Category Archives: Bankruptcy

J.C. Gonzlez Vzquez * | On August 3rd, the Council of Ministers finally approved the long-awaited Bill for the adaptation of our insolvency legislation to EU Directive 2019/1023 regarding preventive restructuring frameworks, discharge of debt and disqualifications. In addition, measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt.

Great hopes had been placed on it because it was thought that it would help to save companies which, although going through a difficult patch, were viable. However, these hopes were dashed as soon as its content was known. The Bill has drawn heavy criticism from all concerned parties and the high number and length of the allegations presented go to prove the Bill has met with unanimous rejection. And, unfortunately, we have to agree with most of the criticism. Obviously, not everything is negative since the European Directive imposes certain changes which will improve our current regulatory system.

Since this is an extract from an article published in revistaconsejeros.com we cant go into too much detail so we will highlight three general aspects that permeate the entire reform. In our opinion, these denote the misguided frame of mind in which the transposition of the aforementioned Directive has been approached.

Firstly, the unhealthy and out of focus overprotection of whatever has to do with labour or what is public (in particular, but not only, labour credits and public credits). Since the pruning of privileges regarding these credits carried out in the 2003 Insolvency Law, such privileges and protection have been increased in successive reforms in spite of widespread criticism from national and international quarters.

The same mistake is made in this Bill. For example restructuring plans are prevented from affecting labour or public credits. However, what we find most shocking is the fact that, in the case of public credits, there is no exemption from financial liability. And the people who have received firm administrative sanctions in the previous 10 years or who have been subject to derivation of liability for offences classified as fraudulent cant avail themselves of such exemption.

Secondly, the erroneous belief that in order to speed up insolvency proceedings and make them cheaper you have to reduce or do away with the involvement of private insolvency professionals. As if they were responsible for these proceedings lasting too long or not being very efficient when it comes to debt recovery for creditors.

In the last reforms of the Insolvency Law, and in particular in the ones since 2014-2015, there has been a clear bias against insolvency administrators which in this Bill has been extended to other professionals taking part in insolvency proceedings. In fact their presence is not compulsory in special proceedings regarding microenterprises. This bias can also be seen in the fact that their fees will be halved when the different phases of the proceedings last over a certain number of months as if they were responsible for the excessive duration of such proceedings and in the implementation of a single public platform for all electronic auctions. Quite the opposite to what the Government did during the pandemic whenitencouragedout-of-courtsettlementswhich have proved quite successful in this last year and a half.

Thirdly, the lack of clear definition of some essential questions can be a source of conflict. For example, it is not clear what is meant by when interim financing is necessary and appropriate or by an expert in restructuring who has to be someone with experience in that field. This is in direct contradiction to what the European Directive says, since that expert can be named by debtors and creditors without having to be vetted by any administrative or judicial authority.

To make matters worse, in the case of special proceedings concerning microenterprises, there is no provision for appeal against decisions and judgements. An attack on the right to legal protection which could render the Bill unconstitutional.

In short, this Bill has been drafted from a perspective distorted by some unfounded ideological prejudices and without taking into account the reality of our courts and of Spanish insolvency practice. As a result, we feel very pessimistic about the possibility of it being amended during its passage through Parliament.

(*) Tenured lecturer in Commercial Law (UCM) | Partner at CECA MAGN Law Firm

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Spain: The Bankruptcy Reform Bill Is Not To Anyone's Liking - The Corner Economic

Stories involving bullies receiving their comeuppance offer such visceral pleasures that theyve become deeply ingrained in our culture, from Angelo in Shakespeares Measure for Measure to the lascivious Count in Mozarts Marriage of Figaro right up to the deplorable Biff in the movie Back to the Future.

Heres a story from real life.

In this case, the bully is the California Independent Petroleum Assn., which lobbies for oil drilling firms around the state.

We can see harassment a mile away, and thats what this lawsuit was.

Ashley Hernandez, Youth for Environmental Justice

CIPA spent five years suing environmentalists and the city of Los Angeles to block efforts to tighten regulations for drilling in populated areas, especially minority communities, which CIPAs members knew would cost them a lot of money. Thats the bullying part.

The legal battle ended in defeat for CIPA and a court ordering the organization to pay its targets legal bills. Those came to $2.3 million, according to an order issued by Los Angeles County Superior Court Judge Malcolm Mackey on July 6.

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Most of the money was awarded to the city of L.A., which is owed about $1.03 million, and the Center for Biological Diversity, one of the environmental groups CIPA targeted, which is owed more than $1.2 million.

