On January 25, 2021, the Alberta Court of Appeal (the ABCA) released its reasons in PricewaterhouseCoopers Inc. v Perpetual Energy Inc., 2021 ABCA 16 (Perpetual Energy). While the issue before the ABCA was of a preliminary nature namely whether the claims of the trustee in bankruptcy (the Trustee) should be summarily dismissed or struck as not disclosing a cause of action the legal principles considered by the ABCA extend far beyond the immediate parties and include broader questions around the nature and role of abandonment and reclamation obligations (AROs) after bankruptcy, the scope of a trustee in bankruptcys duties to third parties, the duties of a director in respect of a companys environmental liabilities, and the scope of releases in favour of directors.

In particular, the ABCA considered (and in some cases, emphasized or determined) the following important issues:

In the result, the ABCA determined that the case management judges criticisms of the Trustee were entirely unwarranted. According to the ABCA, the claims raised by the Trustee were complex and, in some cases, raised novel issues, which did not permit for fair disposition on a summary basis. The ABCA accordingly allowed the Trustees appeal, set aside the award of costs made by the case management judge against the Trustee, found that the award of costs made by the case management judge against the Trustee in its personal capacity was inappropriate, and dismissed the appeal of Perpetual Energy Inc. (Perpetual Energy Parent), Susan Riddell Rose (Ms. Rose) and the other respondents.

Background

Perpetual Energy involved complex claims by the Trustee of Sequoia Resources Corp., formerly known as Perpetual Energy Operating Corp. (Perpetual/Sequoia), against a former director of Sequoia and certain other companies in the Perpetual Energy Group arising from a pre-bankruptcy multi-step transaction.

Transaction

In 2016, Perpetual Energy Parent entered into a multi-step transaction (the Aggregate Transaction) whereby certain mature legacy oil and gas assets, which had significant AROs associated with them, were sold to Kailas Capital Corp. (Kailas). The Aggregate Transaction was structured such that the legacy assets could be transferred without triggering a regulatory review process from the Alberta Energy Regulator (AER).

As part of the Aggregate Transaction, Perpetual Operating Trust, the holder of the legacy assets, initially transferred the beneficial interest in the assets to its trustee, Perpetual/Sequoia, which was then a member of the Perpetual Energy Group (the Asset Transaction). Then, Perpetual Energy Parent sold all of its shares in Perpetual/Sequoia to a subsidiary of Kailas for $1.00, resulting in Kailas becoming the new parent corporation of Perpetual/Sequoia. As is common in sale transactions, Kailas and the sole director of Perpetual/Sequoia, Ms. Rose, signed a resignation and mutual release (the Release) pursuant to which Ms. Rose and Perpetual/Sequoia released each other from claims that they might otherwise be entitled to bring against the other.

Approximately 18 months after the Aggregate Transaction, Perpetual/Sequoia assigned itself into bankruptcy, and PricewaterhouseCoopers Inc. was appointed as Trustee.

Dispute

Following its appointment, the Trustee reviewed Perpetual/Sequoias affairs and concluded that the Asset Transaction was not in the best interests of Perpetual/Sequoia. In particular, the Trustee alleged that Perpetual/Sequoia obtained only $5.67 million in value for the assets but assumed more than $223 million in obligations, including AROs.

The Trustee commenced litigation against Perpetual Energy Parent, Ms. Rose and other members of the Perpetual Energy Group, alleging that

Both the Trustee and the defendants applied for summary judgment of the claims.

Summary judgment decisions

The case management judge struck or summarily dismissed most of the Trustees claims. In particular, the Oppression Claim was struck for failure to disclose a cause of action, because the Trustee was not a proper person to be a complainant pursuant to the Business Corporations Act (Alberta), or alternatively because the oppression claim lacked merit. The claim against Ms. Rose was struck for failure to disclose a cause of action, and it was also summarily dismissed on the basis that the Release was a complete defence.

Subsequently, the case management judge ruled that the Trustee should pay 85% of Ms. Roses solicitor and client costs, and that the Trustee should be personally liable for those costs. In his costs judgment, the case management judge set out several new duties that he found the Trustee owed to Ms. Rose (which duties he found the Trustee had breached), including that the Trustee owed a duty of procedural fairness to Ms. Rose in the course of conducting its investigations.

The Trustee and the Perpetual Energy defendants both appealed the summary judgment decisions, and the Trustee also appealed the costs award.

Result

The ABCA:

Analysis

Nature of AROs

Central to these decisions was the SCCs decision in Redwater, which confirmed that the AER was not a creditor with respect to AROs and that AROs were not claims provable in bankruptcy. In reliance on this proposition, the case management judge determined that AROs were assumptions and speculations that did not exist, were not obligations of Perpetual/Sequoia, and therefore should be valued as nil on Perpetual/Sequoias balance sheet.

Rejecting the case management judges interpretation of Redwater, the ABCA noted that AROs may not be current liabilities or obligations of a company, but are nevertheless real liabilities. While such obligations may be contingent in the sense that the moment that production will cease and such obligations come into existence may be uncertain, they are not contingent in the sense that they will only come into existence upon the occurrence of a defined condition precedent. The existence of AROs is a certainty, as their coming into existence is inevitable.

As a result of this analysis, the ABCA noted that while AROs may not be conventional debt, they are an obligation of oil and gas companies owed to the public and surface landowners that the trustee in bankruptcy cannot ignore. AROs operate in the insolvency context by depressing the value of the assets and, as the SCC held in Redwater, are obligations that must be discharged even in priority to paying secured creditors.

The ABCAs conclusions regarding the nature of AROs had a significant impact on the result reached by the Court:

The ABCAs determination that AROs are real obligations and liabilities of oil and gas companies in Alberta accords with common understandings of the term in Alberta and with what the ABCA found to be common practice amongst many oil and gas companies to report such obligations on their balance sheets. The decision resolves what has been criticized as the absurd interpretation of AROs reached by the case management judge, which has been noted as open[ing] the door to interpretations where general laws become meaningless and only debts owed to creditors count[4] a result expressly rejected by the SCC in Redwater. The ABCAs decision resolves the apparent disjunction between, on the one hand, the polluter pays principle endorsed by the SCC in Redwater and, on the other hand, the case management judges application of Redwater in a manner that permitted the Perpetual Energy Parent to take the benefit of oil and gas assets while producing, and then shed associated AROs when no longer economically viable.

While simply a byproduct of the ABCAs decision, the result reached by the ABCA establishes a thread of consistency between the courts and the AER to create greater accountability for environmental protection and remediation by those who choose to participate in Albertas oil and gas industry. View information on the latest steps taken by the AER to implement its new Liability Management Framework.

The status of the Trustee in advancing oppression claims

In declining to grant the Trustee status as a complainant, the ABCA held that the case management judge failed to appreciate the collective nature of the role of the trustee in bankruptcy. The Trustee was not purporting to bring the oppression action on behalf of individual creditors, but on behalf of the entire estate of Perpetual/Sequoia. As the ABCA noted, by definition, the Trustee represents all creditors of the bankrupt, and the aggregate claims in a bankruptcy always consist of a number of individual claims.

Importantly, the ABCA confirmed prior jurisprudence establishing that oppression claims are not to be used as a method of debt collection; the mere fact that a corporation does not or cannot pay its debts as they come due does not amount to oppression. However, as the ABCA clarified, the Trustee was not asserting that Perpetual/Sequoia could not simply pay a debt. The Trustees allegation was that Perpetual/Sequoia had been reorganized in such a way that it had been rendered unable to pay its debts. The Trustee alleged that the Asset Transaction was unfairly prejudicial to the creditors of Perpetual/Sequoia.

Whether the Trustee will be able to prove this claim remains to be seen, but the ABCA held that the oppression claim ought not to have been summarily dismissed. Noting the complexity of the issues raised by the Trustee, the ABCA determined that the oppression claim should be restored and the Trustee granted complainant status to pursue such claim if it so wished.

The scope of directors duties

Without deciding the issue, the ABCA highlighted that a director may potentially owe an obligation to ensure that the corporation complies with its environmental obligations. Such obligation is currently potential and ill-defined, and could be owed to the public, not necessarily to the corporation exclusively. The ABCA emphasized that the Trustee sought to hold Ms. Rose to account for allegedly having structured the affairs of Perpetual/Sequoia in such a way that made it impossible for Perpetual/Sequoia to discharge its public obligations. This was a novel claim that should not have been resolved summarily.

The ABCA observed that generalized releases of directors (which are commonly used in change of control situations) may not cover a directors potential obligation regarding environmental liabilities. Since this obligation may be owed to the public, private parties may not be able to release a director from it.

The ABCA also emphasized that there is no change in a directors duties when a director is acting for a special purpose corporation or wholly owned subsidiary: a director must always act in the best interest of the corporation. As sole director, Ms. Rose was responsible for ensuring that the Asset Transaction was in the best interests of Perpetual/Sequoia: if Ms. Rose did not agree that the instructions [from Perpetual Energy Parent] were in the best interests of Perpetual/Sequoia, her obligation was to resign. At this stage, it was inappropriate to strike or dismiss the Trustees claim for breach of directors duties.

Finally, this decision suggests that directors and officers should take care to evaluate separately all steps involved in multi-step transactions, which are often used for tax planning purposes. Although it has long been accepted that a taxpayer can structure its affairs to reduce tax liability, that concept does not apply to Section 96 of the BIA. When addressing the Trustees claim that the Asset Transaction was void pursuant to Section 96, the Perpetual Energy Group argued that the Asset Transaction should be analyzed only as a component of the overall Aggregate Transaction which was, writ large, an arms-length transaction and not voidable under Section 96. However, the ABCA indicated a willingness to analyze the transactions on a step-by-step basis, and not in the aggregate. The ABCA observed that if a transaction is entered into in violation of Section 96, it is no defence that it was connected to a number of other transactions that did not engage Section 96 at all. The ABCA did not determine whether an oil and gas company can arrange its affairs so as to avoid regulatory scrutiny, in a manner that is analogous to income tax law. Redwater does not provide an answer on this point and this type of novel issue must be tested at trial.

The scope of the duties of a trustee

The case management judge heard a subsequent application by Ms. Rose for enhanced costs and concluded that the Trustee should pay 85% of Ms. Roses solicitor and client costs and that the Trustee should be personally liable for those costs. The case management judge made that determination on the basis that the Trustee, as an officer of the court, should be held to a higher standard than normal litigants. Such higher standard required the Trustee to comply with principles of procedural fairness; comply with duties imposed by the courts of equity on trustees in general (that is, not trustees in bankruptcy); present facts to the court without opinions, argument or evidence; and complete an appropriate investigation prior to commencing litigation. The case management judge concluded that in failing to meet those higher standards, the Trustees conduct was egregious and the Trustee exercised very poor judgment that equate to positive misconduct.

