Category Archives: Bankruptcy

The disruption to the global economy that has ensued since the World Health Organization declared COVID-19 a pandemic has resulted in a sharp increase in the number of companies filing for bankruptcy. Notably, the number of U.S. bankruptcy filings by companies with over $100 million in assets increased by 84 percent during the first three quarters of 2020 compared to the same period in 2019.[1] In the second quarter of 2020, such filings reached the second-highest total for any quarter in the last fifteen yearsjust below the all-time high in the first quarter of 2009 during the aftermath of the 20082009 financial crisis (the Financial Crisis).[2]

Bankruptcy and insolvency proceedings can result in litigation filed by trustees and receivers against insiders and third parties. Such lawsuits are generally initiated several months after the beginning of the bankruptcy or insolvency proceeding due to the time needed to investigate claims. For example, a wave of trustee and receiver litigation was filed in the years that followed the Financial Crisis.

This article discusses how certain new accounting and auditing standards implemented after the Financial Crisis could affect the expected next wave of trustee and receiver litigation.

Bankruptcy trustees are typically appointed by the court in (1) Chapter 7 liquidation proceedings; or (2) Chapter 11 proceedings, upon request of a party in interest or the United States Trustee, either when fraud, dishonesty, incompetence, or gross mismanagement of the affairs of the debtor by current management are alleged, or if such appointment is in the interests of creditors.[3] Less frequently, the debtors assets and operations are placed under receivership and a receiver is appointed by the court to administer or liquidate the debtors property.[4]

Trustees and receivers have historically filed claims for fraud and breach of fiduciary duty against the insolvent or bankrupt companys former directors, officers, and/or executives as part of bankruptcy proceedings. It is also not uncommon for trustees and receivers to sue third-party service providers, such as the companys public accountants or attorneys, for professional malpractice or to seek disgorgement or repayment of professional fees. In the years following the Financial Crisis, trustee- and receiver-led lawsuits increased in tandem with the surge in bankruptcy proceedings. Based on this historical evidence, such lawsuits are expected to also arise from the COVID-19 pandemic albeit with some delay.

The number of lawsuits filed by trustees in U.S. bankruptcy courts increased significantly following the Financial Crisis, nearly tripling in 2009 compared to 2008. The number of lawsuits peaked in 2010 and remained high in 2011when the number of filings was five times greater than in 2008. Trustee bankruptcy lawsuits have remained above pre-2009 levels and were on a relatively stable trend between 2012 and 2019 with annual fluctuation.

The COVID-19 pandemic and the resulting global operational and financial disruptions, coupled with the large amounts of corporate debt amassed after the Financial Crisis, has put pressure on the liquidity and solvency of an increasing number of companies.[5] The number of lawsuits filed during the first half of 2020 was three times greater than the number of filings during the first half of 2008 and close to the number of filings during the first half of 2009. As the number of bankruptcy filings increases, trustee and receiver lawsuits are also expected to increase in the subsequent months and years.

Examples of trustee-led cases filed in May and June 2020 include actions brought to recover fraudulent transfers, actions brought against third-party service providers to avoid or recover fees either because the company was insolvent at the time of payment or due to alleged professional negligence, and actions seeking to enforce insurance or guaranty payments.

Although the number of lawsuits initiated by receivers is relatively lower than filings initiated by trustees,[6] a similar increase can be observed during the years after 2007. The number of lawsuits filed by receivers increased steadily in the years following the Financial Crisis. Receiver filings increased by 50percent between 2008 and 2009, and remained high through 2014. As of June 30, 2020, about the same number of filings were registered in the first half of 2020 as during the first half of 2008. Moreover, in 2008, the majority of filings were filed by the FDIC acting as receiver for financial institutions.

Receiver-led cases filed in May and June 2020 include actions involving allegations of fraud, actions seeking relief from breach of obligations under an insurance policy, or actions seeking to recover allegedly improperly diverted funds.

These historical trends in trustee- and receiver-led litigation suggest that the COVID-19 pandemic will trigger another wave of bankruptcy and liquidation-related lawsuits.

Recent changes in accounting and auditing standards may affect litigation against corporate and individual defendants. This section assesses the impact of changes related to going concern disclosures and critical audit matters.

One postFinancial Crisis standard that may affect trustee and receiver litigation is the disclosure of going concern issues by reporting entities. At the time of the Financial Crisis, there was no going concern disclosure guidance in Generally Accepted Accounting Principles (GAAP) for reporting entities. Instead, relevant guidance in auditing literature and federal securities law required going concern opinions by external auditors.[7] That changed when the Financial Accounting Standards Board (FASB) issued Accounting Standard Codification Subtopic 205-40, Presentation of Financial Statements Going Concern (Subtopic 205-40).[8] Subtopic 205-40 became effective for the annual period ending after December 15, 2016.