CIPA, asserting that it doesnt have the money to pay the bills or post the bond that would be required before it could appeal the order, has now filed for bankruptcy. Thats the comeuppance part.

You can chalk up this harvest to Californias potent anti-SLAPP law. The acronym stands for Strategic Lawsuits Against Public Participation. It refers to litigation brought by powerful interests the oil and gas industry, for example not to settle commercial disagreements or seek redress for an injury, but to intimidate critics exercising their rights of free speech or petitioning government for regulatory action.

By the way, CIPA didnt succeed in getting the regulations loosened or removed.

Big Oil for a long time has wanted to make sure there was no public participation in the permitting process for oil drilling, says Ashley Hernandez of Youth for Environmental Justice, another of the groups sued by CIPA. We can see harassment a mile away, and thats what this lawsuit was. Its no surprise that after we succeeded in the courts, the petroleum association is trying to sneak out on their obligation.

CIPA says its hoping to work out a way to pay its creditors over five years. Its chief executive, Rock Zierman, says the $2.3-million judgment is larger than CIPAs annual budget.

A meeting of CIPAs creditors, including the city and the Center for Biological Diversity, is scheduled in Bankruptcy Court for Oct. 6.

The creditors are expected to argue that CIPA has sufficient resources to pay its bills: Were going to be asking the toughest questions we can, L.A. City Atty. Mike Feuer told me. Were going to take an aggressive stance to get the attorney fees to which the public is entitled. After all, the money at stake is owed to the taxpayers of the city.

Zierman says the group has been miscast as a bully.

How can a small trade association with four employees intimidate the city of Los Angeles which has an army of full time lawyers and billions of dollars in resources? Zierman asked me by email.

Of course, thats absurd. CIPAs membership has included Exxon Mobil and Chevron, two of the most powerful corporations in the world. Over the last four quarters, Exxon Mobils revenues have come to $178.6 billion and Chevrons to $116 billion.

Since 2019 alone, Exxon Mobil has spent $322,000 in lobbying in California, and Chevron, which is headquartered in this state, has spent $12.7 million. Chevron has contributed $1.75 million to CIPA for political activities in California since 2014, according to the California secretary of state.

As for the citys army of full-time lawyers, from 2017 through mid-2019, CIPA paid out more than $2.6 million in legal fees to at least four elite law firms, including the Los Angeles-based firms Manatt Phelps & Phillips and Gibson, Dunn & Crutcher. Thats according to the organizations latest public tax filings.

So lets hear no more about how penurious and teeny-tiny CIPA is. It engaged in litigation over city drilling not for itself and its four employees but on behalf of one of the best-financed and most powerful industries in California.

Before we move on to the particulars of the litigation that got CIPA into such a fix, a few words about SLAPP suits. Since the 1990s, theyve been viewed by policymakers as a menace to the public interest.

Anti-SLAPP laws are on the books of 33 states and enshrined by case law that is, judges rulings in two more. Efforts are underway to enact a federal anti-SLAPP law, but advocates have tried to achieve the goal four times before, most recently in 2015.

The difficulty has arisen even though anti-SLAPP legislation is favored on the political left and right alike. Thats because SLAPP suits have been brought not only against environmental groups and other activists but also businesses and public officials.

Employers have been sued for disciplining or firing workers, tech companies for challenging other firms patents, Better Business Bureaus for grading businesses with an F. Government officials have been sued for enforcing regulations. Theyve all received the protection of anti-SLAPP statutes.

The issue brings together strange bedfellows, says Evan Mascagni, policy director of the Public Participation Project, an advocacy group for anti-SLAPP laws. It transcends party lines. California has one of the strongest anti-SLAPP laws in the country, but so do red states such as Texas and Oklahoma.

Anyone can get SLAPPed for any reason, Mascagni says. Bullies trying to use the legal system to silence anyone who says anything negative about them can be left wing or right wing. The main obstacle to federal enactment appears to be plaintiffs lawyers. They dont want to see anything introduced that can help a defendant.

The CIPA case began in 2015, when the Center for Biological Diversity and other environmental groups challenged the citys indulgent policies on drilling permits. We sued the city for basically rubber-stamping permits for new drilling without complying with the California Environmental Quality Act, says Maya Golden-Krasner, a senior attorney for the center.

