing down a business, declaring bankruptcy or seeking a sale.

Editor's note: This interview has been edited for clarity and brevity.

INDUSTRY DIVE: What would you tell an owner who might be considering a sale, bankruptcy or winding down operations?

EDWARD WEBB: There are a couple of pretty important steps that they need to go through. One is to make sure they have good, accurate financial information. If they haven't had a good bookkeeping function, or they haven't been able to use an outside accountant, then they need to make sure that their books are cleaned up. There is the immediate cash flow analysis. They need to understand where their cash is, what the demands are short- and medium-term, and then try to ascertain what their sources of cash are. And once that's done, and they've been able to determine how much time is realistically available to them, then they can look at their business model.

They need to ask, "Is the business model that they had previously been operating under effective now?"Assuming that it's not, and it's been negatively impacted by the pandemic, then will it return? Or is there some type of modification to the model that will enable them to become profitable again? And if the answer to that is no, then it really becomes an exercise of what the business owner is looking at. There's an end point to the business and the owner needs to understand how best to enter into that end point. Is it a simple wind down of operations? If there are a lot of creditors out there, if there are leases that are onerous, then that may require bankruptcy. It's driven by the owner's business decision. So they assess the cash, they look at the model, they determine what that next step is and then they figure out what we would call a harvest strategy.

What have been some of the common paths that business owners have been taking as their end strategies?

In situations where the owners can simply wind down, maybe they have a lease that they can get out of, or it's a lease without onerous terms and they're not personally guaranteeing it. If they're able to do that and liquidate their assets, utilize those funds, pay off whatever creditors they have, and basically walk away, that is far and away the easiest, quickest and cheapest path. They will likely need some type of accountant or business professional, and then they'll want a lawyer as well just to make sure that there's no backdoor that somebody can come in and cause problems.

Edward Webb, advisory partner at BPM

Permission granted by BPM

If there are significant liabilities attached, and they really believe they have to protect themselves in bankruptcy, that becomes an expensive and time-consuming process. They can expect it to be a 12- to 18-month process. It's unlikely fees will be less than a quarter of a million dollars and oftentimes more. You really only do bankruptcy in a situation where the personal effect of those liabilities is dramatic. So it's a clearly less-desirable choice.

One thing we haven't seen much of lately and I would expect that to change in 2021 is business combinations. In those situations where there's a healthy restaurateur, who sees an opportunity to either expand their operations or protect themselves in some way, maybe they can get a really advantageous deal. We haven't seen many of those primarily because everyone's afraid to move. Everybody's cautious. I would expect that will ease.

In terms of business combinations, what would an owner need to do to make sure they are getting a good deal and finding the right buyer?

If they have been dealing with an external accountant or some type of business manager, who they really like and they trust, that is really valuable. Ultimately, when you're going to bring two businesses together, there has to be the ability to kind of find that common language and bring the financial side of the businesses together effectively. Once a business owner has gotten their act together financially, and they know where they are, and they have a pretty good sense of where they're going, they can turn to a brokerage that can help restaurateurs find other restaurants or investors and assist them to sell the business. It can be expensive and sometimes you need to be pretty careful about the choices that you make with those folks.

Once you have that data, and it's solid, then you have the flexibility to approach the market. When the time comes to actually put the businesses together, you really do need a financial professional. That can be very difficult for a business owner to do because they have a day job of running the business. There are also potential tax implications, licensing and regulations that need to be looked out for, and so they're better served by making sure they got a pro.

What happens if an owner doesn't have the help of a financial professional for a business combination?

One outcome is there's no deal. The acquiring entity just couldn't figure out how to consume the other because they did not have accurate data and they weren't able to comfortably assume those operations. Then another scenario is the entity without good data can sometimes be taken advantage of and they will not be able to strike a good deal. The seller will find themselves in circumstances where the buyers will say, "Hey, we'll still take it off your hands, but we're gonna pay you less because we don't have this information now."That's pretty typical.

What should owners do to make sure the process goes smoothly?

If you have a case where there is a letter of intent, or some type of intent has been indicated, the buyer is going in to perform due diligence. At that moment, if the seller is fully prepared, if they have pulled their financial information together, they have cleaned up their inventory, they have identified their legal contracts, they are able to prove that they're current on taxes, they have their employee records in place, if all of those things are in order, then it obviously makes it a whole lot easier for the buyer coming in. And the buyers are typically going to be a little bit more sophisticated, because they're the buyers. Since they are able to afford it, they will have professionals of their own.