Overturning the case management judge, the ABCA found that there was nothing egregious about the Trustees conduct, that the criticisms levied by the case management judge against the Trustee were unwarranted, and that the case management judge had made errors both in principle and in law in awarding costs against the Trustee. Most importantly, the ABCA affirmed that while a trustee in bankruptcy is an officer of the court, a trustee in bankruptcys primary duty is to the creditors of the estate through the inspectors. A trustee in bankruptcy does not owe duties to potential defendants in estate litigation, and in fact would be placed in a conflict of interest if it was also under a legal duty to third parties. As the ABCA noted, a trustee in bankruptcy is not an administrative tribunal, and the principles of administrative law have no application in civil commercial matters. As a result, the Trustee had no obligation to hear the defendants views before pursuing litigation or provide the defendants with advance notice of a statement of claim.

Furthermore, as the ABCA noted, a trustee in bankruptcys position and exercise of judgment could require it to take an adversarial role in litigation. Once the Trustee came to the conclusion that Perpetual/Sequoia had potential claims against various defendants, the Trustee was not only correct to pursue those claims but obliged to do so.

Overall, the ABCA judgment strongly affirms a trustee in bankruptcys duty to creditors and its obligation to exercise its own judgment, under the supervision of inspectors, for the benefit of the bankrupt estate. In pursuing this duty, a trustee is not burdened by administrative law obligations and has no generalized duty of fairness to third parties.

PricewaterhouseCoopers Inc v Perpetual Energy Inc, 2021 ABQB 2

Prior to the release of the ABCAs decision, the case management judge released a further decision on the merits of the Section 96 Claim on January 14, 2021, in PricewaterhouseCoopers Inc v Perpetual Energy Inc, 2021 ABQB 2. In this decision, the Alberta Court of Queens Bench (the ABQB) found that Perpetual/Sequoia was not insolvent at the time of the Asset Transaction or rendered insolvent by the Asset Transaction. Underpinning this finding was the assertion that AROs should be valued at nil for the purposes of the BIA. As the ABCA has now unequivocally rejected this view, thereby undermining the foundation of the ABQB decision, the ABCA may have a further opportunity to revisit these issues in short order.

Original post:

Sequoia Resources: Environmental obligations and the role of the trustee in bankruptcy - Lexology

On December 3, 2020, the United States Bankruptcy Court for the District of Delaware entered an opinion in In re Extraction Oil & Gas, Inc., Case No. 20-11548 (CSS), holding that two entities (the State Court Plaintiffs) violated the automatic stay of 11 U.S.C. 362(a) when those entities commenced and prosecuted litigation against non-debtor entities in Colorado state court and entered into a settlement agreement with the non-debtor entities. The Courts opinion provides useful guidance regarding the scope of the automatic stay of 11 U.S.C. 362(a).

Prior to the commencement of the bankruptcy case, the Debtors who were in the business of extracting hydrocarbons from land in Colorado entered into a Transportation Services Agreement (TSA) with the State Court Plaintiffs. The Debtors TSA with the State Court Plaintiffs required, among other things, that the Debtors ship a minimum volume of oil using the State Court Plaintiffs pipelines or make cash payments to the State Court Plaintiffs if the Debtors failed to do so.

Post-petition, the Debtors moved to reject the TSA and engaged alternative service providers (the Alternative Service Providers) to transport the Debtors oil. Asserting that the Debtors actions would cause irreparable harm, the State Court Plaintiffs commenced the Colorado state court action against the Alternative Service Providers, but not the Debtors, and sought a temporary restraining order against those entities. The Court in the Colorado state court action granted the State Court Plaintiffs request for a temporary restraining order, requiring the Alternative Service Providers to cease all diversion and transport of crude oil from the Extraction wells. Thereafter, the State Court Plaintiffs and the Alternative Service Providers entered into a settlement agreement (the Settlement Agreement) in which the Alternative Service Providers agreed to, among other things, not receive oil from certain locations identified in the Colorado state court litigation.

In the bankruptcy case, the Debtors moved the Court for an order finding that the State Court Plaintiffs commencement of the Colorado state court action and entry into the Settlement Agreement violated the automatic stay of 11 U.S.C. 362(a). In response, the State Court Plaintiffs argued that the Debtors were impermissibly seeking to extend the automatic stay of 11 U.S.C. 362(a) to non-debtors as they commenced the Colorado state court action against the Alternative Service Providers, not the Debtors.

The Court disagreed with the State Court Plaintiffs. The Court explained that 11 U.S.C. 362(a)(3) prohibits any act to obtain possession of property of the estate or to exercise control over property of the estate. The Court further explained that the Debtors contractual and business relationships with the Alternative Service Providers are property of the Debtors bankruptcy estates. The Court then found that the State Court Plaintiffs attempted to exercise control over of the Debtors contractual and business relationships with the Alternative Service Providers through their prosecution of the Colorado state court action and entry into the Settlement Agreement. As such, the State Court Plaintiffs violated the automatic stay of 11 U.S.C. 362(a) despite the fact that they had commenced the Colorado state court action against the Alternative Service Providers and not the Debtors.

The key takeaway from the Courts decision is that a creditor may violate the automatic stay of 11 U.S.C. 362(a) even where it commences an action against an entity other than a debtor in bankruptcy. Indeed, the relevant inquiry for the Court was not whether the State Court Plaintiffs had taken action against the Debtors, but rather whether the State Court Plaintiffs sought to exercise control over property of the Debtors bankruptcy estates.

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Delaware Bankruptcy Court Provides Guidance on the Scope of The Automatic Stay - JD Supra

By Kevin Hardy

The Kansas City Star

AMC Theatres says it has raised nearly $1 billion in recent weeks a sum that should help the struggling movie theater chain avoid filing for bankruptcy protection.

The Leawood, Kan.-chain announced Monday that it had raised $917 million in new equity and debt financing. In a news release, AMC CEO and President Adam Aron said the sun is shining on AMC.

This means that any talk of an imminent bankruptcy for AMC is completely off the table, his statement said.

AMC operates movie theaters in Hummels Wharf, Williamsport and Bloomsburg.

In October, AMC warned investors it could run out of cash by the beginning of 2021. Movie theaters have been hit particularly hard by the pandemic, as both consumer demand has sunk and studios have limited the release of new films.

AMC, the worlds largest movie theater chain, said its latest infusion of cash should allow the company to make it through this dark coronavirus-impacted winter.

Still, the future remains uncertain: AMC lost money in 2017 and 2019, carried more than $4 billion in debt and had little cash on hand going into the pandemic. And its unclear how many consumers will go back to movie theaters after the pandemic is under control, particularly as Hollywood has more quickly moved content directly to streaming services.

One expert predicts as many as a quarter of the 7,800 movie theaters in the United States could close because of the pandemic.

Liberty, Mo.-based B&B Theatres, a family owned chain, also has publicly acknowledged the possibility of a bankruptcy restructuring,

In a filing with the Securities and Exchange Commission, AMC acknowledged that its survival is still dependent on future consumer traffic.

AMC says its latest fundraising should keep the chain alive through July 2021 if theater attendance does not improve. If attendance increases and the chain can obtain more rent concessions from landlords, it could have enough cash to operate through the end of 2021, the filing said.

Looking ahead, for AMC to succeed over the medium term, we are going to need for much of the general public in the U.S. and abroad to be vaccinated, Aron said in Mondays news release. To that end, we are grateful to the worlds medical communities for their heroic efforts to thwart the COVID virus. Similarly, we welcome the commitment by the new Biden administration and of other governments domestically and internationally to a broad-based vaccination program.

We are making critical coverage of the coronavirus available for free. Please consider subscribing so we can continue to bring you the latest news and information on this developing story.

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AMC Theatres raises nearly $1 billion and avoids 'imminent' bankruptcy - Sunbury Daily Item

UPPER WEST SIDE, NY The Upper West Side recently lost another retail store, as the body, face, fragrance, and home retailer L'Occintane shuttered its Columbus location over the past week.

L'Occitane on Columbus Avenue and 69th Street had occupied the space for 31 years, becoming a staple of the neighborhood and earning a cameo in the 1998 film "You've Got Mail."

The L'Occitane at 75th and Broadway also looks to be closing soon. The store was shuttered over the weekend with no inventory in the retailer and a sign on the store window directing customers to its Columbus Circle location.

The closings come days after L'Occitane filed for bankruptcy.

L'Occtitane mentioned in the filings a 56 percent decrease in revenue from April to December 2020 due to the COVID-19 pandemic and that landlords have been reluctant to negotiate new leases given the current circumstances.

L'Occitane management intends to "reject certain leases in order to right-size its brick-and-mortar footprint to better position itself for long-term success," according to the filing.

The Columbus location was one of these leases rejected and it looks like the Broadway lease isn't far behind.

Additionally, the L'Occitane on Broadway was sued for back rent in December by its landlord. The lawsuit claimed that pay its $62,000 per month rent between April and December.

While the Upper West Side looks like it's losing two L'Occitane locations, at least one will remain within the Shops at Columbus Circle.

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UWS LOccitane Closes Amid Bankruptcy After 30 Years Of Service - Upper West Side, NY Patch

The dismal financial outlook in Newfoundland and Labrador was centre stage in an election debate Wednesday night, with party leaders sparring over what to do about the provinces massive debt and spending problems.

Liberal Leader and incumbent Premier Andrew Furey said he disliked how his opponent uses the term bankruptcy to define the provinces fiscal troubles. By using that word on the campaign trail, Progressive Conservative Leader Ches Crosbie was already waving the flag of defeat, Furey said.

Mr. Crosbie is campaigning to be the last premier of Newfoundland and Labrador, the Premier added.

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The Tory leader hit back: Im a straight shooter. And thats why I use words like bankrupt, because it cuts to the heart of the matter.

With a net debt of $16.4-billion, the Atlantic province of about 520,000 people has the highest debt-to-GDP ratio in the country. Debt-servicing costs are the provinces second-largest expense after health care. Experts say with no sign of resuscitation in the local offshore oil industry, those costs will only get worse if drastic measures arent taken.

The debate gave voters a look at Fureys fiscal priorities after a Liberal campaign defined largely by low-stakes announcements about community gardens and programs to unite youth and seniors.

