All posts in Chapter 11

Remember, landlords are sacred cows in bankruptcy.

My most recent article published by the Los Angeles Daily Journal, Remember, landlords are sacred cows in bankruptcy, came out on May 20, 2021.  You can access the article here.  Landlords DJ 5-20-21.   Let me know what you think.

New local bankruptcy rules re small business chapter 11

LOCAL BANKRUPTCY RULES AMENDMENTS
EFFECTIVE FEBRUARY 1, 2021

The Board of Judges for the United States Bankruptcy Court, Central District of California, approved the following new rules and amendments to the Court’s Local Bankruptcy Rules (LBRs) that become effective February 1, 2021:

Summary of New Local Bankruptcy Rules
LBR LBR Title Purpose of New Rule
LBR 2015-3 PRECONFIRMATION REQUIREMENTS FOR SUBCHAPTER V DEBTORS, DEBTORS IN POSSESSION, AND TRUSTEES Implements Interim Rule 2015’s postpetition, preconfirmation financial reporting duties of the subchapter V debtor.
LBR 3014-1 ELECTION UNDER 11 U.S.C. § 1111(b) BY SECURED CREDITOR IN SUBCHAPTER V CASES Provides a deadline for secured creditors to make an “1111(b) election” in a subchapter V case.
LBR 3020-2 POSTCONFIRMATION REQUIREMENTS IN A SUBCHAPTER V CASE Implements the SBRA’s postconfirmation reporting requirements under either a consensual or nonconsensual plan.
LBR 3022-2 FULL ADMINISTRATION IN A SUBCHAPTER V CASE Implements the postconfirmation administration and closing of the estate under either a consensual or nonconsensual plan confirmed under the SBRA.

LBR LBR Title Type of Amendment
LBR 2015-2 REQUIREMENTS FOR CHAPTER 11 DEBTORS IN POSSESSION, CHAPTER 11 TRUSTEES, AND SUBCHAPTER V TRUSTEES Amended to address continued applicability to chapter 11 cases, while noting that LBR 2015-3 provides more specific rules applicable to subchapter V cases only.
LBR 3003-1 BAR DATE IN CHAPTER 11 CASES Amended to reflect subchapter V bar dates for prepetition claims as well as governmental entities.
LBR 3017-2 CHAPTER 11 DISCLOSURE STATEMENT – APPROVAL IN SMALL BUSINESS CASES AND WHEN REQUIRED IN SUBCHAPTER V CASES Amended to reflect applicability to subchapter V cases where the Court has ordered that §1125 applies.
LBR 3020-1 CHAPTER 11 PLAN CONFIRMATION AND POSTCONFIRMATION REQUIREMENTS Amended to clarify postconfirmation reporting requirements in traditional, non-subchapter V, chapter 11 cases.
LBR 3022-1 FINAL DECREE AND CLOSING A CHAPTER 11 CASE Amended to provide that it is also applicable to subchapter V cases.
LBR 4002-1 DUTIES OF DEBTOR AT MEETING OF CREDITORS Amended to cross-reference new LBR 2015-3 with respect to duties of a subchapter V debtor.
LBR 6004-1 SALE, USE, OR LEASE OF ESTATE PROPERTY Amended to include subchapter V trustee in possession as entity that may seek to sell property of the estate outside of the ordinary course.

The revised LBRs, and a redline summary of the revisions, are available on the Local Bankruptcy Rules web page of the Court’s website www.cacb.uscourts.gov.

KATHLEEN J. CAMPBELL
CLERK OF COURT

To view the entire Public Notice from the Court’s website select the following link: http://www.cacb.uscourts.gov/news

Small business bankruptcies increased debt ceiling sunsets on March 27, 2021

The SBRA debt limit was $2.7 million, of which 50% had to be business debt.  The CARES Act, which became effective March 27, 2020, increased the debt ceiling to $7.5 million.   That increase will terminate on March 27, 2021 unless Congress takes further action, which most of us are assuming will happen.  But it may not.  Eligible small business debtors should promptly consider whether to take advantage of Subchapter V before the CARES Act modifications expire and the eligibility debt ceiling returns to $2.7 million. Unless the March 27, 2021 deadline is extended by Congress, we expect a sharp increase of Chapter 11 filings under Subchapter V at the end of 2020 through Q1 2021.

Small Business Reorganization Task Force Issues its Report

The United States Bankruptcy Court for the Central District of California Small Business Reorganization Task Force has issued its report.  The report can be accessed here.    They created some new forms, suggested four new local rules and refinements of seven other existing rules.  The report has a spreadsheet with the names of all the SBRA cases filed (or converted) so far in our district.  Looks like a ton of effort was made.  Let me know what you think.

My latest Daily Journal article on Small Business Chapter 11s

My Daily Journal Article Small Business Chapter 11 update: Where are we eight months in? was published on October 26, 2020.  You can access it here.  DJ 10-26-20 SBRA 8 months in  Let me know what you think.

Wherein my 1111(b) article is cited by a Judge!

A thanks and tip of the hat to Bankruptcy Judge Eric Frank, Eastern District of Pennsylvania, for citing my article  The Section 1111(b) Election: A Primer, 31 Cal. Bankr. J. 755 (2011), written with Roksana Moradi-Brovia.   You can access the case here, In re Body Transit, Inc.  Pretty fun to be called a “commentator.”  Judge Frank writes, “One commentator explained it concisely as follows:” and goes on to quote two paragraphs from the article.