The new going concern standard brought two additional changes from the auditing standards effective during the Financial Crisis. First, the standard requires management to perform a going concern evaluation for every set of financial statements issued, including interim financial statements. As such, for public companies, managements evaluation of going concern should occur at least every quarter to comply with GAAP. The standard related to going concern effective during the Financial Crisis, however, only applied to the annual financial statement audit.[9] These additional requirements of management may affect the decision of trustees and receivers to assert claims against management and/or the external auditor.

Second, the new standard extended the period over which the entitys ability to continue as a going concern needs to be assessed. Specifically, under the prior guidance, including auditing standards issued by the Public Company Oversight Board (PCAOB), the auditor was required to evaluate whether the entity had the ability to continue as a going concern for one year beyond the date of the financial statements.[10] Under the new accounting standard, the one-year period begins on the date the financial statements are issued.[11] As such, trustees and receivers could use this change to claim a failure to disclose going concern issues in financial statements issued for a fiscal year ended more than twelve months before the bankruptcy event. For most public companies, the effects would likely be a matter of weeks. For example, large accelerated filers are required to file their 10-Ks with the SEC sixty days after the year-end.[12] The effect can be greater for private companies that sometimes issue their financial statements months after the year-end. Thus, the timing of a bankruptcy may affect when trustees and receivers assert claims in lawsuits on behalf of the bankrupt entity.

A second postFinancial Crisis standard that may affect trustee and receiver litigation is the disclosure of critical audit matters (CAMs) by external auditors. Under the new standard, external auditors of public companies are required to include in their audit report a disclosure of matters that involve especially challenging, subjective, or complex auditor judgment.[13] The disclosure by the auditor generally includes a description of how the CAM was addressed in the audit, such as the audit procedures performed in response to the CAM. For fiscal years ended starting on June 30, 2019, auditors of large accelerated filers are required to evaluate the disclosure of CAMs, if any.

Assessing the ability of the entity to operate as a going concern represents one of the matters that auditors have disclosed as a CAM. An analysis of 1,451 annual reports filed with the SEC by large accelerated filers between July 1, 2019, and August 31, 2020, shows that going-concern-related CAMs, as well as broader going concern disclosures, have been modest for the largest public companies considering the current economic environment. Going concern was identified as a CAM for a small group of large accelerated filers that also included going concern disclosures in their financial statements. The auditors of only four of the sixteen large accelerated filers identified going concern as a CAM. Going concern was also identified as a CAM for a small group of large accelerated filers that did not include going concern disclosures in the financial statements (four large accelerated filers).[14] That means that management of these large accelerated filers concluded that there was no substantial doubt about the ability to continue as a going concern even though the auditor concluded that this evaluation represented especially challenging, subjective, or complex auditor judgment.

Given the new CAM standard, there may be a greater number of going concern CAMs in early 2021 annual filings for companies with December 15, 2020, or later fiscal year ends if the economic environment remains challenging.

The disclosure of CAMs could affect lawsuits by trustees and receivers against management and the auditor. During the standard-setting process, the PCAOB acknowledged that the new CAM standard could generally increase the risk of litigation in connection with financial disclosures. Trustee and receiver litigation represents one type of litigation that may be affected by the implementation of the CAM standards.[15]

Bankruptcy and insolvency lawsuits by trustees and receivers against insiders and third parties are generally initiated months after the beginning of the bankruptcy or liquidation proceeding. The COVID-19 pandemic has created substantial uncertainty and has particularly affected certain industries such as travel, entertainment, and retail. These lawsuits may differ from past litigation due to the new accounting and auditing standards that became effective after the Financial Crisis.

The views expressed in this article are solely those of the authors, who are responsible for the content, and do not necessarily represent the views of Cornerstone Research.

[3] U.S. Code 1104. Appointment of trustee or examiner; 11 U.S. Code 701. Interim trustee.

[4] U.S. Code 3103. Receivership.

[5] The debt of large companies stood at $10 trillion (48% of GDP) as of mid-2019, up from $6.6 trillion in 2008 (44% of GDP). Considering small and medium-sized companies and other businesses adds another $5.5 trillion to the U.S. corporate debt load, raising the debt-to-GDP ratio to 74%. See Mayra Rodriguez Valladares, U.S. Corporate Debt Continues to Rise As Do Problem Leveraged Loans, Forbes, July 25, 2019, https://www.forbes.com/sites/mayrarodriguezvalladares/2019/07/25/u-s-corporate-debt-continues-to-rise-as-do-problem-leveraged-loans (last accessed 9/18/2020). See also G-20 Surveillance Note, G-20 Finance Ministers and Central Bank Governors Meetings, July 18, 2020, pp. 6, 1920, https://www.imf.org/external/np/g20/pdf/2020/071620.pdf (last accessed 9/18/2020).