Furey repeatedly brought up the troubled Muskrat Falls hydroelectric project, whose costs essentially doubled to $13.1-billion since it was given the green light in 2012 under a previous Tory government. Without a change in course, electricity rates in the province could also double, in order to pay for the project.

We have to deal with Muskrat Falls first, Furey insisted as he defended himself against attacks from Crosbie, who said Furey didnt know how to get the province out of its fiscal hole. Furey touted the recent deal hed struck with Ottawa, allowing the province to defer $840 million in financing payments for the project, emphasizing that talks with the federal government about the staggering costs and burden of the ill-fated project had only just begun.

These are all the things Ive brought to the table in the first five months gimme four years, he said.

The Liberal leader also had to fend off accusations from NDP Leader Alison Coffin, who said he wasnt willing to make the right investments to help struggling voters escape poverty.

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Furey said no magic bullet is going to fix Newfoundland and Labradors financial mess. He didnt give specific details on how he would pull the province out of debt, but said mass layoffs arent the answer.

We didnt get into these fiscal issue because of the hard work of nurses, Furey said.

Well Im glad to hear we wont be cutting, Coffin told Furey. But, she added, the province should be spending more on public sector employees like nurses and paramedics. Front-line health-care workers are overworked and stressed out, Coffin said, adding that they need more support, not less.

Furey, who was an orthopedic surgeon before he became premier in August, reminded his colleagues that he was the only one in the room who had direct experience working alongside overburdened health-care workers.

Coffin also called for a $15 minimum wage and dismissed Fureys suggestion that raising the minimum wage would make the province uncompetitive. We dont want to be known as the place where you can come and get cheap labour, she said.

Crosbie, meanwhile, said he wanted to go over the provinces expenditures line by line to cut waste. But thats only half of what is required, he said, adding that the province needs to increase economic growth.

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With just 10 days left before the Feb. 13 vote, only one party the NDP had released a platform by Wednesday night. The Liberals and Progressive Conservatives have said they will release their platforms this week, though neither provided an exact date.

Heading into the election, the Liberals held 19 of the legislatures 40 seats, the Progressive Conservatives held 15 seats, the NDP had three and there were three Independents.

Our Morning Update and Evening Update newsletters are written by Globe editors, giving you a concise summary of the days most important headlines. Sign up today.

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Party leaders spar over how to handle N.L. looming bankruptcy at leaders debate - The Globe and Mail

Photo courtesy Belk

The Belk department store chain announced this week it will file for Chapter 11 bankruptcy and enter into a restructuring agreement with majority owner Sycamore Partners.

Stores will remain open and Belk plans to continue normal operations throughout the process, the company said in a news release.

Customers will continue to receive the quality merchandise and service they expect when shopping at Belks stores across the southeast and online, the release said. The infusion of new capital is expected to support Belks continued investment in strategic initiatives, including delivering a seamless omnichannel shopping experience and expanding Belks product offerings in Home Goods, Outdoor and Wellness.

The Charlotte-based company said it has received financing commitments for $225 million in new capital from Sycamore, KKR and Blackstone, along with some of its existing lenders, CNBC reported.

Belk, which opened its first store in 1888, hopes to exit Chapter 11 bankruptcy by the end of February. Belk has an Outer Banks store in the Dare Centre in Kill Devil Hills.

Belk has a 130-year legacy of providing quality products at great prices, saidLisa Harper, Belk CEO. Like all retailers navigating COVID-19, our priority has been the safety of our associates, customers and communities. As the ongoing effects of the pandemic have continued, weve been assessing potential options to protect our future.

Were confident that this agreement puts us on the right long-term path toward significantly reducing our debt and providing us with greater financial flexibility to meet our obligations and to continue investing in our business, including further enhancements and additions to Belks omnichannel capabilities.

Continue reading here:

Belk plans to file for Chapter 11 bankruptcy protection, but stores will remain open - OBXToday.com

The coronavirus pandemic appeared to be the final straw for a number of retailers that filed for bankruptcy in 2020, a year in which major apparel companies including J.C. Penney Co. Inc., Neiman Marcus Group, J. Crew Group Inc., Brooks Brothers, Tailored Brands Inc. and more filed for Chapter 11.

But the economic downturn sparked by the pandemic is expected to have the slow-burn effect it often does, with more companies headed for financial trouble as the pandemic persists into 2021 and the point of widespread vaccinations still lies months away, experts said.

I think there are a lot of retailers out there who were just on the edge, and trying to make it through, hoping that the holiday season would be successful for them, and successful enough to see a greater future that would allow them to avoid bankruptcy, said Schuyler Carroll, a partner at Loeb & Loeb LLP.

What Im hearing is that there are some of those, and there are some of those that are not going to be able to make it and will be looking to a bankruptcy to try and preserve some future, he added.

I think most of the retailers that have made it this far, theyre hoping to avoid a liquidation, he said. If their holiday season was not good enough, theyll have to resort to liquidation or resort to bankruptcy to bring in new investors, or a sale, or slim down their operations in some way.

Bankruptcy attorneys are also anticipating a ripple effect from retailers financial troubles, expecting that the impact on landlords and suppliers will start to become more apparent in 2021.

More recently, real estate investment trusts including mall operator CBL & Associates Properties Inc. and the Pennsylvanian REIT have filed for bankruptcy protection.

From the landlord perspective, the economics have shifted, said Brad Sandler, who co-chairs the creditors committee practice group at Pachulski Stang Ziehl & Jones. REITs that are less stablethey tend to be [those] that have the B- and C-quality malls and I think that we very well may see some of them restructure, either in or out of court in 2021.

The U.S. courts system issued findings in July that said business bankruptcy filings at that point were about the same as a year ago, at nearly 22,500 filings.

Bankruptcy filings tend to escalate gradually after an economic downturn starts, according to the report. Following the Great Recession, new filings escalated over a two-year period until they peaked in 2010.

But the pandemic has accelerated trends that were already eroding traditional retail. In August, mall traffic at large real estate companies including Simon Property Group Inc., Brookfield Property, Taubman Centers Inc. and others had declined roughly 15 percent from last year, according to a report by S&P Global Market Intelligence analysis based on information from data collection company AirSage.

E-commerce has continued to soar, with online sales over the 2020 holiday season increasing 49 percent from last year, according to data from Mastercards data arm Mastercard SpendingPulse.

An issue tied to all of that is going to be dealing with the supply chain, and drawing customers in and making sure your supply chain doesnt get tied up with disruptions, said Sandler of Pachulski Stang Ziehl & Jones. Its going to be really important for retailers in 2021 to focus on their supply chain management.

Bankruptcy courts, meanwhile, have stayed busy and functional throughout the pandemic, with judges adapting their processes, hosting virtual hearings, conferences and mediations to shepherd cases along, and granting rent deferrals during the bankruptcy where retailers seek it.

Having remote proceedings has allowed stakeholders who previously might not have been able to travel to physical proceedings to now simply appear electronically and be heard in court, said Melanie Cyganowski of Otterbourg PC, a former bankruptcy judge in New York.

I think the bottom line is that the bankruptcy courts are very sensitive, and are able to respond to the nuances of the time period that theyre facing, said Cyganowski. And so, if the bankruptcy laws permit a flexible approach, more likely than not, they will take it.

Another development that has made the bankruptcy court more accessible is the relatively new Subchapter V process, which was created by the Small Business Reorganization Act of 2019 to make the process more affordable for small businesses with smaller debt loads. Furla USA, for instance, is currently in the process of reorganizing through Subchapter V of the Chapter 11 process.

The amount of fees that will be spent in these Chapter 11s is enormous, if youre somebody who has one store, or two stores, you typically really couldnt do it, because it was so expensive, said Paul Aloe, partner at Kudman Trachten Aloe Posner LLP.

I think Subchapter V is going to be very important, he said. You really have an expedited, streamlined procedure.

Ultimately, the fashion industrys recovery and fate will hinge on keeping up with the role of clothing in a pandemic world. The restricted opportunities for dressing up, from corporate offices continuing to allow employees to work remotely to the dwindling number of social events, will have implications for how people think about their wardrobes, said Cyganowski, the former bankruptcy judge.

What are we using clothes for, if people are not going out, if theyre not going out to dinner, if theyre not going on dates, if theyre not going to the theater, if theyre not going to work? she reflected.

Its like, 75 percent of a wardrobe is not being used if people dont get excited about, Oh, Ive got to get a holiday dress, Ive got to get a winter coat, she said.

The pandemic is affecting so much of a part of our lives, that I just think that retail is going to have a very difficult time coming back, Cyganowski said.

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The State of Retail Bankruptcies in 2021 - WWD

Law360 (January 3, 2021, 12:02 PM EST) -- Even as programs guarding against COVID-19 are being unveiled and bringing hope of a return to normalcy, restructuring professionals say the vaccines won't be a shot in the arm for struggling businesses as the financial hardship triggered by the pandemic will continue into 2021.

Commercial Real Estate

The last year saw thousands of retail locations shuttered permanently as the pandemic exposed long-running weaknesses in the industry, and with no end to the challenges created by the coronavirus, landlords will begin feeling the pain of empty storefronts in the new year.

According to Kevin J. Clancy, global director of the restructuring and...

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Bankruptcy Trends To Watch In 2021 - Law360

The new Consolidated Appropriations Act, 2021 (the Act), which was signed into law on December 27, 2020 (H.R. 133), includes within its 5,593 pages a number of new bankruptcy relief provisions for businesses as part of what the legislation calls the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act. Additional bankruptcy relief provisions are found in a miscellaneous section of the Act. A summary of the relief provisions that will affect businesses, predominately small businesses, follows.

Under regulations adopted by the SBA in response to the CARES Act, businesses in bankruptcy were disqualified from receiving PPP loans. The SBA regulations spawned an avalanche of litigation which challenged them on grounds that they were unlawfully discriminatory under 11 U.S.C. 525(a), see e.g. In re Springfield Hospital, Inc., 618 B.R. 70, 80-93 (Bankr. D. Vt. June 22, 2020), appeal pending Nos. 20-3902, 20-3903 (2d Cir.), or were arbitrary and capricious or exceeded the SBAs rulemaking authority. See e.g. In re Gateway Radiology Consultants, P.C., 2020 WL 7579338 (11th Cir. Dec. 22, 2020) (reversing bankruptcy courts ruling striking down the regulations as exceeding SBA authority and as arbitrary and capricious).

