Monthly Archives: March 2021

On January 14, 2021, the U.S. Supreme Court decidedCity of Chicago, Illinois v. Fulton(Case No. 19-357, Jan. 14, 2021), a case which examined whether merely retaining estate property after a bankruptcy filing violates the automatic stay provided for by 362(a) of the Bankruptcy Code. The Court overruled the bankruptcy court and U.S. Court of Appeals for the Seventh Circuit in deciding that mere retention of property does not violate the automatic stay.

Case Background

The City of Chicago (the City) impounded respondents vehicles for failure to pay fines for motor vehicle infractions. Thereafter, each respondent filed a Chapter 13 bankruptcy petition and requested the return of their vehicle. The City refused to return the vehicles, and the bankruptcy court in each case found the Citys refusal to be a violation of automatic stay. The Seventh Circuit affirmed, concluding that by retaining possession of the debtors vehicles after they declared bankruptcy, the City had acted to exercise control over the debtors property in violation of the automatic stay.

The Supreme Court took up the case and, in an opinion written by Justice Alito, ruled that merely retaining possession of estate property does not violate the automatic stay.

Analysis

The Court began its analysis by examining the language of 362(a)(3) of the Bankruptcy Code. The Court stated that such language suggests that 362(a)(3) prohibits affirmative acts that would disturb the status quo of estate property as of the time when the bankruptcy petition was filed. It explained that the language of 362(a)(3) implies (but does not explicitly state) that something more than the mere retention of property is required to violate the automatic stay.

The Court went on to clarify that any ambiguity in the text of 362(a)(3) was resolved by 542 of the Bankruptcy Code, which governs the turnover of estate property to the trustee. This provision requires an entity in possession, custody, or control of estate property to deliver to the trustee, and account for, such property or the value of such property. There are two exceptions to 542, which include: (i) transfers of estate property made from one entity to another in good faith without notice or knowledge of the bankruptcy petition and (ii) good-faith transfers to satisfy certain life insurance obligations.

The Court explained that if 362(a)(3) prohibited the mere retention of property, it would create at least two serious problems.

First, a requirement that an entity affirmatively relinquishes control of the debtors property at the moment a bankruptcy petition is filed would render 542 superfluous.

Second, it would render the dictates of 362(a)(3) and 542 contradictory. In particular, 542 creates exceptions to the turnover command and does not mandate turnover of property of inconsequential value. On the other hand, if respondents reading of the statute was adopted, 362(a)(3) would require immediate turnover of all of the debtors property.

The Court concluded that it would be an odd construction of the automatic stay provision to require a creditor to do immediately what 542 specifically excuses. Further, the Court explained that the Bankruptcy Codes statutory history confirms that 362(a)(3) and 542 are meant to co-exist, not conflict with one another.

The Court held that mere retention of estate property after the filing of a bankruptcy petition does not violate 362(a)(3) of the Bankruptcy Code. It remanded the case for further proceedings consistent with the opinion.

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Supreme Court Holds that Mere Retention of Estate Property After Bankruptcy Filing Doesn't Violate the Automatic Stay - Lexology

10 March 2021

Patterson Belknap Webb & Tyler LLP

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It is well known in the restructuring world that a debtor inbankruptcy can't get a PPP loan. But what if you're adebtor and decide a PPP loan could save your business? Will acourt dismiss the case so you can seek a loan?

The issue arose recently where a chapter 11 debtor already hadDIP financing in place. The debtor's motion to dismissdrew creditor opposition. But the court concluded thatallowing the debtor out of bankruptcy to seek a PPP loan madesense. Ryan Turner Investments, LLC v. Jackson Durham Floral-Event Design,LLC, No. 3:20-cv-00400, 2021 U.S. Dist. LEXIS 28455 (M.D.Tenn. Feb. 16, 2021).

The debtor is an event design company. It filed forbankruptcy in January 2020, the month when COVID-19 was firstreported in the United States. At the time, the debtor was aparty to an arbitration proceeding brought by Ryan TurnerInvestments, LLC ("RT"). The bankruptcy stayed thearbitration against the debtor.

The debtor's bankruptcy filing said it was in a "deepfinancial hole." On April 1, 2020, the debtor moved todismiss the bankruptcy case. It said COVID-19's negativeimpact on its business threatened its ability to reorganize.It had no idea what its business would look like "on theother side of the pandemic." One possible way for it tostay afloat through the pandemic was with a paycheck protectionloan backed by the Small Business Administration. But, as hasbeen widely reported, debtors who avail themselves of thebankruptcy process are not eligible to obtain the loans during thebankruptcy.

