Wall Street Journal Reports on Potential Bankruptcy Code Changes

Today, the Wall Street Journal posted two articles regarding potential modifications to the Bankruptcy Code in response to the large number of corporations that have either filed for bankruptcy or are in significant financial distress.  Among potential changes discussed are modifications to the 210-day deadline for companies to assume or reject leases, which has negatively impacted retailers’ ability to reorganize, and the provisions of the Bankruptcy Code relating to the provision of adequate assurance of future performance to utility providers.  Links to the articles are provided below:

• A Kinder Bankruptcy Law is Sought as Filings Soar
• Law Blog: Pre-Gaming a Possible Makeover of Restructuring Laws

Daufuskie Island Properties, LLC Files for Bankruptcy

Daufuskie Island Properties, LLC, which operates the Daufuskie Island Resort & Breathe Spa on Hilton Head Island in South Carolina, has filed a voluntary chapter 11 bankruptcy petition in the United States Bankruptcy Court for the District of South Carolina.  The Daufuskie Island Resort & Breathe Spa includes two golf courses, tennis courts, several restaurants, the Melrose Inn, and an equestrian center.

The company filed its Schedules of Assets and Liabilities and Statement of Financial Affairs as exhibits to its petition.  Therein, the company listed $97 million in assets and $88 million in liabilities, as well as 2008 revenues of $17 million (substantially lower than 2007 revenues of $27.5 million).  According to local news reports, the company blamed its bankruptcy filing on litigation over efforts to sell parts of the resort in addition to the economic situation, which it blamed for the decline in revenues.

Download copies of every document filed in the bankruptcy case, as well as over 455 other major corporate bankruptcy cases, using netDockets.  Sign up now for a free trial account and get $100 of free access.

AOL and Advertising.com Seek to Terminate Circuit City Agreements

On Monday, AOL LLC and Platform-A Inc. (formerly known as Advertising.com) filed a motion with the bankruptcy court in Circuit City Stores, Inc.’s bankruptcy cases requesting relief from the automatic stay to terminate certain contracts with Circuit City.  Pursuant to the agreements, AOL and Platform-A provide Circuit City with online banner advertising and search placement.  Certain of the agreements were entered into pre-bankruptcy and certain were entered into post-bankruptcy (one as recently as January 8, 2009).  According to the motion, all agreements provide AOL and/or Platform-A with the right to terminate the agreement for any reason on written notice to Circuit City.

In support of the requested relief, AOL and Platform-A argue that the termination provisions of the agreements remain enforceable and do not constitute ipso facto clauses.  Moreover, the motion states that “at various times during the weekend of January 17, 2009, Debtors’ website appeared to be non-functional, and any individuals led there through Movants’ advertising campaigns for the purpose of purchasing products could no longer do so.”  Finally, the motion argues that Circuit City will not be harmed by the termination because Circuit City requested that all advertising campaigns be “paused” (but not canceled) on January 16, 2009.

Download a copy of the motion and every other document filed in Circuit City’s bankruptcy case and 455 other major corporate bankruptcies using netDockets.  Sign up now for a free trial account and get $100 of free research.

Village Homes of Colorado Seeks Claims Deadline (Bar Date)

On Monday, Village Homes of Colorado, Inc. filed a motion with the bankruptcy court requesting that the court set a deadline (or bar date) for the filing of proofs of claim on account of claims arising before the company’s bankruptcy filing.  Village Homes filed for bankruptcy on November 6, 2008.

In the motion, the company requested that the court set March 5, 2009 as the deadline for the filing of pre-petition claims.  The motion also requests that the court set a deadline of May 25, 2009 for the filing of claims by governmental entities.

Download a copy of the motion, which includes a detailed list of proposed procedures for providing notice of the bar date and requirements for the filing of claims, using netDockets.  Sign up for a trial and get $100 of free research.

Lehman Brothers Examiner Appointed

On Monday, the United States Trustee filed a notice identifying Anton R. Valukas as the examiner appointed in the Lehman Brothers Holdings, Inc. bankruptcy cases.  Mr. Valukas is the chairman of Jenner & Block, a law firm headquartered in Chicago.  According to his firm biography, Valukas was the United States Attorney for the Northern District of Illinois from 1985 through 1989.  Prior to joining Jenner in 1976, he also held several positions with the U.S. Department of Justice, including Assistant United States Attorney (1970-1974), Chief of the Special Prosecutions Division (1974), and First Assistant United States Attorney (1975-1976).  Mr. Valukas’ practice focuses on “major civil and white collar criminal litigation” and he chairs Jenner’s White Collar Criminal Defense and Counseling Practice and serves on the firm’s Policy Committee.