The issue to Judge Frank was whether the the bank’s “interest on account [of its claim] in [property of the estate] is of inconsequential value,” because if so, the bank cannot make the 1111(b) election.  The court said it was “inconsequential” under the facts of the case and pitched out the election.  Apparently here the value of the property was around $80,000 and the debt was $917,000 so the property was 8.2% of the debt.  Judge Frank rules that that is inconsequential, although comments that it is a close call.  I do not see it as a close call.  To force the debtor to pay the bank $917,000, certainly money taken away from other unsecured creditors, because its collateral is worth $80,000 is not a close call to me.

Judge Frank states astutely:

“[W]hile ‘the numbers’ provide an important starting point in deciding how much value is ‘inconsequential,’ the court also must consider other relevant circumstances presented in the case and make a holistic determination that takes into account the purpose and policy of the statutory provisions that govern the reorganization case.”

Here the bank was simply trying to scuttle the plan, in a subchapter V case by the way.  Judge Frank is absolutely correct here.

Letter from BMW in SBRA case

This is kind of galling if you ask me.  I just got this letter from a “a bankruptcy servicing company” relating to new Small Business case I just filed.  What is the point, I wonder, of instantaneously and unilaterally discontinuing “online access, monthly statements, notification emails,” and the “easy pay program”?

Dear M J HAYES:

We are AIS Portfolio Services, LP a bankruptcy servicing company for BMWF Financial Services. BMW Financial Services received a notice of bankruptcy filing on the above referenced account. As a result, online access, monthly Account Statement mailings, statement notification emails and, if applicable, the Easy Pay Program, have been discontinued.

Please be aware this letter is not an attempt to collect a debt nor is it a demand for payment. The information below, including payment options, is being provided for informational purposes only.

If you wish to make voluntary payments, you may do so anytime using BMW Financial Services automated phone system, paying by check, bank bill pay, or Western Union.  For all payments made, please include your account number and remit to:

BMW Financial Services NA, LLC
PO Box 78066
Phoenix, AZ 85062
Toll free – 800 – 398 – 3939

If you have any questions, please contact a Bankruptcy Specialist at (888) 455-6662, Monday through Friday, from 9:00 a.m. to 5: 00 p.m.ET

Thinking out loud about the new Small Business Chapter 11

Attached is a copy of my Daily Journal article entitled Thinking out loud about the new Small Business Chapter 11 published on November 27, 2019.  I’m happy to get your comments.

Daily Journal Article

San Fernando Valley Bar Association; Small Business Reorg Act Program Friday, 12/13, 2019 at 12 noon

Email from Steve Fox

Dear All:

We have a really timely and good program for you.

Starting in February, 2020, small businesses (including individuals) will have a new means to reorganize under chapter 11, the Small Business Reorganization Act (or “SABRA”).  The Act packs a lot of power, a lot of issues and a lot of food for thought.  Perhaps 90% of all businesses filing under chapter 11 could be eligible to opt in to SABRA and its provisions.  SABRA may also be a means to handle oversized chapter 13 cases.

The panel has been working hard on this topic.  Lew Landau is an experienced chapter 11 practitioner.  Jeremy Rothstein of Greenberg & Bass is the author of an article about SABRA.  Judge Ahart (ret) is well known to section members as a fine speaker and thinker. Yours truly is also on the panel.  Given the amount of material and issues, the panel will speak for 2 hours instead of the normal 1 and ¼ hours.  The panel has spent hours debating the statutes, what they mean or what they could mean.  If the panel does not have definitive answers, something which happens when a new law is passed, the panel will have the right questions. Read more…

Small Business Task Force – Central District

Email from Chief Judge Maureen Tighe:

Dear Bar Advisory Board members:

As I mentioned at our last meeting, I am seeking nominations for members of a small business task force I am setting up for January 2020.  You may send nominations to the email address below.  The task force will be in furtherance of the court’s goal to be as accessible as possible to business cases.  We will focus in the task force on the small family businesses and other small businesses in the district.  The group will define the term “small business” more as part of its work, but the total liabilities are likely under $3 million.  I will be selecting a broad range of people from around the entire district and encourage you to nominate people with connections to various communities and small business groups in the district, whether or not they have bankruptcy experience.  There will be monthly meetings and community outreach, discussion and report writing involved, so it should be someone able to commit sufficient time to the project.  If you could tell me a little bit about anyone you nominate, that would be helpful.  To give your more guidance, I list the goals of our soon to be final strategic plan below:  Outreach for Businesses. Ensure that businesses know how to appropriately access bankruptcy resources

Strategies:

- Have sufficient outreach and public education to ensure that businesses in financial distress are aware of bankruptcy laws, referral resources, and bankruptcy-related fraudulent schemes

- Understand the difference between omnichannel vs multi-channel and how to elevate your customer experience strategy.
- Investigate and identify barriers that prevent small businesses from accessing court resources
- Maintain and develop relationships with a diverse range of organizations, community groups, and bar associations
- Study the existing business bankruptcy procedures to see whether there are barriers to business access

The recently enacted Small Business Reorganization Act will be considered as part of this task force, as we would like to see that word gets out about this new law and that the court implement it well.  The scope of the task force is broader than the new law, however.  Because the task force likely will not complete its work until late 2020, the Rules Committee we will be addressing separately and much sooner whether any new rule or form changes are required before the Act goes into effect in February.  Judge Scott Clarkson, Chair of the court’s Rules Committee, is currently gathering suggestions from the bar of any changes you believe are required for any of the recently enacted bankruptcy legislation. Please send your comments directly to him at Scott_Clarkson@cacb.uscourts.gov. And send nominations for the Task Force to Email address: CACB_SBTF@cacb.uscourts.gov

Maureen Tighe, Chief Bankruptcy Judge United States Bankruptcy Court,Central District of California