RT objected to the motion to dismiss. It argued (i) itwould be an unfair burden to bear the cost of restarting thearbitration proceeding against the debtor, and (ii) dismissal ofthe bankruptcy case would cause a default of the debtor's DIPloan and permit secured creditors to foreclose on the debtor'sassets, thus harming other creditors. The debtor counteredthat RT would incur litigation expenses either in arbitration or inpressing its claim in the bankruptcy case. With respect tothe DIP loan, the debtor noted that as an unsecured creditor, RTwas in the same position as if the debtor had a secured loanoutside of bankruptcy.

Bankruptcy Code section 1112(b) provides discretion to courts todismiss cases "for cause." One ground is"substantial or continuing loss or diminution of the estateand the absence of a reasonable likelihood of rehabilitation."11 U.S.C. 1112(b)(4). Courts must undertake a"fact-specific" factual inquiry that "focuses on thecircumstances of each debtor." In re Creekside Sr.Apts., L.P., 489 B.R. 51, 60 (B.A.P. 6th Cir. 2013(quotingUnited Savs. Ass'n of Tex. v. Timbers ofInwood Forest Assocs., Ltd. (In re Timbers of Forest Assocs.,Ltd.), 808 F.2d 363, 371-72 (5th Cir. 1987)).

If a debtor demonstrates cause, then an objector has the burdenof identifying "unusual circumstances establishing thatconverting or dismissing the case is not in the best interests ofthe creditors or the estate . . . ." 11 U.S.C. 1112(b)(2).

When RT objected at the court hearing, Bankruptcy Judge CharlesM. Walker said, "Slow down one second. We're in apandemic. Remember that. How much proof does the Courtneed about the suspension of operations and the impact thatCOVID-19 is having on not this business, but every business?"(Hearing Trans. RTI Appx. at 295).

He ruled that allowing the debtor to terminate its bankruptcy toobtain a PPP loan "was the most viable option" because it"keeps all of the parties in an equal setting" and givesthe debtor "a shot . . . of obtaining funds to continueoperations." (Id.at 301). Thus, a debtorthat had filed for bankruptcy to salvage its business was allowedto exit bankruptcy several months later to go in a differentdirection to salvage its business. The Bankruptcy Court'sdecision was upheld on appeal by the District Court.

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

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An examiners report filed Monday in the U.S. Bankruptcy Court in Wilmington, Del., said that Cred failed to keep reliable records, properly track customer funds, perform due diligence on the firms investments or uncover the extremely worrisome past" of former Chief Capital Officer James Alexander, who was fired last June.

The firms collapse into bankruptcy was largely due to a dereliction in corporate responsibility," examiner Robert Stark said in his 99-page report. Failures included chaotic and, in some instances, nonexistent diligence, accounting and compliance functions," according to the report.

Cred in bankruptcy filings has blamed Mr. Alexander for some of its financial troubles, accusing him of making off with bitcoin valued at millions of dollars.

A lawyer for Mr. Alexander, Mark Pfeiffer, declined to comment Tuesday. Last month, Mr. Pfeiffer said Mr. Alexander has been portrayed by Cred as a bad actor, but that he has done nothing wrong. He said Mr. Alexanders actions were intended to safeguard the assets of a company affiliate, Cred Capital Inc., at which he had said he was a rightful director.

Mr. Alexander filed for personal bankruptcy last month amid intensifying scrutiny during Creds bankruptcy proceedings of his dealings with the company. He said in court filings in his own bankruptcy case that he and Cred are undergoing a business divorce" and that he transferred the bitcoin to an account he controlled to maintain the operations of Cred Capital.

The examiners report said that Mr. Alexander was convicted in December 2007 in the U.K. for crimes related to illegal money transfers, for which he was sentenced to three years and four months in prison" in England.

At the time of his incarceration, there was a prison break at this facility," the report said. Mr. Alexander has been identified by the U.K. government as a fugitive."

Cred co-founder and former Chief Executive Daniel Schatt said in an email that it appeared that Mr. Alexander had provided false information to the firm to hide his past when it performed a background check before hiring him.

He said Mr. Alexanders actions were the significant contributing factor to what happened to the company and not a dereliction of duty by other senior management, including myself. The company employed highly competent security, finance, product, engineering and operations professionals, and it is highly unfortunate that a professional fraudster was able to evade the companys background check and other security protocols."

Founded by former PayPal Holdings Inc. managers and based in San Mateo, Calif., Cred operated as a financial-services platform to give cryptocurrency holders ways to invest those assets with Cred or borrow against them. After Creds bankruptcy filing last November, the examiner was appointed to look into how and why the firm went under after taking in roughly $135 million in customer funds.

The examiner said currency was allowed to move to overseas entities without the legal setup to retrieve it when needed. Customer assets were commingled without a method for determining which assets were deposited by whom, while certain accounting information kept in spreadsheets wasnt regularly updated, according to the report. The examiner reported the state of Creds records to be disorganized and incomplete." Creds problems largely stemmed from failures in corporate leadership, but Mr. Alexanders participation in poor decision-making is a recurring theme, the report said.