In somewhat of quizzical intermediate approach, the new law provides that only debtors that are proceeding under Subchapter V of Chapter 11, which is the Small Business Reorganization Act of 2019 (SBRA), as well as Chapter 12 and Chapter 13 debtors, may apply to the bankruptcy court for a PPP loan. The provisions of SBRA are summarized here,with the caveat that the debt limitations to qualify for SBRA were expanded by the CARES Act to $7.5 million. This new provision is yet another advantage to seeking relief under Subchapter V, but does nothing to resolve the pending litigation over the SBAs prohibition against extending PPP loans to Chapter 11 debtors that are not proceeding under Subchapter V.

Under the new provision, which amends 364 of the Bankruptcy Code, a qualifying debtor may apply for and obtain authority to receive a PPP loan which, if not forgiven, will be treated as a superpriority administrative expense in the Chapter 11 proceeding, which means it will come ahead of all administrative expenses in the case. If such an application is made, the bankruptcy court is required to hear it within seven days of the filing and service of the application. In addition, the debtors plan of reorganization may provide that the PPP loan, if not forgiven, may be paid back under the terms on which it was originally made, which are favorable.

Section 365(d)(3) of the Bankruptcy Code requires that Chapter 11 debtors continue to pay rent and comply with all other obligations under a lease of commercial real estate from and after the bankruptcy filing date, but vests authority in the bankruptcy court to extend the time of performance under such a lease for up to 60 days. In yet another plum given to Subchapter V debtors, that section has been amended to allow the bankruptcy court to extend the time for performance under these type of leases for a Subchapter V debtor for an additional 60 days, but only if the debtor is experiencing or has experienced a material financial hardship due, directly or indirectly, to the COVID-19 pandemic.

The period of time within which a Chapter 11 debtor has to either assume or reject a lease of commercial real estate has also been changed. With the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), a Chapter 11 debtor became limited to a period of 120 days, or 210 days with the court's permission, to decide whether to assume or reject nonresidential real property leases. Prior to BAPCPA, the initial period of time to make that decision was 60 days, but it could be extended by the bankruptcy court for cause without any outside time limitation.

Under the Act, the period of time to decide whether to assume or reject a lease of commercial real estate has been expanded to 210 days, subject to an additional 90 days with the bankruptcy courts permission.

There is a sunset provision for the foregoing amendments that is two years after the date of enactment of the Act.

The Act appears to recognize that many landlords and suppliers have entered into forbearance or deferral agreements with businesses in financial trouble due to the pandemic, and laudably provides preference protection for payments that are made pursuant to these types of agreements. Generally, a payment to a creditor that is made within 90 days of a bankruptcy filing on account of a pre-existing debt can be recovered, or clawed back to the bankruptcy estate, as a preferential transfer (subject to certain defenses).

For landlords of a commercial tenant, any covered payment of rental arrearages will be protected from avoidance as a preference if: (i) the payment is made pursuant to an agreement or arrangement to defer or postpone the payment of rent or other charges under the lease, (ii) the agreement or arrangement was made or entered into on or before March 13, 2020, and (iii) the amount deferred or postponed does not, (A) exceed the rent and other charges that were owed under the lease prior to March 13, 2020, and (B) include fees, penalties, or interest in an amount that is greater than what would be owed under the lease, or include any fees, penalties, or interest that would be greater than what would be charged if the debtor had paid all amounts due under the lease timely and in full before March 13, 2020.

For suppliers of goods and services, the protection given is similar to that provided for landlords. Specifically, any covered payment of supplier arrearages will be protected from avoidance as a preference if: (i) the payment is made pursuant to an agreement or arrangement to defer or postpone the payment of amounts due under a contract for goods or services, (ii) the agreement or arrangement is made on or before March 13, 2020, (iii) the amount deferred or postponed does not, (A) exceed the amount that was due under the contract prior to March 13, 2020, and (B) include fees, penalties, or interest in an amount that is greater than what would be owed under the contract, or include any fees, penalties, or interest that would be greater than what would be charged if the debtor had paid all amounts due under the contract timely and in full before March 13, 2020.

There is a sunset provision for the foregoing amendments that is two years after the date of enactment of the Act.

The ability of a Subchapter V debtor to obtain a PPP loan while in bankruptcy is certainly a welcome addition to the bankruptcy landscape, but left in lurch are larger companies that do not seem less deserving of the same relief. Subchapter V debtors that are materially affected by the pandemic will also benefit from an additional form of rent relief based on the new authority given to bankruptcy courts to extend the debtors time for paying rent and other charges under a lease of commercial real estate for an additional 60 days, on top of the 60-day deferral period that already existed in the law. And all Chapter 11 debtors will now be given at least 210 days to decide whether to assume or reject such leases, subject to an additional 90 days with the courts permission.

The new provisions protecting landlords and suppliers from having to disgorge payments that might otherwise be considered preferences if they are made pursuant to a deferral or forbearance agreement reflect a sensible recognition that such arrangements were designed to provide financial assistance to a struggling business and are deserving of protection.

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New Bankruptcy Relief Provisions Brought to You by the 2021 Federal Appropriations Act - JD Supra

The energy sector rang in 2020 with a wave of bankruptcies, setting the tone for a year that would only get worse. Indeed, the record-setting number of bankruptcies in Texas and by companies with Texas ties was probably only good for bankruptcy lawyers kept busy by wave after wave of filings.

Through the first 11 months of the year, 1,656 companies filed for bankruptcy protection in Texas, a tally from the Texas Lawbook shows. That compares with 610 in the year-ago period. The Lawbook highlighted 76 complex Chapter 11 filings of $250 million or more by companies based in or filing in Texas. Energy companies accounted for the vast majority of those filings.

Retailers, already battered by the increase in e-commerce, were dealt another blow when the pandemic hit and brick-and-mortar shopping for a while came to a complete standstill. Ten major Texas retailers sought protection from the bankruptcy courts, and not all will reorganize.

Among the largest companies to file in 2020 was Arena Energy, an offshore oil and gas business operating in the Gulf of Mexico. It sought bankruptcy protection in August, with more than $1 billion of debt and just $35 million of cash on hand.

Oil field services company McDermott International filed for bankruptcy in January before the pandemic took hold and was able to emerge in June, shedding $4.6 billion of debt and with more than $2.9 billion in fresh credit and loans.

Fewer large Texas retailers sought protection, but there was no doubt the sector was dealt a body blow in 2020. Houston-based womens fashion chain Francescas filed for protection in December and has begun to sell assets to pay off creditors. Tailored Brands, the Houston-based owner of the Mens Wearhouse chain, filed for bankruptcy protection in August and later emerged as a private company. Several big-box retailers such as Texas-based J.C. Penney, Neiman Marcus and Tuesday Morning also sought protection.

rebecca.carballo@chron.com

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Energy sector leads record wave of bankruptcies in 2020 - Houston Chronicle

Signage is displayed outside a JC Penney Co. store in Chicago, Illinois.

Christopher Dilts | Bloomberg | Getty Images

J.C. Penney CEO Jill Soltau, who was tapped to turn around the struggling department store, will leave the company Thursday.

The company's new owners, Simon Property Group and Brookfield Asset Management, said Wednesday that they're looking for a new leader "who is focused on modern retail, the consumer experience, and the goal of creating a sustainable and enduring JCPenney."

The Plano, Texas-based retailer filed for bankruptcy in May. It was bought by the two U.S. mall owners in the fall and emerged earlier this month. It joined a growing list of retailers' pushed to the brink by the coronavirus pandemic. Yet the legacy retailer's troubles began before the global health crisis. Its sales have fallen annually since 2016. At the time when it filed for bankruptcy, its roughly 860-store footprint was less than a quarter of its store base in 2001.

About two years ago, the company hired Soltau to spearhead its turnaround effort after its former CEO Marvin Ellison left to lead Lowe's. She previously served as CEO of fabric and craft retailer, Joann Stores. She also worked for Sears, Kohl's and Shopko Stores. At the time, news of her hire sent shares soaring as investors had hope she would bring fresh ideas and drive growth at the department store.

This year, however, the company's efforts were set back as its stores temporarily shuttered during the pandemic and battered its already stretched finances.

Simon and Brookfield have chosen Simon's Chief Investment Officer Stanley Shashoua to serve as interim CEO, according to a news release. They have launched an executive search with strategic partner Authentic Brands Group. The licensing firm owns stakes of other retailers that have emerged from bankruptcy, including Brooks Brothers and Forever 21.

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JC Penney CEO Jill Soltau to leave retailer after it emerged from bankruptcy with new owners - CNBC

President Trump signed the Consolidated Appropriations Act, 2021 yesterday, December 27, 2020. Although not widely reported, the legislation makes several amendments to the Bankruptcy Code based upon the severe financial hardships created by the COVID-19 pandemic.

The amendments relate to Section 365(d)(3) (the deferral of rent by small business debtors), Section 365(d)(4) (the period of time to assume, assume and assign, or reject a nonresidential real property lease), and Section 547 (preferential transfers). All of the amendments will sunset on December 27, 2022.

Preferential Transfer Protection

Perhaps most significantly, landlords which entered into lease amendments with tenants on or after March 13, 2020, to defer the payment of rent as a result of the pandemic are protected from claims of preferential transfers. Normally, payments made by a debtor within 90 days of a bankruptcy filing and outside the ordinary course of business are potentially preferential and subject to a clawback by the debtor. The amendments to Section 547 create a temporary exemption from preference liability to facilitate and encourage rent deferral and vendor repayment agreements. Prior to the amendment, the deferred rent payments could be subject to preference liability as payments that would otherwise be past due. By insulating these payments from preference exposure, landlords (and vendors) are encouraged to reach deferred payment arrangements with struggling businesses without fear that in a later bankruptcy case the deferred payments would have to be disgorged back to the debtor. Put another way, the amendment helps avoid invocation of the age-old adage that no good deed goes unpunished.

Rent Deferrals for Small Business Debtors

The amendment to Section 365(d)(3) provides a small business debtor under the Small Business Reorganization Act provisions of the Bankruptcy Code (i.e., commercial debtors having non-contingent, liquidated debts under $7.5 million) the opportunity to defer rent coming due in the first 120 days of the bankruptcy case. However, causation and materiality elements must be satisfiedthe debtor must demonstrate that it is experiencing, or has experienced, material financial hardship due, directly or indirectly, to the COVID-19 pandemic.

More Time to Assume or Reject Leases

The amendment to Section 365(d)(4) allows additional time for a Chapter 11 debtor to assume, assume and assign, or reject its nonresidential real property leases. Prior to the amendment, a debtor had an initial 120-day period, plus one additional 90-day extension to assume or reject, for a maximum of 210 days. Additional extensions beyond the 210th day of the case require the landlords prior written consent. The amendment increases the initial period from 120 days to 210 days, but maintains the single 90-day extension provision and the landlord written consent requirement. As a result, a debtor is given more breathing room to make critical reorganization decisions relating to its real estate, but must nonetheless timely perform all of its obligations under the lease during that time. To the extent the debtor does not perform, landlords retain the ability to either compel the debtors performance in bankruptcy court or seek relief from the automatic stay to exercise state law remedies.