For example, we will do buy-side diligence on behalf of our clients. And when we go into circumstances where the seller is sophisticated and prepared for what's coming, then buy-side diligence can be very quick and relatively painless. Due diligence is never fun, but when a buyer comes in, and they encounter a seller who is ill-prepared to sell, the control of the negotiations subtly shifts to the buyer.

If the buyer and the seller are prepared, they come together and diligence is complete and everybody's satisfied. The nature of the restaurant business is very short cycles. So those tend to be very clean transactions. The issues are more readily identified, and once resolved, they are put to bed.

What do you anticipate we will see with business combinations going forward?

I believe there is going to be continued pressure, primarily by baby boomers who are reaching retirement age, for them to get out. And so they'll keep pushing on that. And if there are easy transitions that can be made with family members, friends, neighbors, anybody, they'll do those deals. I think that there probably, unfortunately, is going to be an increase in the number of distressed situations, in which there are trailing liabilities owners cannot get away from as the impact on real estate is felt more. The commercial real estate business has suffered maybe more than anything. But the banks aren't pushing it right now. They're not calling loans. They're not getting aggressive. When the banks have to begin doing that, then I think there'll be a trickle down effect, which may lead to increased distressed situations.

See the original post here:

Should you close, sell or declare bankruptcy? What restaurants need to know. - Restaurant Dive

Its the perfect summation of 2020 to say that, in the commercial real estate industry, it was a much better year to be a bankruptcy lawyer than a retailer.

While a certain amount of retail bankruptcies is to be expected, especially over the past few years, as e-commerce has provided staunch competition for brick and mortar, the pace of this years retail bankruptcy news has been dizzying.

Neiman Marcus, JCPenney, Brooks Brothers, Lord & Taylor, CEC Entertainment (parent company of Chuck E. Cheese), Pier 1 Imports, Modells Sporting Goods, J.Crew, Century 21 Department Stores, Aldo, and Guitar Center are just a few of the many companies that filed for some form of bankruptcy in 2020.

The past 12 months have been a bloodbath, said James Famularo, president of Meridian Retail Leasing. [For brands like] Modells and True Religion, the writing was on the wall. But Neiman Marcus, J.Crew, Brooks Brothers these companies are iconic. Theyve been around for generations. Its mind-blowing.

Not all of the bankruptcies have been death knells. While some brands, like Lord & Taylor and Century 21, are gone for good, companies including Neiman Marcus, Brooks Brothers, and Ascena Retail (parent company of Ann Taylor and Lane Bryant), among others, will survive their filings, albeit with a smaller retail footprint.

While the COVID-19 pandemic certainly accounts for the sheer breadth of the list, its just one factor in many of the bankruptcies, and often, more of a final straw than a primary cause.

The fundamentals [for many of these companies] have been wrong for a long time, said Kate Newlin, CEO of Kate Newlin Consulting. I think if we didnt see [these bankruptcies] this year, we would have seen them next year. Theres nothing urgent that was driving people back into the mall. There was a systemic erosion underneath, and as long as they could mask some of that by selling things at discount, they could have skated for another year, maybe. But COVID was a hard stop. It was a fast-forward to the ultimate outcome, but it wasnt the only cause of it, certainly.

In many cases, the COVID-19 pandemic merely accelerated a process ignited years ago by online competition, or bad decisions, or by the takeover of some of these companies by private equity firms that demanded dividends and ladened the retailers with debt.

The headline is that its all about COVID, but there are enough examples of businesses that dont have something really distinguishing them. They just got to that endpoint a little bit quicker because of COVID, which maybe shaved off 18 months, said Soozan Baxter of Soozan Baxter Consulting.

Pier 1 is a brand that, quite honestly, couldnt keep up, she said. They got outsmarted by some of the innovation and creation from others in the business. Look at Target, and juxtapose that with the offerings at Pier 1. You can probably get everything that Pier 1 sells at a better price, and maybe with a brand. So, why do you need to go to Pier 1 anymore?

I wouldnt lay it all at the feet of COVID for Neiman Marcus, said Newlin. The Hudson Yards [store] was a catastrophe well before COVID. So, I think there were missteps along the way that COVID certainly made terminal more quickly.

The cumulative effects of these bankruptcies and other store closings found the national retail vacancy rate at 20 percent by mid-year, according to the National Association of Realtors, leaving a glut of space that could have effects beyond retail.

After Neiman Marcus closed its Hudson Yards store in July, co-developers Related Companies and Oxford Properties announced they would re-market the space for office use. While this is understandable, given the negative prognosis for retail, COVID-19 has made the fate of office tenuous, too. If developers attempt to convert retail space to office in larger numbers, that could merely spread the misery.