Cred lawyer James Grogan said the examiner mostly addressed events that happened before the bankruptcy. He said the individuals identified by the report as responsible for Creds demise are no longer involved with the company. He said they include Messrs. Alexander and Schatt and Lu Hua, the CEO of Cred before Mr. Schatt and co-founder and co-owner of the company along with Mr. Schatt. Mr. Hua couldnt be reached for comment.

Cred, under the guidance of new management, has successfully utilized the bankruptcy process to propose a chapter 11 plan that offers creditors an efficient and beneficial structure to receive payments on their claims," Mr. Grogan said.

Pending bankruptcy-court approval, a liquidation trust would be set up that would include Creds assets, including its remaining cryptocurrency, and certain legal claims it may pursue.

A liquidation analysis of the business estimated that unsecured creditors would recover about 30 cents on the dollar of what they are owed, according to a Cred bankruptcy filing.

The examiner said Mr. Alexander, despite a court order to do so, hadnt returned all the funds he transferred out of Cred. Cred and its unsecured creditors committee have alleged during the bankruptcy proceedings that Mr. Alexander misappropriated from the firm at least 225 bitcoin, now valued at roughly $12 million, while he worked there. Mr. Alexander has returned roughly 50 bitcoin and $2.8 million in proceeds from liquidated bitcoin, according to the examiners report.

This story has been published from a wire agency feed without modifications to the text.

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Former crypto firm official was a UK fugitive, bankruptcy examiner says - Livemint

CHINLE

Elvira Dennison thinks of herself as a pretty tech-savvy mom.

As a mentor for families of children with health problems, she knew how to Zoom before it became a necessity, and she was already working mostly from her home in Tohatchi, New Mexico, when the pandemic hit.

She and her two children have internet-capable devices.

When the (Central Consolidated) school district sent out a survey asking if we were prepared for online learning, my answer was yes, she recalled. We had devices, and we had internet.

In reality, I wasnt prepared, she admitted. Not at all.

The familys internet connection wasnt strong enough for her and both her children to be online at the same time.

She tried driving the kids to the hotspot at one of the schools, but her fifth-grader got fidgety and uncomfortable sitting in the car all day. She bought a hotspot, but went through a weeks worth of data in three days when the kids were on Zoom classes.

I was spending $80 to $90 a month on top of what the equipment cost, she said.

Last March, the nonprofit she works for, Navajo Family Voices, announced it would fund six months of Frontier Communications broadband service for 60 area families who had kids in school and were having trouble getting connectivity. Dennison applied and was selected.

I thought my problems were over, she said.

But after nearly a year with no connection, shes given up.

When CCSD announced last month they would start in-person learning for students whose parents approved, she sent her kids back to school.

Its a little bit scary, because my youngest has asthma, she said, a complication that can make COVID-19 more severe. But I didnt know what else to do. He wasnt learning.Ryan, Dennisons fifth-grader, confirmed he wanted to go back.

My grades were slipping, he said I couldnt get online at home. I spent most of the day sleeping.

According to Josey Foo, executive director of Navajo Family Voices, Dennison is not alone. Of the 60 families identified to get cable internet, only six were served before Frontier announced it was capping connections across the entire Navajo Nation.

Its very disheartening, she said.

NFV had been excited about the new program.

Frontier gave us a great rate, about half-price, she said. We worked with them to get the equipment. Our staff installed it. We did all this and then Frontier disappeared.Perhaps disappeared is too strong a word.

We had dozens of meetings, Foo said. The date kept getting pushed back (for a solution).

In May or June, after hearing from a rival company Frontier was in bankruptcy proceedings, Foo called them up.

After Foo confronted them, she said, the company representatives admitted Frontier had been restructuring after filing for Chapter 11 protection last April something it had neglected to mention when it agreed to provide the new connections.

As part of the bankruptcy settlement, Frontier had agreed to cut $10 billion in debt. Without the capacity to build new infrastructure, they said, they had no choice but to cap connections. But, they said, they were working on a solution.

When 2021 rolled around and NFV was still stuck at six families, Foo asked for a meeting with someone who could update her on the status.

Helena Viramontes, enterprise customer service representative with Frontier, agreed to a Zoom with Foo, Dennison, and Joel Balasuit, a school counselor for CCSD in February.

Viramontes reiterated the problem: Its completely all congested. Were not going to be able to add services, change services or add broadband.

What they could do, she said, was to try a series of one-gig e-links, which she described as a way of rerouting some of the internet traffic to open up more capacity.

What are these one-gig e-links? Foo can be heard asking on the Zoom recording.

Thats way beyond my understanding, Viramontes replies. Its their (engineers) attempt to remove the cap and open it up.

She then said she would have a report on the success of the fix by March 26 by which time CCSD will be on its last quarter of the school year.