The city was especially lax about considering environmental, health and safety effects of drilling applications in majority Latino and Black communities, the plaintiffs asserted, even though CEQA required those issues to be taken into consideration. Thats important because fumes from oil and gas drilling are associated with a host of health problems, including asthma and cancer, among nearby residents.

In 2016, the city settled the lawsuit and issued an internal memo instructing zoning officials to require environmental assessments and public hearings for all new drilling applications, including changes sought for existing permits.

CIPA then sued the organizations and the city, alleging they had reached a secret deal while shutting the oil industry out of settlement negotiations. The group asked for the settlement to be invalidated.

CIPA kept the environmental groups in the case, even though they had settled with the city and dropped their own lawsuit, by asserting that they were acting as agents of the city. The groups disputed that, since they have no authority to force the city to do anything related to drilling permits.

Throughout the litigation, CIPA portrayed the process as virtually a matter of life or death for its members, and it pointed the finger at the environmentalists.

For these people who are attacking my clients in a regular basis in these lawsuits, a CIPA attorney asserted during a court hearing in 2016, this is tantamount to a holy war.

The case dragged on until a state appellate court threw out CIPAs claims in February 2019 and instructed the trial court to assess attorney fees against CIPA. CIPA appealed to the state Supreme Court, which refused to take up the case.

CIPAs Zierman groused to me that the judges $2.3-million assessment was out of line three times higher, he said, than any other anti-SLAPP assessment in California history.

Judge Mackey was explicit, however, about why the city and environmental groups deserved so much. This case involves complex land-use and constitutional law, was vigorously litigated for about 5 years, and involved appellate and supreme court proceedings, he wrote.

In effect, the judge issued a warning: Anyone who tries to run up the costs of litigation for the opponents in a SLAPP suit may find the bill landing back on their own desk, like a boomerang.

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After suing its critics, an oil group wound up in bankruptcy - Los Angeles Times

School teachers across Iran held protests on Saturday demanding an improvement in their work conditions, as workers in natural gas and petrochemical sectors protested for their wages in southern Iran.

Teachers held rallies in Esfahan, Fars, Alborz, Ilam, Khuzestan and several other provinces, chanting slogans about government inaction to address their demands. They have been holding periodic protests in the past several months.

One of their demands is for parliament to pass a law setting a ranking system for teachers, which would affect salaries. Education, expertise and other qualifications should be considered in the job ranking scheme.

Teachers earn meager salaries, and many are unable to afford a basic living amid a 50-percent inflation rate in the country. Recently, some teachers have committed suicide highlighting the hardship they feel.

Also on Saturday, contract workers in Irans natural gas industry in the southern gas fields of Asalouyeh held protests to demand the implementation of promises made by their employers. They returned to work form a long strike, based on employer promises to pay better salaries and improve work conditions.

There was also a separate protest by workers in the petrochemical industry in Mahshahr, in southern Iran.

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Iran's Oldest And One Of Largest Banks On Verge Of Bankruptcy - Iran International

The closure of a long-time Edmonton bridal boutique is leaving some wedding parties scrambling.

Sonya Dyck considers herself one of the lucky ones.She will be getting her dress next week.

"I got a phone call last Tuesday from Urban Bride saying 'We don't know if it's reached the news or not but The Bridal House has had some financial hardships.

"'The designer has your back. She will be shipping your dress to our store to be picked up.'"

A weekend clear-out sale, being run by bankruptcy trustee Faber Inc., began Friday morning with little fanfare. About a dozen deal-hunting brides were waiting when the doors opened.

Multiple requests for comment from CBC News went unanswered.

In that post, Bartlett blamed the closure on the impacts of COVID-19 and provided information for brides to contact their dress designers.

Local wedding groups on Facebook were flooded with posts from people looking for answers or trying to alert others that they were having problems with the store. Some of them indicate that deposits never made it to the designers.Dyck said she was one of them.

"The designer understands what is going on with the situation and they will work with the other bridal store and get my dress shipped over to them although the deposit that I paid here, Iguess, Idon't know what happened to it."

Heather Dymchuk, the owner of Bridal Debut in Sherwood Park, said she noticed some chatter started about a month ago among customers that something was off.

"[They would say] we tried to go to Bridal House today we couldn't get in. They were closed because of a COVID outbreak and only people who were picking up dresses were allowed in."

"That's when the flags went up for me," Dymchuk said.

Dymchuk did talk to Duhaime-Bartlett when the chatter startedand was told that the closure was coming. The news came as a shock especially as she continues to learn more about the situation.

She continues to hearfrom brides on a daily basis who are looking for help.

