Section 363 Sale

Overview and Analysis of Select Provisions of the ABI Chapter 11 Reform Commission Final Report and Recommendations

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In December 2014, the American Bankruptcy Institute (ABI) issued its Final Report and Recommendations of the Commission to Study the Reform of Chapter 11. The Report is almost 400 pages long and contains more than 200 recommendations. Twenty-two Commissioners, including attorneys, academics, financial advisors and a former bankruptcy judge spent more than two years taking testimony from over 90 additional restructuring experts and considering the reports provided by 13 advisory committees, each comprised of 10-12 members from the bankruptcy bench, the bankruptcy bar, the financial community and academia. The Commission developed the report with goals including: reducing barriers to entry for debtors, facilitating more efficient resolution of disputed matters, enhancing debtors’ restructuring options and creating an alternative restructuring scheme for smaller businesses.

The recommendations do not constitute proposed legislation. Rather, the Report represents the opinion of the Commissioners and will spur debate. It ultimately could help lead to comprehensive overhaul of the almost 40-year old Bankruptcy Code. Recognizing that major bankruptcy reform generally takes years to wind its way through Congress, the Report implicitly acknowledges that 2018 is an appropriate target date for reform.

That does not mean the Report should be taken lightly, as it represents the consensus view of many well-regarded bankruptcy practitioners, academics and judges. At minimum, the Report will mark the commencement of a conversation about what the Commissioners view as much-needed reforms to the Bankruptcy Code. We also expect the report to receive the attention of judges and litigants in upcoming matters. Parties may look to the Commission’s interpretations of open legal questions as support for their assertions that certain interpretations represent the “better” argument or the “intended” result.

The Report covers nearly every aspect of the chapter 11 process with a multitude of suggested modifications to the Bankruptcy Code and bankruptcy jurisprudence. Below is our analysis of a number of the Commission’s most critical recommendations and of the potential impact of the proposed recommendations on the bankruptcy process.

To view the full article, please click here.

Oregon Bankruptcy Court Denies Administrative Priority Status to Potential DIP Lender for Breakup Fee Claim

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On April 8, 2014, Chief Bankruptcy Judge Frank R. Alley, III for the United States Bankruptcy Court for the District of Oregon found that Sunstone Business Finance, LLC’s claim against debtor C&K Market, Inc. did not constitute an administrative expense claim.  The claim arose from a breakup fee for proposed DIP financing after C&K selected an alternative DIP lender.

The Court denied Sunstone’s request for an administrative claim for two reasons.  First, the Court found that the breakup fee did not arise from a transaction with a debtor in possession because the parties executed the DIP term sheet prepetition.  Second, the Court found that Sunstone, as a potential lender, did not provide a direct and substantial benefit to the estate because the alleged benefits either occurred prepetition or were too indirect and intangible to qualify for priority treatment.  If this opinion were to gain acceptance beyond this case, it could chill prepetition offers to serve as new DIP lenders, or possibly even affect the market for stalking horse bidders in a section 363 sale.  In re C&K Market, Inc., No. 13-64561-fra11 (Bankr. D. Or. Apr. 8, 2014) [Dkt. No. 786].  Read More.