Commercial Bankruptcies: Filing for Bankruptcy

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.

For some companies, filing for Chapter 11 is an easy way out.  For others it is a necessity.  Either way, filing for Chapter 11 is an expensive proposition—in a number of ways.

The expense of filing a business bankruptcy, especially for bigger companies, is sometimes a dollar and cents decision, since the larger the company the greater the professional fees, on a percentage-of-assets basis, the estate will incur.

Consider that overall bankruptcy and other professional fees amounted to more than $65 billion in the ten month period ended in

August. Often the amount billed is based, not only on the duration of the case and the company’s assets but the location of the filing and the number of professional firms approved, by the court, to apply for fees.  

Often creditors ask, how can some professionals justify rates of as much as $995 hourly in some bankruptcy cases?  Bankruptcy attorneys argue in favor of such rates, stating they increase the value of the company, which in turn increases the amount of money available to pay creditors. Right or wrong, high professional expenses is one of the major variables to consider before filing a bankruptcy petition.

Also, before deciding to file for bankruptcy consider the possibility of management losing control of the company.  Trustees, creditors, shareholders and others often end up overseeing the operations of company once it files its petition.

Finally, another fact to consider is that a Chapter 11 proceeding is seldom a quick process.  Often, the path to emerging from reorganization is a lot longer than management anticipates.

Can Bankruptcy Trustees Sue Officers and Directors For Breach of Their Fiduciary Duties?

In the Stanziale v. Nachtomi case, a three-judge panel unanimously revived a lawsuit against the former officers and directors of defunct airline Tower Air Inc.  In the litigation, the trustee claimed that executive officers and board members drove Tower into insolvency by indifference and egregious decision making. The appellate panel concluded that the U.S. District Court in Delaware erred by applying Delaware’s stricter Chancery 8 pleading standard and instead should have applied the more lenient federal “notice pleading” standard.

Big Dog USA Inc., Santa Avenue, Ca., filed Chapter 11 in the U.S. Bankruptcy Court for the Central District of California. The firm listed assets of between $1 million and $10 million and liabilities of between $50 million and $100 million. The filing was under case number 09-15137. For more information contact the court at 866-522-6053.

Graphic Arts Center Publishing Co. has seen a 12/22 creditors’ meeting scheduled regarding its Chapter 7 bankruptcy in the U.S. Bankruptcy Court in Portland, Or. For more information contact the debtor’s attorney, Jeanette Thomas, at 593-727-2075.

Six Flags Inc., the New York amusement park operator, has seen the U.S. Bankruptcy Court in Delaware grant the company permission to maintain its exclusive right to file a reorganization plan—allowing the company to transfer stock to certain senior lenders in exchange for debt. The court rejected Stark Investments’ alternative proposal that would have allowed a Stark-led group to assume control of Six Flags.

Penn Traffic Co., Syracuse, N.Y., seems set to be acquired as the main goal of its reorganization plan. Industry analysts are eyeing a number of possible suitors, including Hannaford Supermarkets, Weis Markers, Price Chopper, Shop Rite and others. Now in its third bankruptcy reorganization, this time Penn Traffic has said it wants to sell at least most of its assets, which include nearly eighty supermarkets and its food warehouses.