Stores around town have stepped in with offers to receive dresses from the designers if needed. Some stores and designers are offering discounts and waiving deposits for brides that were impacted as well.

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Bridal store bankruptcy leaves brides and industry insiders with questions - CBC.ca

Mark Pestronk

Q: In an effort to stay in business during the pandemic, my agency has fallen far behind on payments to everyone except our employees. Right now, we owe money to a GDS vendor, back-office vendor, customer relationship management (CRM) software vendor, back-office system vendor, meetings and events software vendor, telephone company, internet service provider and technology consultant. No one has sued us yet, but several are threatening to do so, making life very stressful for me and my staff, especially because we are getting calls from collection agencies. Should we just file for Chapter 11 bankruptcy, which would stop the threats while allowing us to continue in business? If not, what do you recommend we do?

A: You should consult a business bankruptcy attorney, who can offer expert advice on whether you should file for Chapter 11 bankruptcy. My own view is that it is nearly impossible for travel agencies and other travel companies to continue in business after a bankruptcy filing, so you should try to avoid it if at all possible.

Thousands of travel companies are in your position, yet there have been very few bankruptcy filings, as far as I know. The reason is that vendors are generally forbearing from filing lawsuits, as they understand your financial position and know that they can't collect until business improves and you become profitable again.

For example, many agencies with GDS contracts have large unpaid shortfall bills from 2020 and the first two quarters of 2021. In most cases, the vendors are doing little to collect these balances. As I mentioned in last week's Legal Brief column, I know of no agency whose GDS access has been involuntarily terminated during the pandemic.

So, this means that you can probably expect no lawsuits by the vendors and other creditors that you name, at least until the travel business becomes normal again. Even so, you need to do something about the dunning calls and letters that are stressing you out.

In my experience, most vendors that you don't need any more are settling for a small payment or series of small payments. If you need the vendor in order to stay in business, try negotiating for a new, multiyear agreement that forgives most or all of the existing bill.

If a vendor turns the debt over to a collection agency, it probably means that the vendor has written off the debt entirely, which you can take as a good sign. Although collection agencies can file suits in their own name if the debt is sold or assigned to them, such suits are extremely rare.

You cannot simply tell a business-debt collector to stop harassing you, like you can with a consumer-debt collector. To stop harassment from collection agencies, you can offer a small settlement, or you can ignore the calls, although the latter can harm your business credit rating.

In short, you can probably deal with the vendors outside of bankruptcy by selectively settling, extending contracts or ignoring, depending on how much you need to continue to do business with the vendor.

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Work with your vendors before resorting to bankruptcy - Travel Weekly

By Mike Curley (September 17, 2021, 5:06 PM EDT) -- A D.C. appeals court has thrown out a malpractice suit by a woman who alleges her doctor botched an abdominal surgery, finding it can't go forward after the woman failed to disclose the possibility of a suit when she went through bankruptcy.

In an opinion filed Thursday, a three-judge panel affirmed the dismissal of Melinda Dennis's suit against Patrick G. Jackson and Georgetown University Hospital, saying the trial court was right to find that her nondisclosure blocked the case.

According to court documents, Dennis underwent the surgery in October 2012, but days later had multiple problems relating to the procedure, requiring...

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Med Mal Suit Tossed Over Failure To Tell Bankruptcy Court - Law360

Asias falls extend to western bags In this Mondays session and the European squares, decreases of around 2% were noted as a consequence of the Bankruptcy fears of Chinese real estate Evergrande, one of the largest in the Asian sector and whose collapse would have implications for the entire economy of the country. Consequences that could be extended to everyone and that cost the Ibex 35 the 8,600 points.

The Hong Kong Stock Exchange falls by around 3.5% due to the block declines of the entire real estate sector. The collapse in Asian squares where there has been activity has reached Europe, where stocks suffer significant declines with one eye on Evergrande. The Dax German, el Cac 40 French and the FTSE Mib Italian fall more than 2%; Meanwhile he FTSE 100 Londoner yields around 1.5%. The Ibex 35, with a fall of 1.9%, is already trading below 8,600 points. The steel companies of the selective Spanish and the large banks star in the steepest drops, among which Arcelormittal stands out, exceeding 8%.

Evergrandes debt

This Monday the alarms go off in the equity markets and the stock markets fall before the possible bankruptcy of the Chinese real estate company Evergrande, whose debt amounts to 305,000 million dollars (299,000 million euros). The company is struggling to pay its creditors, even though last week it dismissed rumors of an imminent crash, a scenario reminiscent of the collapse of Lehman Brothers on September 15, 2008, that is, practically 13 years ago.