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New Stimulus Deal: Amendments to the Bankruptcy Code - JD Supra

Emerald Equity Groups Isaac Kassirer and231 East 117th Street (Google Maps)

Isaac Kassirer, the prolific multifamily investor who went on a tear acquiring thousands of rent-regulated properties throughout Manhattan and the Bronx before the rent law changed, is on the verge of losing a big chunk of his portfolio.

The debtors of more than a dozen buildings owned by Kassirers Emerald Equity Group, located on or around West 107th Street and East 117th Street in Harlem, filed for Chapter 11 bankruptcy, PincusCo reported. The petition asks for the properties to be transferred to the lender, LoanCore, which provided Emerald Equity Group with roughly $185 million in financing for the properties at the beginning of 2019. The firm had defaulted on the loan, which now totals about $203 million with interest.

Emerald Equity also sought financing around the same time from Freddie Mac, which provided a $189 million loan, the largest deal at the time from the lenders Small Balance Loan program.

Emerald Equity bought the 1,181-unit rent-stabilized portfolio for $357.5 million in late 2016, with a plan to renovate rent-stabilized apartments and convert them to market rate. By the end of 2017, some 251 units in the East Harlem portfolio had been moved to market rate, according to tax bills and public data.

But the firms business plan was disrupted when the new 2019 rent law blocked nearly all pathways to deregulation and also severely curtailed rent increases to stabilized units.

Under the law, the recoverable cost of renovations became limited to $15,000 or $83 per month over a period of 15 years. Landlords are no longer allowed to raise the rent 20 percent when a tenant leaves, and a unit can no longer be removed from regulation based on the rent exceeding a certain threshold.

Since then, the company has been trying to figure out how to salvage its investment. In January, Kassirer said the company was exploring all options. The coronavirus pandemic gave the firm a slight reprieve, as some of its loans went into forbearance in the spring. But after the pandemic hit, some renters of apartments in the portfolio went on a rent strike.

Another Emerald Equities lender, Ladder Capital, recently moved to foreclose on a $32 million loan it provided for four Harlem rental properties, which Kassirers firm defaulted on.

[PincusCo] Keith Larsen

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Some of Isaac Kassirers Harlem buildings head to bankruptcy - The Real Deal

American Airlines jets sit at the gate in Miami on December 24. (Photo by Daniel Slim)

This story has been updated with year end 2020 share prices.

As 2020 ended, airline passenger numbers surpassed lows, a new round of federal relief was in place and vaccine expectations had raised hopes.

But airline shares slumped badly in this coronavirus year, despite a rally that began in early November and brought near-40% sector gains.

The S&P ended 2020 up 16%, while Southwest the best performing airline was down 14%.

For the full year, JetBlue was down 22%. Alaska was down 23%. Delta was down 31%. Spirit was down 39%. American Airlines was down 45%. United was down 51%.

American shares had the most dramatic story line. The stock opened the year at $29.09, rose to $30.47, sank to the $9 range in May, and closed at $15.77.

In May, bankruptcy chatter engulfed American, after Boeings gaffe-prone CEO speculated that a major airline could go out of business this year. The tea leaf readers, scrutinizing an arcane financial instrument called credit default swaps, concluded that he referred to American.

Online headlines proclaimed American Airlines: The First to Go Under, Is American Airlines Really Bound for Bankruptcy? and American Airlines: The Possible Path to Bankruptcy.

Today, American projects it will have more than $14 billion in liquidity at year-end, the bankruptcy chatter came to be recognized as nonsense, and one key analyst thinks that shares are trading too high.

American remains by far the name we receive the most inquiry on, often coming in the form of How can you possibly explain this (high) valuation? JP Morgan analyst Jamie Baker wrote in a Dec. 16 report.

We can identify no fundamental argument for the recent strength in AAL equity, he said. Better equity upside potential exists elsewhere.

Our theory: Investors know they bought into a false bankruptcy narrative and are now overcompensating.

Comparing American with its peers has been difficult, given the years unusual conditions. All airlines face impossible conditions. Revenue has declined sharply, and constantly changing environments make it impossible to forecast where to put airplanes.

American has higher debt because it invested in newer airplanes. Given the current overabundance of airplanes, this may not have been the best course. Or perhaps, if demand returns suddenly, it will appear prescient.

Looking ahead to 2021, consensus suggests the sector is not poised to gain ground in the near term.

Airlines are still far away from recovering and are looking to bridge the gap between now and when herd immunity can be achieved, Cowen & Co. analyst Helane Becker wrote in a Dec. 18 report.

Deutsche Banks Michael Linenberg cut his ratings on all the stocks from buy to hold in December, while Baker issued a series of downgrades on Dec. 16, saying share prices were high enough following the rally.

The recent ascent in airline equities has significantly diminished the implied potential upside to several of our Dec 21 price targets, with some having already passed through said targets, Baker said.

Our earlier overweight ratings for JBLU, SAVE & UAL are now reduced to underweight, joining AAL & LUV, Baker wrote. He left Air Canada, Alaska and Delta at overweight.

According to Barrons, The pandemic cant end soon enough for airlines, but investors have priced the carriers shares as if the end is in sight.

In a story entitled, 5 Airline Stocks That Could Cruise Higher, Barrons says the outlook is best for five carriers: Delta, Southwest, Allegiant, Ryanair and Gol.

Consensus estimates are pricing in a recovery to more than 80% of 2019 revenue in 2022, the magazine said. But there is a big unknown: how much business travel goes permanently online.

Will business travel fully recover? Most airline industry veterans expect it will, because it always has. But tech influencers say it wont, because all they have ever known is technology creep replacing everything.

It says here that Delta CEO Ed Bastian should have the last word.

On Deltas October earnings call, Bastian answered an analysts question about pontification regarding the business travel outlook.

Having been in this business for a long time, every crisis that I've been part of, and it's been a lot of crises over that twenty-plus years, this was the first thing that people always talked about, Bastian said, specifying: the death of business travel and (how) technology was going to replace the need for travel.

Every single time, business travel has come back stronger than anyone anticipated, he said.

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Airline Shares Ended 2020 Down, But The Sky Did Not Fall And American Bankruptcy Chatter Turned Out To Be Nonsense - Forbes

In Hafen v. Adams (In re Hafen), 616 B.R. 570 (B.A.P. 10th Cir. 2020), a bankruptcy appellate panel from the Tenth Circuit ("BAP") held that the bankruptcy court is the only court with subject-matter jurisdiction to decide whether a claim or cause of action is property of a debtors' bankruptcy estate. As a consequence, the BAP held that the bankruptcy court abused its discretion by permitting a state court to determine whether creditors had "standing" to sue third-party recipients of allegedly fraudulent transfers. The decision illustrates the distinction between "bankruptcy standing" and "constitutional standing" to sue in federal courts.

Jurisdiction Over Estate Property in Bankruptcy

Federal district courts have "original and exclusive jurisdiction" of all "cases" under the Bankruptcy Code. 28 U.S.C. 1334(a). District courts also have "original but not exclusive jurisdiction of all civil proceedings arising under" the Bankruptcy Code, "or arising in or related to cases" under the Bankruptcy Code. 28 U.S.C. 1334(b). District courts may (and do), however, refer these cases and proceedings to the bankruptcy courts in their districts, which are constituted as "units" of the district courts. 28 U.S.C. 157(a).

A federal district court in which a bankruptcy case is commenced or pending also has exclusive jurisdiction over all of the debtor's property, wherever located, property of the debtor's bankruptcy estate (as defined in section 541(a) of the Bankruptcy Code), and all claims or causes of action involving the retention of bankruptcy professionals. 28 U.S.C. 1334(e). Under section 541(a)(1), the estate includes "all legal or equitable interests of the debtor in property as of the commencement of the case." Accordingly, claims and causes of action belonging to the debtor on the petition date are estate property. See In re Wilton Armetale, Inc., 968 F.3d 273, 280 (3d Cir. Aug. 4, 2020) (citing 11 U.S.C. 541(a)(1); U.S. v. Whiting Pools, Inc., 462 U.S. 198, 205 n.9 (1983); Bd. of Trs. of Teamsters Local 863 Pension Fund v. Foodtown, Inc., 296 F.3d 164, 169 (3d Cir. 2002)).

As the "representative of the estate" with the "capacity to sue and be sued" on its behalf (see 11 U.S.C. 323(a), (b)), the bankruptcy trustee or, by operation of section 1107(a) of the Bankruptcy Code, a chapter 11 debtor-in-possession ("DIP"), has the exclusive authority to assert estate claims and causes of action. Armetale, 968 F.3d at 280. Thus, after a debtor files a bankruptcy petition, the debtor's creditors lack authoritysometimes referred to as "standing"to assert claims that are estate property. Id.; accord In re Emoral, Inc., 740 F.3d 875, 879 (3d Cir. 2014); Highland Capital Mgmt. LP v. Chesapeake Energy Corp. (In re Seven Seas Petrol., Inc.), 522 F.3d 575, 584 (5th Cir. 2008); Logan v. JKV Real Estate Servs. (In re Bogdan), 414 F.3d 507, 51112 (4th Cir. 2005).

In keeping with 28 U.S.C. 1334(e), nearly all courts that have considered the question have concluded that the jurisdiction to determine what qualifies as estate property lies exclusively with the bankruptcy court. See, e.g., Brown v. Fox Broad. Co. (In re Cox), 433 B.R. 911, 920 (Bankr. N.D. Ga. 2010) ("It is generally recognized that '[a] proceeding to determine what constitutes property of the estate pursuant to 11 U.S.C. 541 is a core proceeding under 28 U.S.C. 157(b)(2)(A) and (E),' and that, '[w]henever there is a dispute regarding whether property is property of the bankruptcy estate, exclusive jurisdiction is in the bankruptcy court.'" (citations omitted)); accord Gardner v. U.S. (In re Gardner), 913 F.2d 1515, 1518 (10th Cir. 1990); Brown v. Dellinger (In re Brown), 734 F.2d 119, 124 (2d Cir. 1984); Montoya v. Curtis (In re Cashco, Inc.), 614 B.R. 715, 722 (Bankr. D.N.M. 2020); In re DeFlora Lake Dev. Assocs., Inc., 571 B.R. 587, 593 (Bankr. S.D.N.Y. 2017); In re Brown, 484 B.R. 322, 332 n.2 (Bankr. E.D. Ky. 2012); Mata v. Eclipse Aerospace, Inc. (In re AE Liquidation, Inc.), 435 B.R. 894, 90405 (Bankr. D. Del. 2010); Heolena Chem. Co. v. True (In re True), 285 B.R. 405, 412 (Bankr. W.D. Mo. 2002); Manges v. Atlas (In re Duval Cty. Ranch Co.), 167 B.R. 848, 849 (Bankr. S.D. Tex. 1994).