Thats an even bigger problem, said Jonathan Pasternak, a partner in the bankruptcy practice at Davidoff Hutcher & Citron, because not only do you have some retail vacancies, but you would end up potentially with a lot of office building vacancy. And thats where I think youre going to see the next trend in bankruptcy. Youve got owners in Midtown Manhattan, the Financial District, and in every city across the country, where people havent been going to their office and businesses have not been paying their full rents. Theres gotta be fallout to that.

And, while the retail bankruptcy trend overall is bound to have ramifications, some of the companies that filed for bankruptcy are significant enough to affect the retail landscape on their own.

With [a company like] GNC, their stores are little, only 1,000 to 1,500 feet, but theres 5,000 stores, David Firestein, managing partner at SCG Retail, said of the supplements retailer, which announced in June it would close almost 25 percent of its stores and revealed its sale to China-based Harbin Pharmaceutical Group in October. Its very impactful because its pushing so much space back into the market.

When you look at Ascena, and how many brands and how much square footage they have, that will probably take a dent out of some B malls, and definitely out of the outlet industry, said Baxter. Thats a meaningful company that just vanished.

Newlin believes the effect on malls will be more than just a dent.

Youll see [stores] like JCPenney get new ownership that will try to make it a legitimate shopping destination, Newlin said of the legendary retailer, which is exiting bankruptcy protection having sold the bulk of its assets to Simon Property Group and Brookfield Asset Management. But, essentially, without a powerful re-imagination of what it means to shop, its just the IV drip of the end of times for physical retail.

Across the board, the apparel sector has been one of the hardest hit by bankruptcies. Given the ease of shopping online for clothes, its hard to be optimistic about the sectors future.

The volume of clothing retailers that have gone into bankruptcy will really make surviving retailers apprehensive about opening new stores in the future, said Meridians Famularo. Most would probably opt for online sales, if not pop-ups. Were getting a lot more calls for pop-ups than normal.

Making the potential challenge even greater is that, pre-COVID, more experiential uses were an oft-discussed potential savior for flailing retail outlets. But entertainment of all forms has taken, perhaps, the hardest hit of the COVID era, as restaurants flail for survival and the major, movie theater chains facing both COVID fears and restrictions, and movies being released day and date on streaming services or video on-demand in response struggle to avoid their own bankruptcy filings.

Thats one looming out there that makes lots of people nervous, because they impact lots of other tenants, said Firestein. If a landlord gets back a J.Crew, its a clean box. Even a restaurant already has a lot of the restaurant-related work done. But theater space doesnt really work well for anybody else. To convert it is very expensive, because you have sloped floors and all kinds of stuff that doesnt work [for other businesses].

With all of the dire news and forecasts, there are some bright spots on the retail horizon. Baxter notes that athleisure and cosmetics are doing well, and the recent announcement that Harry Winston is nearly doubling its Fifth Avenue space demonstrates the staying power of jewelry sales.

Harry Winstons expansion really speaks to the category, the power of Fifth Avenue, and the belief that retail is going to come back, said Baxter.

Pasternak, meanwhile, sees the slew of bankruptcies as opportunities for right-sizing.

Bankruptcy gives these companies an opportunity to shed some leases, get leaner and meaner, and clean up their balance sheet, said Pasternak. I think these things are ultimately going to be good for the retail economy, because theyre going to lead to more efficiencies and a better chance of profitability of recovery for return on investment.

Baxter also sees an upside in the basic life cycle of business that, for every death, there can be a new birth.

A lot of these brands will go away, but every time you see a brand go away, imagine that theres probably 15 entrepreneurs sitting out there that are the next Jeff Bezos or Tory Burch, said Baxter. People are innovating all the time. For every brand that gets discussed in a oh my gosh, rest in peace sort of way, there are others coming up that are really exciting, and also brands changing the way theyre doing business.

Based on his deal volume throughout the pandemic, Famularo agreed, noting that one brands capitulation to inevitability is another brands golden opportunity.

New York will bounce back. Are we going to reach the same rent levels we were at a few years ago? I dont think thats going to happen in our lifetime, said Famularo. But my team and I have closed almost a hundred deals during the quarantine. People feel opportunistic. If you were paying $10,000 a month in whatever business you might have, and I offered [space] to you at $5,000, are you going to wait on the sidelines? Youll jump in head-first. Thats whats happening. Thats why Im saying were going to be back. I think come March, April or May, youll see the renaissance begin.

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Retail Bankruptcies in 2020: How the Fallout Will Play Out - Commercial Observer