Only in this session Evergrandes crash is 10.63%, a fall with which the company reaches lows of more than 11 years. Specifically, the companys shares fell to HK $ 2.28, the lowest price since May 2010. In the last 12 months, it has lost 88% of its value in the market.

But the falls of the Hang Seng They are not only limited to real estate companies. Clippings extend to financial sector and the securities of some Chinese banks such as China Merchants Bank also lost more than 10% of their value. This situation could lead to problems worldwide due to the strong exposure to Evergrande bonds presented by many international banks, so we will have days of uncertainty ahead , explain IG analysts.

Sergio vila, an analyst at the broker, stresses that Evergrande is the second largest real estate company in China and that its debt represents 2% of the countrys gross domestic product (GDP). In his opinion, should the bankruptcy occur, it would directly affect the Chinese financial sector, which could lead to a financial crisis that would have very negative consequences for China and, consequently, for world growth . For this reason, he points out that the banking sector would be the most affected. Also, the downfall of the promoter, which could be the black swan of this 2021 for the markets, it would negatively impact more than 128 Chinese banks and this would affect the international debt market.

Such are the problems of liquidity that the Chinese giant has that would have already begun to pay investors with their real estate, according to Reuters. Evergrande is mired in a liquidity crisis that has put it in a race to find funds to pay off its many lenders and suppliers. This Thursday he must face the payment of 83.5 million dollars of an interest maturity of a bond.

The market is now aware of several factors such as the inflation, reduction of stimuli by the central banks and in the background the stimuli prepared by the US government and the debt ceiling, Explains Joaqun Robles, head of Investor Relations at XTB, who considers that the situation of Evergrande may generate short-term volatility, But the intervention of the government is expected before a process of defaults begins . In his opinion, the Ibex 35 could be affected by falls globally, but none of its companies has direct exposure to the Chinese real estate market.

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The shadow of Lehman Brothers is long: stock markets crash due to the possible bankruptcy of Evergrande - Market Research Telecast

(Reuters) - New commercial bankruptcy filings have continued to fall throughout 2021, but experts say the favorable conditions that have allowed businesses to stave off Chapter 11 for the time being wont last forever as the consequences of questionable deals and underlying operational problems come to the fore.

Commercial bankruptcy filings exploded in 2020 but trickled off as 2021 began. Despite some predictions that new cases would pick up in the latter half of the year as a result of the COVID-19 pandemic, filings have fallen to record lows as relief efforts helped fend off, at least temporarily, severe financial woes.

The total number of new Chapter 7 and Chapter 11 bankruptcy cases filed for the 12 months ending June 30, 2021 were the lowest since 1985, according to the Administrative Office of the U.S. Courts. Commercial filings fell 17.7% to 18,511 compared with the previous year.

Even the dollar amount of this years bankruptcy filings dropped. The largest corporate bankruptcy in 2020 was Hertz Global Holdings Inc with $25.43 billion in assets when it filed, while 2021s has been offshore driller Seadrill Ltd, with $7.29 billion in assets, according to a report compiled by Cornerstone Research.

The obvious explanation for the lower number of business filings is the sustained strength of the capital markets that has made it easy to access financing. But some businesses have also enjoyed greater flexibility to make internal structural changes during the pandemic, Mayer Brown restructuring partner Lucy Kweskin said.

Companies have been able to implement under-the-radar layoffs and other cost-cutting measures that, in other environments, would have garnered bad publicity and fostered tense employee relations, Kweskin said.

Meanwhile, lenders have maintained a flexible approach to the debts theyre owed. In some cases notably those involving movie theaters, theme parks, and cruise ships, or any business that depends on large amounts of people to gather lenders are trying to avoid a situation in which they become owners of the companies that owe them money, Sullivan & Cromwell's global restructuring co-head James Bromley said.

Are creditors really interested in owning a movie theater chain at this moment? The answer is no, he said.

Instead of foreclosing, Bromley said, lenders are more likely to extend debt or seek increased collateral. But those arent long-term solutions to a companys underlying financial problems, especially in areas like the airline and auto industries, he said.

Additionally, a pattern of low yields on credit opportunities led some investors to go after riskier investments because they were the only ones that offered decent returns, Bromley said. Those questionable investments will likely turn south, Bromley added, which could lead an uptick in corporate bankruptcy filings in 2022 or 2023 as borrowers are unable to live up to the terms of their deals.