However, in the interests of justice or comity with state courts, a bankruptcy court may relinquish its exclusive jurisdiction to make that determination by abstaining under 28 U.S.C. 1334(c)(1) in deference to another tribunal better suited to adjudicate the issue. See In re Ament, 2020 WL 354888, at *4 (Bankr. D.N.M. Jan. 21, 2020) ("Construing 1334(c)(1) and 1334(e) together, it is clear that, although the bankruptcy court has exclusive jurisdiction over property of the estate once a petition is filed, the bankruptcy court may choose to abstain from exercising its jurisdiction and modify the stay to allow a state court to divide community property."); accord In re Maxus Energy Corp., 560 B.R. 111, 120 (Bankr. D. Del. 2016); In re Thorpe, 546 B.R. 172, 177 (Bankr. C.D. Ill. 2016), aff'd, 569 B.R. 310 (C.D. Ill. 2017), aff'd, 881 F.3d 536 (7th Cir. 2018).

Hafen

Several years before filing a chapter 7 case in 2004 in the District of Utah, securities broker-dealer Roy Nielson Hafen ("debtor") operated a Ponzi scheme that defrauded investors. Although the debtor's chapter 7 schedules listed the defrauded investors as creditors and the creditors were notified of the bankruptcy filing, the investors did not file proofs of claim or otherwise participate in the bankruptcy case. The debtor received a bankruptcy discharge in 2004.

Alleging that the debtor had concealed assets, several investors sought to reopen the case 13 years later. Without seeking bankruptcy court authority, the investors also sued the debtor, his wife, and several related entitles in state court seeking to avoid and recover fraudulent transfers and undisclosed assets under state law.

The debtor argued that the causes of action in the state court complaint belonged to his bankruptcy estate and filed a motion in the bankruptcy court to sanction the investors for violating the discharge injunction under section 524(a) of the Bankruptcy Code. In connection with the hearing on the motion, the debtor and the investors agreed that the state court could decide whether the investors had standing to sue. The debtor's newly appointed chapter 7 trustee did not weigh in on the matter.

The bankruptcy court denied the motion for sanctions and ruled that whether the investors had standing to sue could be decided by the state court. In so ruling, the bankruptcy court relied on the investors' representation that they did not intend to collect any judgment from the debtor but from third parties, which is permitted under section 524(e). The debtor appealed to the BAP.

The BAP's Ruling

A three-judge panel of the BAP reversed the ruling and remanded the case below.

Writing for the panel, Judge Terrence L. Michael held that the bankruptcy court erred by not deciding whether the investors had "standing" to assert the claims asserted in their complaint. Judge Michael looked to 28 U.S.C. 1334(e)(1) and the Tenth Circuit's determination in Gardner that lawmakers intended "to grant comprehensive jurisdiction to the bankruptcy courts so that they might deal efficiently and expeditiously with all matters connected with the bankruptcy estate" (internal quotation marks and citations omitted). On the basis of these authorities, he wrote that "[t]he jurisdiction to determine what is property of the estate lies exclusively with the bankruptcy court."

Judge Michael explained that the investors' standing to assert fraudulent transfer claims totally depended on whether such claims constituted property of the bankruptcy estate, "an issue over which the Bankruptcy Court has exclusive jurisdiction." If the fraudulent transfer claims were estate property, he wrote, "only the chapter 7 trustee has standing to pursue those claims." According to Judge Michael, standing to pursue assets that were not disclosed in the debtor's bankruptcy filing also hinged on whether the claims belonged to the estate. In both instances, he ruled, the bankruptcy court did not have discretion to allow the state court to resolve the standing question.

The BAP also faulted the bankruptcy court's denial of the debtor's motion to sanction the investors. The bankruptcy court found no violation of the discharge injunction because the investors sought to establish the debtor's liability only so that they could recover any judgment from third parties. According to Judge Michael, if the claims were property of the estatemeaning that the investors lacked standing"the 524(e) safe harbor applicable to claims against entities separate from the Debtor may not apply." However, because the evidence did not establish whether the claims were estate property, the BAP remanded the case to the bankruptcy court to "determine whether the causes of action are property of the bankruptcy estate, and, after making that determination, determine whether the Investors had standing to bring those claims."

Outlook

The BAP's analysis of the issues in Hafen in terms of "standing" to assert claims belonging to the bankruptcy estate raises an interesting question regarding the confusing nature of "standing" in bankruptcy. "Standing" is the ability to commence litigation in a court of law. It is a threshold issuea court must determine whether a litigant has the legal capacity to pursue claims before the court can adjudicate the dispute. In bankruptcy cases, the concept most commonly arises in connection with: (i) the right of parties-in-interest (e.g., creditors, shareholders, and committees) to participate in chapter 11 cases; and (ii) the ability of parties other than a bankruptcy trustee or DIP to assert claims or causes of action that may be property of the debtor's bankruptcy estate. This "bankruptcy" or "statutory" standing is distinct from the "constitutional standing" to sue, which is jurisdictionalif a potential litigant lacks constitutional stating, the court lacks jurisdiction to adjudicate the dispute.

The distinction between constitutional and bankruptcy standing was recently examined by the U.S. Court of Appeals for the Third Circuit in Armetale, in which the court of appeals held that the ability of a creditor to sue in bankruptcy is not a question of standing but, rather, an issue of statutory authority. The Third Circuit explained that, in accordance with the U.S. Supreme Court's decision in Lexmark Int'l, Inc. v. Static Control Components, Inc., 572 U.S. 118, 125 (2014), constitutional standing has only three elements: (i) there must be "a concrete and particularized injury in fact"; (ii) the injury must be "fairly traceable" to the defendant's conduct; and (iii) "a favorable judicial decision" would likely redress the injury. Armetale, 968 F.3d at 291 (citing Lexmark, 572 U.S. at 125). Once a plaintiff satisfies those elements, the action "presents a case or controversy that is properly within federal courts' Article III jurisdiction." Id.

Guided by Lexmark and the Seventh Circuit's ruling in Grede v. Bank of N.Y. Mellon, 598 F.3d 899, 900 (7th Cir. 2010), where the court observed that bankruptcy "standing" is doctrinally "abnormal," the Third Circuit concluded in Armetale that "a litigant's 'standing' to pursue causes of action that become the estate's property means its statutory authority under the Bankruptcy Code, not its constitutional standing to invoke the federal judicial power." It accordingly ruled that, although a creditor ordinarily would have constitutional standing to pursue a claim belonging to a bankruptcy estate, it may lack statutory authority to assert the claim unless the trustee or DIP has abandoned the claim or the creditor has suffered a direct, particularized injury.

The U.S. Court of Appeals for the Sixth Circuit also recently examined bankruptcy standing in In re Capital Contracting Co., 924 F.3d 890 (6th Cir. 2019). In that case, a law firm withdrew its claim for fees owed by a chapter 7 debtor it had represented in pre-bankruptcy state court litigation as part of a settlement of the chapter 7 trustee's legal malpractice claims against the law firm. After discussing the distinction between bankruptcy and constitutional standing, the Sixth Circuit ruled that the law firm did not have Article III standing to appeal the bankruptcy court's order approving the trustee's final report, based on the report's failure to list the debtor's appellate rights in the state court lawsuit as an asset. According to the Sixth Circuit, the failure to list those rights as an asset could not financially harm the law firm because it had settled with the trustee and withdrawn its fee claim.

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Tenth Circuit BAP: Bankruptcy Courts Have Exclusive Jurisdiction to Determine Whether Claims Are Estate Property - JD Supra

Street performers in Minnie Mouse costumes pass in front of an AMC movie theater at night in the Times Square neighborhood of New York, Oct. 15, 2020.

Amir Hamja | Bloomberg | Getty Images

For the world's largest cinema chain, bankruptcy could be the best option to survive the coronavirus pandemic.

Thecrisis has battered theaters since March, crunching their bottom lines, but no one has been hit harder than AMC. The cinema chain headed into the pandemic with nearly $5 billion in debt, which it had amassed outfitting its theaters with luxury seating and from buying competitors such as Carmike and Odeon.

Since January, shares of the company have plummeted more than 60%, including 30% over the last five days.

Last Friday, AMC said Mudrick Capital Management agreed to invest $100 million to help the cash-strapped movie theater chain survive the pandemic. However, AMC will still need at least $750 million in liquidity to fund cash requirements through 2021.

"Frankly I believe that Chapter 11 is really the only path that will lead to AMC surviving," said Doug Stone, president of Box Office Analyst. "I cannot imagine that there is an appetite out there for another $750 million of stock sales, and any debt they assume will be at astronomical rates."

AMC has been focused on fundraising for months. It already renegotiated its debt to improve its balance sheet this year and is exploring several ways of acquiring additional sources of liquidity. It is also trying to figure out ways to increase attendance.

"The easy answer is that if they declare bankruptcy, it is likely to be a reorganization rather than a liquidation," said Wedbush analyst Michael Pachter. "In bankruptcy, they can wipe out their lease obligations and renew those leases that make sense, so arguably they can lower their overall operating expense."

As coronavirus cases have spiked in the autumn and winter months, studios have postponed major blockbusters until mid-2021 and some have opted to release major movies in theaters and on streaming platforms at the same time, cutting into potential ticket sales.

The hope is that with a vaccine, Covid cases will decrease substantially and audiences will be more willing to return to theaters. This, in turn, will give studios confidence to keep major film titles on the calendar. Without fresh content, moviegoers won't return in large enough numbers to give movie theaters a true financial lift.

Still, a vaccine might not be widely available to the public until mid-2021. So while the news is promising, it does not fix the near-term issues that movie theaters are facing.

"I think that now that vaccines are rolling out, creditors and landlords will be willing to work with them," Pachter said."It was hard to offer them more credit when there was no light at the end of the tunnel, but it's likely we will be back to something approaching normal by midyear, so a reorganization makes eminent sense."

AMC did not immediately respond to CNBC's request for comment. The company has reiterated in SEC filings that bankruptcy is a possibility of the company can't raise more funds.

