Commercial Bankruptcy: Involuntary Bankruptcy Petition

The items below are excerpted from the Business Bankruptcy News Bulletin. A full issue contains information on dozens of troubled companies, as well as informational and analysis highlights. Please visit the insideARM bookstore for information on subscribing to the Bulletin.

When an involuntary bankruptcy petition is filed against a company it is important to understand a few of the principal approaches the debtor may make use of to defend against that petition.  The debtor’s first responsibility is to avoid having to give up any of its assets. The debtor has twenty days to file a complaint against the creditor or creditors filing the petition.  All it takes is one complaint, filed within that time period, to guarantee the case moves before the court. Then, as an attempt to prove the involuntary petition is not justified, the debtor may try to show the court that, despite earlier troubles, its business is improving. And of course the debtor will try to show that the creditor or creditors filing the petition are doing so in order to gain favor over other creditors.

Always remember, if an involuntary petition is dismissed against a debtor, the creditor or creditors filing the petition could be held liable for a lot more than attorneys’ fees.  So tread lightly and discuss the filing of an involuntary petition against a debtor with an experienced creditor’s rights attorney before moving forward.

Advanta Corp., the Spring House, Pa. firm which suspended its credit-card operations in May and which owes its retail investors $138 million, is paying its remaining 40 employees an average annual salary of more than $260,000. The company, which owes 3,800 noteholders, entered bankruptcy proceedings with close to $100 million available to pay creditors.

The U.S. Bankruptcy Court, in the Agriprocessors meat packing bankruptcy, has sent “preferential treatment” letters to a number of Iowa cattle producers, offering them ten days to repay 80% of monies they were paid in the 90 days preceding the bankruptcy filing. Failure to do so would result in 100% of the payments, made by Agriprocessors to the cattle producers, being due.  (As a reminder to our subscribers, payments made within the 90 day period preceding a bankruptcy filing are generally not preferential, so long as they are made in the “ordinary course of doing business”.)

Amtrust Financial Corporation, Cleveland, Oh., filed Chapter 11 in the U.S. Bankruptcy Court for the Northern District of Ohio. The firm listed assets and liabilities of between $100 million and $500 million each. The filing was under case number 09-21323. Also filing were Amtrust Insurance Agency under case number 09-21325, Amtrust Real Estate Investments Inc. under case number 09-21328 and three other affiliates. For more information contact the court at 800-898-6899.

BI-LO LLC, the bankrupt supermarket operator, filed its reorganization plan, which is backed up by Lone Star Funds. The plan calls for a $350 million cash infusion. The retailer has reportedly enjoyed healthy operating results in the past few months. Also, BI-LO reported its reorganization plan does not include a purchase by supermarket chain Food Lion. Food Lion’s parent company, Belgian-based grocer Delhaize Group, had agreed to purchase a majority of BI-LO’s assets in October for $425 million. For more information call the BI-LO Restructuring Information Line at 866-967-0268.

Reader’s Digest Association Inc. received approval from the U.S. Bankruptcy Court regarding its outline for a reorganization plan, following the withdrawal of objections to the plan by some bondholders and a pension trustee. The firm filed Chapter 11 in August hoping to erase three quarters of its $2.2 billion pile of debt. Also, the publisher recently won permission from the U.S. Bankruptcy Court to extend its exclusivity period for filing a reorganization plan until next March.

Six Flags Inc., the Manhattan, N.Y. theme-park operator, has seen noteholders file an alternative reorganization plan that calls for most of the equity in the firm to be handed over to them. The group says that its plan is supported by noteholders that own more than $500 million of the $870 million in notes that had been issued by Six Flags.