There are bad deals that are attracting a lot of money and those bad deals will go bad, Bromley said.

Retail has had an especially quiet year compared with 2020, when giants like JC Penney and Neiman Marcus sought bankruptcy protection. As of August, there were only nine notable retail bankruptcies filed during 2021, according to data collected by financial advisory firm BDO. None have had the same level of name recognition as the 2020 cases.

BDO partner David Berliner says the slowdown in retail bankruptcies is due in part to the fact they still have the upper hand over landlords, who will often agree to discounted rent if it prevents leases from getting canceled altogether.

Right now the pendulum has swung in favor of retailers in their battle with landlords, as landlords try to keep tenants from fleeing, he said.

Back-to-school and holiday shopping seasons are likely to bode well for retailers this year, especially compared with the low spending by consumers during 2020, Berliner said.

However, a retail rebound could be undermined by the higher wages necessary to bring employees back into stores and tight inventories caused by shipping delays, he added.

Additionally, he said, consumers could scale back their discretionary spending soon as a result of extra debt they took on to stay afloat over the past year.

In the end, however, companies will almost always try to solve their financial troubles outside of a bankruptcy courtroom, if only to avoid the press and public scrutiny that comes with a formal Chapter 11 filing. That will still be the case, even in a pandemic.

You may have some people say, I just cant weather this business and climate anymore, and the Delta variant pushes them to the brink and they end up selling assets, Kwestin said. But some of that may not necessarily need to be in court.

Maria Chutchian reports on corporate bankruptcies and restructurings. She can be reached at maria.chutchian@thomsonreuters.com.

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Bankruptcy filings are down, but lousy deals and operational woes will change that - Reuters

September 8, 2021

It comes to us from a July 2021 North Carolina district court decision reversing a $115,000 sanctions order by a North Carolina bankruptcy court. The story offers a lesson and a moral. The lesson is that the bankruptcy court cannot sanction a creditor if there is an objectively reasonable basis for concluding that the creditors conduct is lawful. The moral of the story is that a creditor can avoid the time, expense, and risk associated with litigating contempt and sanctions issues by taking basic steps to ensure that confirmed Chapter 11 plans are clear and precise.

In 2009, the Beckharts filed Chapter 11. At the time, they were almost a year behind on a loan secured by the property at Kure Beach. The loan servicer objected to a plan confirmation because it did not specify how post-petition mortgage payments would be applied to principal and interest. The bankruptcy court confirmed the plan without clarifying the issue, but the servicer did not ask the court to reconsider its order nor did it appeal.

The Beckharts paid for five years. Shellpoint acquired the loan from the original servicer and treated it as in default based on unpaid accrued arrearages. Periodically, Shellpoint sent default letters to the Beckharts, who disputed the default. Counsel for Shellpoint advised that the confirmation order had not changed the loan contract terms and that the loan remained in default. The matter escalated with the Beckharts filing complaints with the Consumer Financial Protection Bureau. Shellpoint commenced foreclosure, then represented to the Beckharts it was ceasing foreclosure, but then posted a foreclosure hearing notice on the Beckharts' door (allegedly due to error).

In January 2020, the Beckharts moved the bankruptcy court to find Shellpoint in contempt and award them monetary sanctions. The court held a hearing in June and, in September 2020, found Shellpoint in contempt. The court tagged Shellpoint with $115,000 in sanctions for lost wages, "loss of a fresh start," attorney's fees, and travel expenses.

Bankruptcy courts have the power to hold a party in civil contempt and to impose sanctions for violation of a confirmed plan. The test for liability is based on a recent United States Supreme Court decision -- Taggart v. Lorenzen. (To read our discussion of Taggart, click here.) The Taggart test prohibits sanctions if there was an objectively reasonable basis for concluding that the creditors conduct might be lawful.There can be contempt for violating the discharge injunction only if there is no fair ground of doubt as to whether the order barred the creditors conduct.

In reversing the bankruptcy court, the district court noted that the plan and confirmation order did not state how much the debtors would owe on confirmation, did not say how the $23,000 in arrears would be paid, and did not set the amount of the first payment. Confusingly, the confirmation order also said that the original loan terms would remain in effect, except as modified. Finally, the district court pointed out that Shellpoint was repeatedly advised by counsel that their behavior was authorized, and reliance on the advice of outside counsel is a sufficient defense to civil sanctions. Based on all these facts, the district court found that Shellpoint acted in good faith and interpreted the confirmation order in a manner consistent with the contractual terms of the loan, and that was objectively reasonable.