The bankruptcy court entered an order on January 16th directing the appointment of an examiner.  The order was entered in response to a motion filed by The Walt Disney Company, which asserts claims against Lehman Brothers Commercial Corporation (LBCC) and Lehman Brothers Holdings Inc. (LBHI), requesting the appointment of an examiner.  The order identifies the examiner’s duties as investigating the following:

• Whether LBCC or any other entity that currently is an LBHI chapter 11 debtor subsidiary or affiliate (“LBHI Affiliate(s)”) has any administrative claims against LBHI resulting from LBHI’s cash sweeps of cash balances, if any, from September 15, 2008, the commencement date of LBHI’s chapter 11 case, through the date that such applicable LBHI affiliate commenced its chapter 11 case.
• All voluntary and involuntary transfers to, and transactions with, affiliates,insiders and creditors of LBCC or its affiliates, in respect of foreign exchange transactions and other assets that were in the possession or control of LBHI Affiliates at any time commencing on September 15, 2008 through the day that each LBHI Affiliate commenced its chapter 11 case.
• Whether any LBHI Affiliate has colorable claims against LBHI for potentially insider preferences arising under the Bankruptcy Code or state law.
• Whether any LBHI Affiliate has colorable claims against LBHI or any other entities for potentially voidable transfers or incurrences of debt, under the Bankruptcy Code or otherwise applicable law.
• Whether there are more colorable claims for breach of fiduciary duties and/or aiding or abetting any such breaches against the officers and directors of LBCC and/or other Debtors arising in connection with the financial condition of the Lehman enterprise prior to the commencement of the LBHI chapter 11 case on September 15, 2008.
• Whether assets of any LBHI Affiliates (other than Lehman Brothers, Inc.) were transferred to Barclays Capital Inc. as a result of the sale to Barclays Capital Inc. that was approved by order of the Bankruptcy Court entered September 20, 2008, and whether consequences to any LBHI Affiliate as a result of the consummation of the transaction created colorable causes of action that inure to the benefit of the creditors of such LBHI subsidiary or affiliate.
• The inter-company accounts and transfers among LBHI and its direct and indirect subsidiaries, including but not limited to: LBI, LBIE, Lehman Brothers Special Finance (“LBSF”) and LBCC, during the 30-day period preceding the commencement of the chapter 11 cases by each debtor on September 15, 2008 or thereafter or such longer period as the Examiner deems relevant to the Investigation.
• The transactions and transfers, including but not limited to the pledging or granting of collateral security interest among the debtors and the prechapter 11 lenders and/or financial participants including but not limited to, JPMorgan Chase, Citigroup, Inc., Bank of America, the Federal Reserve Bank of New York and others.
• The transfer of the capital stock of certain subsidiaries of LBI on or about September 19, 2008 to Lehman ALI Inc.
• The events that occurred from September 4, 2008 through September 15, 2008 or prior thereto that may have resulted in commencement of the LBHI chapter 11 case.

Download a copy of the motion, the order, the notice of appointment and every other document filed in Lehman’s bankruptcy case and 455 other major corporate bankruptcies using netDockets.  Sign up now for a free trial account.

GOE Lima (GO Ethanol) Creditors’ Committee Objects to Asset Sale

Yesterday, the Official Committee of Unsecured Creditors appointed in the bankruptcy cases of GOE Lima LLC and its affiliates filed an objection to the company’s motion to sell substantially all of its assets.  Of particular note, the objection provides a detailed recitation of the tumultuous sale process.  In brief, the court initially approved bidding procedures for the assets with no stalking horse bidder and the company received two bids, but neither were deemed acceptable.  Following further negotiations with one of the bidders, NextGen Energy LLC, the company sought to have that party designated as a stalking horse bidder with new bidding procedures.  After those revised procedures were approved, NextGen failed (and has apparently continued to fail) to provide a required $500,000 earnest money deposit.  No additional bids were received during the second competitive bidding process.  However, two additional bids were received after the bid deadline.

Second, the Creditors’ Committee objects to a sale on the terms of either of the two late-received bids because both bids would provide recoveries only for the company’s senior lenders, not the company’s general unsecured creditors.  The Committee posits that the court should not and cannot approve a sale that would not provide any recovery to unsecured creditors and that the court should require the company’s senior lenders to provide a carve-out to allow some of the sale proceeds to be reserved for unsecured creditors.  The Committee supports this position by arguing that a sale that only benefits the senior lenders violates the company’s fiduciary duties to all creditors.

Download a copy of the Creditors’ Committee’s objection, the company’s various sale motions, and every other document filed in the cases using netDockets.  Sign up now for a free trial account.