Last time you said January first, Foo protested. I have a feeling we have to put our heads together and figure something out. Its really disheartening.Viramontes replied that theres nothing else to be done.

Once an area is capped, she said, youre just going to come up against the same reason: capped, capped, capped.

Viramontes did not respond to an email or a phone call by press time asking if she had an update.

In retrospect, Foo said, NFV probably should have shopped around before making the agreement with Frontier. But we dont exactly have a lot of choices out here, she said.

There was at least one other choice the tribal enterprise NTUA Choice Wireless. Choice Deputy General Manager Velena Tsosie said she had not heard about the agreement with Frontier but Choice would have been glad to help and still would.

We would be very glad to step in and provide broadband to any/all families that are in our coverage area at reduced monthly rates, Tsosie wrote in an email to the Times. During this pandemic, we have and are providing broadband to well over 1,000 families that have students at home doing distance learning.

Foo said NFV has found other ways to help the families, including stipends for child care and delivering COVID-19 supplies, but she fears children like Dennisons have lost a lot of ground they may not be able to recover when it comes to their schooling.

But as a single mom living on the reservation, Dennison said shes learned to take things in stride.

Things move slow here, she shrugged. Thats the way it is. Im just grateful enough people have been vaccinated that I feel O.K. about sending my kids back to school.

Their lives have changed drastically because of the pandemic, and now theyre changing again, she added. Were all just trying to adjust.

Related

Read more from the original source:

Families left high and dry: Frontier files for bankruptcy after promising internet connections - Navajo Times

Consider me among those stunned by the bankruptcy filing and abrupt and temporary, I hope closing of the Fairmont Hotel in downtown San Jose. Hotels and restaurants have been absolutely devastated by the economic fallout of the COVID-19 pandemic, but I would have bet on the Fairmont weathering the storm.

When the hotel does reopen, most likely under a new brand, it will still mark the end of an era in San Jose. The iconic hotel was the crown jewel in the downtown redevelopment effort when it first opened in 1987 and quickly became the place to see and be seen. Its guests included Presidents Clinton and Obama, countless celebrities from Muhammad Ali to Lady Gaga, and other dignitaries visiting San Jose. Its been the site of hundreds of charity galas, hosted weddings both lavish and modest, and provided a backdrop for downtown events including Christmas in the Park and the San Jose Jazz Summer Fest.

Of course, the 805-room tower and annex arent going anywhere and certainly could be part of a post-pandemic downtown renaissance. But it wont be the same, and no matter what its called, itll be a long time before people stop referring to the hotel as the Fairmont.

BINGO-VERSARY: Were creeping up on a year since the first stay-at-home orders changed the way we do everything, including have fun. Downtown San Jose events guy Fil Maresca is definitely aware when that happened because it was a year ago that he had to move his fun 80s Musical Bingo games from the Fountainhead Bar at SoFA Market to this thing called Zoom that few people had heard of in March 2020. The anniversary edition of the game takes place March 10 at 6 p.m. Its free to play Maresca spins a snippet of an 80s song and you match the artist to your custom bingo card and you can win prizes while also introducing your kids to some classic tunes. Check it out at http://www.facebook.com/80sVirtualBingo.

MOVING RIGHT ALONG: Steve Dini who built a second career as a drama teacher at Pioneer High after his first as a morning radio host ended has pulled up stakes from Morgan Hill and headed to Texas. But Dinis departure to the Lone Star State isnt a protest like Elon Musks; he just wants to be closer to his grandchildren. Assuming the pandemic recedes, he plans to return this fall to perform with Pioneer Highs Glue Factory group and visit family members still around here.

The little town near Fort Worth he moved to is called Prosper, Dini reports, and is covered in brown Bermuda grass which hes told will all turn green in about a month. He hasnt seen the Tesla CEO in Texas yet One ofhis rockets may drop out of the sky here any minute, he quipped but he also hasnt seen many actual Texans.

Everyone seems to be former Californians like us, Dini said. We met our next door neighbor today and she and her husband are from Orange County, and another couple we met are from San Diego.

CARING ABOUT CHRIS WILDER: Theres been a huge outpouring of well-wishes and positive thoughts shared for Valley Medical Center Foundation Executive Director Chris Wilder, who was hospitalized after a stroke last weekend. Family members say it may be a few days before Wilders prognosis is known, but if karma counts for anything, Wilder has a lot of credit in his bank. The VMC Foundation has promised to keep people updated when possible on its website, http://www.vmcfoundation.org.

But while the well-wishes and concern are appreciated, Wilders family has one request: Please, stop calling the hospital to ask about him, as the flood of calls has been overwhelming staff. Im not naming the hospital to help stem the calls.

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Fairmont hotel bankruptcy marks the end of an era in San Jose - The Mercury News