Creditors can take some comfort in the "no fair ground of doubt" test, which is more forgiving than a strict liability standard. Creditors can also solicit and act on the advice of counsel before engaging in perilous conduct, which provides another layer of protection. But the most important takeaway is the self-evident principle that creditors should insist on clear and specific plan terms. Shellpoint ultimately prevailed and avoided sanctions, but only after over 18 months of litigation. All of that could have been avoided had the loan servicer insisted the plan specify how the Beckharts' payments would be applied to satisfy the arrearage.

-- 2021 Ward and Smith, P.A. For further information regarding the issues described above, please contact Lance P. Martin.

This article is not intended to give, and should not be relied upon for, legal advice in any particular circumstance or fact situation. No action should be taken in reliance upon the information contained in this article without obtaining the advice of an attorney.

We are your established legal network with offices in Asheville, Greenville, New Bern, Raleigh, and Wilmington, NC.

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Use Clarity to Avoid Contempt in Bankruptcy - Ward and Smith, PA

LATAM Airlines Group - and certain of its debtor-affiliates in Brazil, Chile, Colombia, Ecuador, the United States, and Peru - have received more than USD5 billion in non-binding capital and financing proposals to exit from Chapter 11 bankruptcy proceedings, according to an SEC filing.

The airline group also released its five-year business projection, which it said marked one of the final stages before the presentation of its plan of reorganisation. LATAM forecasts recovering 2019 profitability by 2024, and a 78% operational result increase by 2026 when compared to pre-pandemic figures in 2019, the company said in a statement.

The offers from its most significant claim holders and its majority shareholders contemplate raising the new funds through the issuance of new debt and equity in LATAM, which would be "backstopped by the parties making the proposal". In addition, in each exit proposal, the proponents contemplate that if such proposal is approved and implemented, it would result in the substantial dilution of LATAMs currently existing shares, according to the filing by chief executive officer Roberto Alvo on September 9, 2021.

LATAM will continue to discuss the exit proposals with their respective proponents and will continue to engage in discussions regarding its reorganisation plan with such proponents and other stakeholders, some of whom have agreed to remain under non-disclosure agreements," he said.

LATAM is focused on ensuring that any exit strategy allows it to emerge from the Chapter 11 proceeding with a robust capital structure, adequate liquidity, and the ability to execute its business plan in a sustainable manner over time. Any plan will be implemented in accordance with the relevant requirements of the US Bankruptcy Code and Chilean law, Alvo said.

An extraordinary meeting of shareholders would be called when appropriate, subject to the progress of the negotiations with the various stakeholders. The carriers largest shareholders include Delta Air Lines (DL, Atlanta Hartsfield Jackson) (20%), the Cueto Group (16.4%), and Qatar Airways (QR, Doha Hamad Int'l) (10%). Other shareholders have 34.4% ownership in LATAM.

LATAM and its subsidiaries - which entered US Chapter 11 bankruptcy protection on May 26, 2020 - have also filed a motion with the Bankruptcy Court for the Southern District of New York for an extension until October 15 for the period during which debtors have the exclusive right to submit a plan of reorganisation, and until December 15 to solicit acceptances of a plan. The court is scheduled to consider the motion at a hearing on September 23, 2021.

As of July 31, 2021, LATAM reported about USD1.9 billion in liquidity, considering USD1.1 billion in cash and cash equivalents and USD800 million in undrawn Debtor-in Possession (DIP) financing.

LATAMs existing debtor-in-possession financing provides for a possible additional third tranche (the Tranche B Facility) of secured financing up to USD750 million, in addition to the existing USD1.3 billion Tranche A facility and the USD1.15 billion Tranche C facility, which are not fully drawn as of this time. Given the currently favourable market conditions, LATAM was soliciting interest from potential lenders in providing a Tranche B Facility and would consider proposals to determine whether it was able to borrow funds at a more competitive rate than under the existing Tranche A and C facilities.

Meanwhile, a telephonic hearing will be held in the US Bankruptcy Court on October 28, 2021, on a motion filed by the debtors to assume various aircraft agreements and for related relief totalling about USD52.4 million according to a notice filed by the court on September 10, 2021.