In pre-pandemic times, the theater industry was profitable. In 2019, the domestic box office had its second-best year ever, hauling in $11.4 billion, just shy of the $11.9 billion record posted in 2018. Prior to the global outbreak, 2020 had been poised to reach a similar level.

Now, movie theater chains are desperately renegotiating deals with lenders and landlords and trying to find creative ways to generate revenue. Most major cinemas are now offering cheaper private theater rentals as a way to entice reluctant moviegoers. Others have transformed parking lots into concert venues, launched trivia nights and even negotiated deals with colleges to rent out the space for in-person learning.

Cinema chains face tough headwinds in the first part of 2021, given the limited slate of new films and an expected elevated level of coronavirus cases.

"January is shaping up to be a very challenging month with little of consequence in terms of product," Stone said. "The rollout of vaccines isn't likely, in my mind anyway, to make much of an impact until at least late in Q2. I don't believe AMC can manage without restructuring until then."

But, there is hope for AMC and other domestic movie theater chains, said Eric Wold, senior analyst at B. Riley Securities.

"We have already seen very strong movie-going response within those countries that opened up earlier than the U.S., especially within China, which, we believe, provides a strong early look into what can be expected here in the U.S,." Wold said.

"And given what AMC and many other exhibitors have learned during the pandemic, in terms of operating more efficiently, along with the flexibility of the company's landlord partners, we could actually see AMC emerge from this in a stronger position operationally than prior to the pandemic that would provide a path toward deleveraging the balance sheet once again," he said.

Originally posted here:

AMC could benefit from bankruptcy, analysts say - CNBC

On December 9, 2020, Congressional Democrats, including Elizabeth Warren (D-Mass.) and Jerrold Nadler (D-N.Y.), proposed sweeping legislation that would overhaul consumer bankruptcy law. The proposed changes generally make it easier for consumers to access the bankruptcy system and discharge their debts. Below is a discussion of 10 critical changes proposed in the Consumer Bankruptcy Reform Act of 2020 (CBRA).

The CBRA proposes to replace the current consumer bankruptcy Chapters 7 and 13 with the all-new Chapter 10. Currently, Chapter 7 allows consumers with nominal disposable monthly income to discharge their debts after liquidating any non-exempt assets to repay their creditors. Chapter 13 provides for consumers to discharge their debts after paying their disposable income to creditors under a three- or five-year repayment plan.

Under the CBRA, consumers with debts less than $7.5 million would file under the new Chapter 10. Consumers with debts greater than $7.5 million would seek relief under Chapter 11. To seek relief under Chapter 10, consumers will need to file a petition and some additional schedules and statements, similar to those currently filed pursuant to Bankruptcy Code section 521.

The most recent major amendments to the Bankruptcy Code were passed as the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). Under BAPCPA, consumers discharges were contingent on participation in a credit counseling course and filing a certificate of completion in their bankruptcy cases. The new CBRA eliminates this seemingly arbitrary credit counseling requirement.

Pre-COVID-19, consumers were required to appear in person for section 341 meetings where they were examined under oath by bankruptcy trustees and creditors. As the nation quarantined, 341 meetings began occurring remotely, via conference calls and videoconferencing. Under the CBRA, consumer debtors will still be examined at 341 meetings, but those meetings can be conducted remotely. Additionally, 341 meetings will be scheduled at times that do not conflict with consumers work schedules.

Under the current Bankruptcy Code, consumers bankruptcy cases may be converted to a different chapter or dismissed as abusive if consumers choose to spend their money on certain luxury expenses, such as private school tuition, expensive vehicles payments, and support payments for adult children. The CBRA eliminates the analysis of whether consumers are spending their disposable income on acceptable, non-luxury expenses. Instead, the CBRA looks only to whether consumers have funds to make a minimum payment obligation based on the value of their non-exempt assets and their annual income.

Consumers in Chapter 10 can file one or more plans, including (1) a Residence plan, which addresses mortgages on consumers principal residences; (2) a Property plan, which addresses debts secured by other property; and (3) a general repayment plan, which addresses unsecured debts, such as credit card, medical, and student loan debts. Consumers who must pay a minimum payment obligation will not receive a discharge without confirming a repayment plan.

Residence and property plans under the CBRA allow consumers to change loan interest rates, adjust amortization schedules, and cure defaults. Unlike the current Chapter 13, consumers can change the terms of mortgages on their principal residences under the CBRA. However, unless the residence or property plans are proposed in conjunction with a repayment plan, consumers will not receive discharges with respect to the residence or property debts. Secured creditors retain their liens until receipt of the full amounts owed as of the plans effective dates. Consumers have either 15 years or five years after the maturity date, whichever is longer, to make payments toward secured debts. Significantly, if a consumer defaults under a residence or property plan, the secured creditor is stayed from taking action until the consumer is 120 days delinquent for mortgages and 90 days delinquent for other liens.

Currently, consumers who file for Chapter 7 bankruptcy relief generally receive their discharges in approximately 90 days. Consumers under Chapter 13 receive their discharges after the successful completion of a three- or five-year repayment plan. Instead of these waiting periods, the CBRA provides that consumers who have insufficient non-exempt assets and income to trigger a minimum payment obligation will receive their discharges immediately. Notably, though, certain debts under section 523 of the Bankruptcy Code will still be non-dischargeable. Also, liens on property will continue to survive discharge under the CBRA.

The CBRA evaluates consumers abilities to make payments to their creditors based on the amount of their non-exempt assets and their income. Consumers who must make payments to their creditors will propose repayment plans under which their minimum payment obligation must be paid over a three-year period. Creditors would receive payment under Chapter 10 plans pursuant to the current priority scheme. Plans are confirmed so long as they are feasible, not proposed in bad faith, and pay the full minimum payment obligation amount. Additionally, consumers receive their discharges at the time of confirmation, rather than after the successful completion of plan payments.

Currently, some consumers cannot afford the required pre-filing, lump sum payment for legal representation in a Chapter 7 bankruptcy case. Insufficient cash may lead consumers who would have been eligible for Chapter 7 relief to file under Chapter 13, which allows for debtors attorneys fees to be paid over the course of the case. Consumers in these situations often do not successfully complete their Chapter 13 plans, do not repay their creditors, and do not receive discharges. The CBRA remedies this issue, allowing for consumers attorneys to be paid over time. This provides access to bankruptcy relief for those consumers who would otherwise not be able to afford to file for bankruptcy.

The CBRA amends section 523 to allow consumers to discharge certain previously non-dischargeable debts, including student loan debts. This includes both private and federal student loans. Under the CBRA, student loan debts are generally treated like other unsecured consumer debts.

Beyond amending the Bankruptcy Code, the CBRA also revamps some federal consumer protection financial laws. A new unclean hands provision provides for claims to be disallowed if the claimholder, or its predecessor, violated a federal consumer financial law with regards to the consumer. Additionally, the Fair Debt Collection Practices Act (FDCPA) is amended to provide that filing a proof of claim in bankruptcy for stale debt (i.e., debt that is non-collectable under the applicable statute of limitations) is an unfair practice. The FDCPA is further expanded to provide that collection of or attempts to collect discharged debts, other than those voluntarily paid by consumers, are also unfair practices. To watch over federal consumer protection financial laws in connection with bankruptcies, the CBRA creates a new Consumer Bankruptcy Ombuds at the Consumer Financial Protection Bureau (CFPB).

We will keep you updated of new developments as the CBRA makes its way through Congress.

Link:

Top 10 Changes to Consumer Bankruptcy Proposed in the Consumer Bankruptcy Reform Act of 2020 - JD Supra

The coronavirus pandemic may have been the last straw for the struggling J.C. Penney company. Wochit

J.C. Penney will close more stores in the springafter alreadyclosing 150-plus stores since filing for bankruptcy.

The retailer, which emerged from bankruptcy this month after beingacquired by mall owners Simon Property Group and Brookfield Asset Management, Inc., will close another 15 stores by the end of March, officials confirmed to USA TODAY Thursday.

"As part of our store optimization strategy that began in June with our financial restructuring, we havemade the decision to close an additional 15 stores," J.C. Penney said in a statement to USA TODAY. "These stores will begin liquidation sales later this month and will close to the public in mid to late March."

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The department store chain was one of the the largest retailers to file for bankruptcy protectionduring thecoronavirus pandemic. J.C. Penney filed forChapter 11in mid-May 2020 after years of sales declines and two months of disruption from the pandemic.It originally said it plannedto close about29% of its 846 stores or 242 locationsin bankruptcy.

"While store closure decisions are never easy, our store optimization strategy is intended to better position JCPenney to drive sustainable, profitable growth and included plans to close up to 200 stores in phases throughout 2020," the company said in its statement to USA TODAY.

According to a recent report from real estate data tracker CoStar, more than 40 major retailers have declared bankruptcy and more than 11,000 stores have been announced for closure in 2020, which beats past store closings records.

Liquidation sales have been handled differently during COVID-19 with fewer shoppers allowed into stores based on state and local regulations.

The following stores are slated to close in mid to late March and will begin liquidation sales later in December.

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Contributing: Nathan Bomey, USA TODAY

Follow USA TODAY reporter Kelly Tyko on Twitter:@KellyTyko

Read or Share this story: https://www.usatoday.com/story/money/shopping/2020/12/17/jcpenney-stores-closing-march-2021-list-coronavirus-bankruptcy/3940925001/

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J.C. Penney closing more stores after exiting bankruptcy. Will your store close in March 2021? See the list. - USA TODAY

There were dozens of retail bankruptcies in 2020, and experts say the pain isnt over yet.

S&P Global Market Intelligence tallied 49 bankruptcies in the retail space as of mid-November, including Ann Taylor parent Ascena Retail Group Inc. ASNAQ, +4.07%, luxury department store Neiman Marcus, home goods specialists Sur La Table Inc. and Brooks Brothers Group Inc.

Thats the largest number of bankruptcies since 2009, during the financial crisis.

COVID-19 was the straw that broke many ailing retailers.Companies that were already struggling to keep up with trends, invest innecessary digital upgrades and shift to modern customer experiences simplycouldnt cope with the added pressure of store closures, a massive shift toe-commerce, safety protocols and other side effects of the coronavirus.

The pandemic has accelerated what was going to happen in anumber of years in a shorter period of time, said Mickey Chadha, Moodys vicepresident. The names that have filed for bankruptcy probably were pulledforward.

Read: U.S. will remain biggest retail market as government stimulus, e-commerce push the nation ahead of China

In addition to stores closing due to bankruptcy and restructuring, many retailers have been using the pandemic period to reconsider their fleet of stores. Gap Inc. GPS, +2.07% and Childrens Place Inc. PLCE, +1.22% are just two of the retailers that have talked of rightsizing their store fleets.