Alongside the news of its proposed exit funding, LATAM also disclosed its financial projections coming out of Chapter 11 until 2024 by when it expects to fly a similar amount of Available Seat Miles (ASKs) as it did in 2019 and a growth of 7% by 2026, resulting from an estimated recovery of the domestic markets by 2022 and the international ones by 2024. However, its mix of operations would be very different. "The stage length will be shortened as domestic markets recover faster than international, and we will be carrying 12% more passengers with a lower corporate passenger mix compared to pre-pandemic," the airline said.

The recovery scenario was supported by LATAM Airlines Brazils domestic markets operational ramp-up to date, which reached a 77% ASKs in August, compared to 2019, and was forecast to surpass 100% of 2019 levels at the beginning of 2022. The domestic markets of the affiliates in Colombia (LATAM Airlines Colombia), Ecuador (LATAM Airlines Ecuador), Peru (LATAM Airlines Per), and Chile (LATAM Airlines) already reached 72% in August, while the international recovery of the group, both regional and long-haul, continued to be affected by travel restrictions.

Meanwhile, LATAM had simplified its fleet and was now operating an all Boeing wide-body fleet, creating additional efficiencies. We will be flying newly retrofitted B777s from Brazil and in the coming months, we will be introducing the B787-9 in Brazil. We are also continuing to retrofit the cabins of our narrow-body fleet. According to the ch-aviation fleets advanced ch-aviation module, the airline group has a fleet of 294 aircraft spread across its various AOCs including forty-four A319-100s, 132 A320-200s, twelve A320-200Ns, forty-eight A321-200s, twenty-four B767-300(ER)s, ten B777-300(ER)s, ten B787-8s, and fourteen B787-9s.

Cost reduction initiatives addressed during the Chapter 11 process, including leveraging LATAMs digital transformation to improve efficiency, supplier renegotiations, and fleet restructuring, saved USD900 million annually and allowed LATAM to structurally change its cost base. It said an important part of its cost containment was coming from the renegotiation of its fleet, which represented its largest fixed cost. Fleet costs alone note annual cash cost savings of over 40% compared to 2019. "We have already obtained court approval for all the new terms regarding 95% of our fleet. These new terms will allow us to reduce the fleet-related cash outflows by over 40% in the forecasted period when compared to 2019. We have also entered into interest-only or variable payments depending on utilisation, extending to 2022 for 60% of our narrow-body fleet and to 2023 for 50% of our wide-body fleet. Its MRO facilities in Brazil and Chile would allow it in-source most of its maintenance.

LATAM Group said it had secured slots for converting passenger aircraft into freighters, allowing it to increase cargo capacity by 80% by 2024. "This heavier cost structure (larger cargo operations, more frequencies, shorter stage-length, more passengers) and the five-year inflationary pressure will all be offset by cost-saving initiatives. By 2024, before inflation, we expect our total Cost of Available Seat Kilometre (CASK) ex-fuel to amount to 3.9 cents, representing a 0.6 cent improvement on the 2019 CASK ex-fuel."

LATAM expects its revenues to increase by 13% to USD11.8 billion in 2026 and its EBIT margin to reach 25% in the same year. Passenger revenues were expected to grow 8% and cargo revenues by 59% compared to 2019.

The cargo affiliates of LATAM would incorporate at least eight new freighters into their fleet and some of these aircraft conversions had already started. The slower recovery in the international business provides for a unique opportunity for this business unit as there was less belly capacity available.

On the passenger front, the Group foresaw a competitive environment during the initial years of projections. "We expect the capacity of the group to exceed the demand and the unbundling of our fares and the improved cost structure will play a key role. In the later years of the projections, we are forecasting a morebalanced supply and demand." LATAM unbundled its fares in 2017, implementing an ancillary products strategy, which it said, would be a pillar of future growth.

Operating cash flow was forecast at USD1 billion in 2022, increasing to USD2.8 billion in 2026. Free cash flow, including fleet CAPEX, would be positive in 2023 and ramp-up to USD 1 billion in 2026. "All additional aircraft are modelled as operating leases and therefore will not imply a cash-out," it noted.

In addition to fleet and cargo conversions, LATAM would be investing in improving its performance and product, including digitalisation, cabins, and Wi-Fi connectivity.

The Group said it had leveraged the Chapter 11 process and would exit it with an improved operational cost structure that would position it competitively."The reorganisation has allowed LATAM to introduce structural transformations: renegotiated fleet, further improved an already competitive cost position and a strengthened network. We are convinced that LATAM Group will come out of this crisis stronger than ever," it said.

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LATAM garners over $5bn in bankruptcy exit financing offers - ch-aviation