Coresight Research counted 8,401 store closures year-to-date in a Dec. 4 report.

With vaccine distribution ramping up and 2021 around thecorner, a retail recovery isnt going to happen like the flip of a switch.Instead, experts and analysts say there are more retail bankruptcies loomingbefore things get better.

There are still a lot of names that are in distress and weak in retail and apparel, said Chadha. The pandemic will accelerate the trends making the weak weaker and the strong stronger.

Watch: How to pick winners in the retail sector amid the pandemic

On a positive note, the bankruptcy process is intended togive businesses that need it a second chance.

In a general sense there might be a stigma about a bankruptcy. We view the bankruptcy process as a tool to help companies restructure their business and balance sheets, said Dan Guyder, partner at international law firm Allen & Overy.

And its a positive for investors to help a company moveback to growth. There might be some broken glass along the way, but thats thecycle of life for some companies.

In recent weeks, J.C. Penney Co. Inc. JCPNQ, +7.63%, for example, has emerged from bankruptcy and has a number of plans to grow the business, including a new womens brand and a beauty strategy.

Consumers need torecover as well

Its not just retailers that have to recover from the coronavirus-induced economic slump. Shoppers do as well. With government protections against foreclosure and eviction expiring and with the additional government stimulus measures still very uncertain, consumers now have to rethink personal budgets and perhaps tighten up spending habits.

This could throw even the best-laid retailer plans intodisarray.

And: Americans are draining their checking accounts as stimulus talks drag on

Theres more pressure on consumers to redirect availablecash to meet those obligations, said Guyder.

Under normal circumstances, the retail industry is a very organized one, which makes the uncertainty brought on by the pandemic - and a bankruptcy perhaps more difficult for retailers to manage.

Retail is a business of seasonality, depending oncategories and time of year, you see growth or margin deterioration, said MattKatz, managing partner at global advisory SSA & Co. Bankruptcy doesnthave a season.

Taking into account that consumers are going to need time to recover as well is something that retailers have to consider.

People are going to have to replenish savings and nest eggs. Theyll probably owe money to landlords and other obligations, said Katz. [T]heres some catch-up theyre going to have to do to put their finances back in place. Thatll taking some time. Were building that thought process into client plans.

Keeping balancesheets in check will be key in 2021

To be sure, some retail categories thrived during the pandemic, including essential retailers like Walmart Inc. WMT, +0.46% and Target Corp. TGT, -0.26% (shares up 22.4% and 34%, respectively), warehouse retailers like Costco Wholesale Corp. COST, +0.23% and BJs Wholesale Club Holdings Inc. BJ, +2.45% (shares up 25.7% and 63.4%, respectively) and home goods retailers including Wayfair Inc. W, +4.38% and At Home Group Inc. HOME, +3.07% (up 202.2% and 190.6%, respectively).

The Amplify Online Retail ETF IBUY, +2.06% has skyrocketed 121.2% for the year to date and the SPDR S&P Retail ETF XRT, +1.88% is up 35.6% for the period. Both have far outpaced the benchmark S&P 500 index SPX, +0.58%, which has gained 14.6%.

And experts see improvement coming in 2021, particularly forthose categories that took a big hit in 2020.

Moodys is forecasting 516% year-over-year operating profit growth at department stores next year, reaching $1.2 billion; a 489% operating profit boost at off-price retailers, to $4.9 billion; and a 114% increase in operating profit growth at apparel and footwear retailers, to $3.2 billion.

But November retail numbers demonstrate that that path to recovery wont be a smooth. Despite the holiday shopping season, sales fell 1.1% and October sales were revised down.

See: Retail sales sink 1.1% in November as COVID-19 buffets restaurants and economy

For the retailers thathaveexcelled during theCOVID-19 pandemic, wrote Bank of America analysts led by Elizabeth Suzuki, thecomparisons in 2021 get particularlytoughin the middle of the year.The relativelydisadvantaged retailers (non-essential and away-from-homecategories) will have easier year-over-year comparisons in 2021 and couldexperience outsized growth relative to the 2020 winners.

It will be critical for retailers to keep their balancesheets in check going forward.

A lot of names that are weak in the space are private-equityowned, said Moodys Chadha. The leverage of these names is high. The only wayto avoid some sort of distress exchange or bankruptcy will be to improveprofitability, which will be difficult.

The other option is to cut debt, which will require cash.Either way, these companies need to right their balance sheet to besustainable, Chadha said.

If a company needs to take on more debt, Greg Portell, headof global consumer industries and retail at global management consulting firmKearney, says intentionality of the debt is significant.

If youre going to put debt on your balance sheet, you wantto make sure its driving expansion and growth, he said. Many that filed forbankruptcy had debt that was financing mechanism not growth.

Portell thinks disappointing earnings from the holidays will drive more bankruptcy filings.

We will see another wave in the first and second quarter based on the fallout from the holiday season, he said. Consumer spending is strong and doing its part, but not everyone is going to win.

Dont miss: No one likes to admit theyre struggling: Americans are feeling guilty this Christmas about their finances. Heres why

And while many are waiting for things to get back tonormal, it may be more accurate to look towards a new normal.

Looking ahead, retailers are hoping that the vaccinerollout will return some normality to our lives heading into 2021, allowingretailers to recoup their losses from 2020, said MarwanForzley, chiefexecutive ofVeem,a payments platform that works with thousands ofU.S.retailers.

However, while brick-and-mortar stores may regain some oftheir popularity as things start to look more normal again, the pandemic hascertainly altered the way we shop forever and e-commerce will still be anessential revenue stream for retailers, regardless of their size.

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Retail bankruptcies in 2020 hit the highest levels in more than a decade, and experts say there are more to come - MarketWatch

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Cuker Interactive, LLC filed a Chapter 11 bankruptcy petition onDecember 13, 2018, in the United States Bankruptcy Court for theSouthern District of California. Because it was solvent atconfirmation, the debtor proposed to pay secured creditors in full,with interest at the contract rate, and general unsecured creditorsin full, with postpetition interest at the "legal rate,"or a rate determined by the Court that leaves the creditorsunimpaired.1 But what rate is that?

Section 1124(1) provides that where a Chapter 11 plan, and notthe Bankruptcy Code, "impairs" a claim or interest, theimpaired class is entitled to vote on the plan unless it"leaves unaltered the legal, equitable, and contractualrights" of the holders.2 In this case,unsecured creditors argued that they were "impaired"because the plan did not require the debtor to pay postpetitioninterest at the contractual rate or a higher state law judgmentrate.3 Bankruptcy Judge Adler disagreedwith the unsecured creditors' characterization of the plan,noting that the plan instead calls for either the federal judgmentrate, or a "rate determined by the Court for their claims tobe 'unimpaired.'"4

Thus, the "discrete issue here is what is the rate ofpostpetition interest that must be applied for the Creditors'unsecured claims to be unimpaired?"5 InIn re Cardelucci, 285 F.3d 1241 (9th Cir. 2002), the NinthCircuit held that the "interest at the legal rate" due togeneral unsecured creditors of a solvent chapter 11 debtor is thefederal judgment rate.6 While the generalunsecured creditors argued that In re Cardelucci isinapplicable because the Ninth Circuit addressed impairment under 726(a)(5) and 1129(a)(7), not 1124(1), JudgeAdler disagreed, noting that the "Ninth Circuit phrased itsholding broadly to apply to all unsecured claims."7 In reaching their conclusion, theNinth Circuit also relied heavily on In re Beguelin, 220B.R. 94 (BAP 9th Cir. 1998), wherein a Bankruptcy Appellate Panellikewise held that solvent debtors must pay postpetition interestto unsecured creditors at the federal judgment rate.8 Both the Ninth Circuit and the BAPstated that they favored applying the federal judgment rate becauseit promotes uniformity and efficiency.9

Further, in In re PG&E Corp., 610 B.R. 308 (Bankr.N.D. Cal. 2019), another bankruptcy court directly addressed theapplicability of In re Cardelucci to"impairment" under 1124.10There, reasoning that (1) the Ninth Circuit did not narrow theapplication of its holding to "impaired claims," and (2)a uniform rate ensures equitable treatment of creditors, thePG&E court determined that it was bound by In reCardelucci.11

The creditors argued that Judge Adler should adopt the"solvent-debtor exception" applied by several otherCircuit Courts, which "enforces the state law rights ofunsecured creditors in a solvent-debtor case, including their rightto receive postpetition interest at their contractual rate."12 On remand, the UltraPetroleum court held that "where the claims of unsecuredcreditors are 'unimpaired' they must receive postpetitioninterest at their contractual rate, or otherwise be given theopportunity to vote on the plan."13There, the bankruptcy court reasoned that the principle behind the"solvent-debtor exception" is that a "debtor mustrepay its debts in full when it has the means to do so", andthat for solvent debtors, "a bankruptcy court's role ismerely to enforce the contractual rights of the parties.14

While Judge Adler "understands the rationale forapplying" the exception, she noted both that she is bound bythe Ninth Circuit's decision in Cardelucci, and thatthe application of the solvent-debtor exception to larger casesposes a significant administrative issue.15 Asa result, Judge Adler held that the applicable "legalrate" at which a solvent debtor must repay unsecured creditorsis the federal judgment rate.16

Footnotes

1. In re Cuker Interactive, LLC, No. BR18-7363-LA11, 2020 WL 7086066, at *1 (Bankr. S.D. Cal. Dec. 3,2020).

2. Id. (citing 11 U.S.C. 1124(1)).

3. In re Cuker Interactive, 2020 WL 7086066,at *2.

4. Id.

5. Id.

6. In re Cuker Interactive, 2020 WL 7086066,at *2 (citing In re Cardelucci, 285 F.3d at1234-35).

7. Id. (citing In re Cardelucci, 285F.3d at 1234).

8. In re Cuker Interactive, 2020 WL 7086066,at *2 (citing Beguelin, 220 B.R. at101).

9. Id.

10. Id. at *3.

11. Id. (citing In re PG & E,610 B.R. at 312-13, 315).

12. Id. at *3 (citing In re UltraPetroleum Corp., 943 F.3d 758 (5th Cir. 2019) (remanding,acknowledging potential applicability of solvent-debtor exception)(additional citations omitted).

13. Id.

14. Id.

15. Id. at *4.

16. Id. at *5.

The content of this article is intended to provide a generalguide to the subject matter. Specialist advice should be soughtabout your specific circumstances.

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