[6] Between January 2007 and June 2020, only 320 filings were registered by receivers (in U.S. District Courts and Federal Bankruptcy Court), compared to a total of 74,535 filings by trustees (in U.S. Bankruptcy Courts).

[7] PCAOB, AU Section 341, The Auditors Consideration of an Entitys Ability to Continue as a Going Concern; (The Codification of Financial Reporting Policies, Section 607.02; AICPA, Auditing Standards Section AU-C 570, The Auditors Consideration of an Entitys Ability to Continue as a Going Concern.

[8] FASB, Accounting Standards Update No. 2014-15, August 2014.

[9] Auditors of public companies are still required to perform reviews of interim financial information in conformity with auditing standards and federal securities laws, see, PCAOB, AS 4105: Reviews of Interim Financial Information).

[10] PCAOB, AS 2415: Consideration of an Entitys Ability to Continue as a Going Concern, at .02.

[11] Or, in certain circumstances, available to be issued.

[13] Greg Eastman, Elaine Harwood, Steven McBride, and Jean-Philippe Poissant, Will PCAOBs New Audit Rule Trigger Shareholder Litigation?, Law360, October 16, 2019.

[14] Three of four entities prepared their financial statement pursuant to US GAAP. The other company prepared its financial statements pursuant to the international financial reporting standards (IFRS). The relevant IFRS guidance differs from Subtopic 205-40.

Continued here:

How Will Bankruptcy Trustee and Receiver Litigation Change? - The National Law Review

In an explosive video interview to Telly Stars Talk, Rakhi Sawant opens up about her husband Ritesh like never before. She also demands answers on why she's judged so often, why she's targetted so often. Further, Rakhi rewinds to reveal how she landed up in a financial mess which made her bank balance zero. Rakhi also spoke about Karan Johar, Salman Khan, Sohail Khan and Priya Dutt.Is your marriage status, today A) Sorted B) Complicated C) To Be Decided?It's a mix of all three. But my husband Ritesh has told me that he wants to be with me. However, he isn't able to come down in today's times. I am waiting. I am a firm believer in Jesus Christ and I haven't exchanged fake marriage vows with him. I can't be sharing him with any other woman. The fact that he was married before tying the knot with me and is a father as well has jostled me. I have left the decision to him. The ball is in his court. Why isn't he appearing before the world? What complex is he suffering from? Can I ask you his age?He is 37/38. I had asked him this question before marriage too. Little did I know the reason was his first marriage. But I still respect and love him from the bottom of my heart. I didn't love him earlier, but now I do. However, now, I will decide after contemplating each and everything about him. I have taken many hasty decisions in my life. If this marriage does not sustain, I shall never marry. Having said that, I must add here that Ritesh has spent a lot on my mother and me and has promised me a flat in Mumbai.

But Ritesh was your WhatsApp friend. How could you marry your WhatsApp friend without knowing much about him?

'Log mithai khaane ke liye aur shopping karne ke liye desperate hote hain. I was desperate to get married. My marriage with Ritesh was the outcome of another chapter in my life. A very violent guy from Gujarat was forcing me to marry him. I had gone out on a date with him to Goa where my friends had also accompanied me. I saw a video there which had him beating up someone in his farmhouse. Later, he threatened to kidnap me if I didn't marry him.

One day I was fervently praying that God should get this aggressive man out of my life. At that point, my phone rang. It was Ritesh. I told Ritesh that he should find a good guy for me. Those days, though, it was felt that I wouldn't make a good wife, daughter-in-law and and mother as I was very controversial. Kyun bhai? Yahan to log saalon saal jail me kaatte hain, unki bhi shaadi ho jaati hai, bachche bhi ho jaate hain. I have done no crime. We are a democracy and I reserve the right to speak my mind. Excuse me, why am I judged? Just because I dance in the industry? Don't I pay my taxes? Anyway, Ritesh promised to help and we began talking more and more with the passing of each day. Suddenly he popped the marriage question and sent me his bank statement. Seeing that statement, I felt I must marry him as that would mark the end of my struggle. Lekin...

Lekin?

He didn't turn up for our marriage. He apologised. This happened not just once. I asked him in no uncertain terms that why was he dilly-dallying our marriage. Finally, he came down to Mumbai and we tied the knot. This marriage helped me to ward off the Gujarat don.

No, but I have seen her photos.

Moving on to your financial crunch...

My bank balance had turned zero.

Why didn't you raise an alarm?

I didn't do it until my mother was diagnosed with cancer. Think of it, whom should I have called out to? I had gone bankrupt because my CA duped me. He had transferred my entire money to someone else's account, who did not return my money to him. Later, my CA passed away. I have seen hell on earth.

During this period, did you call up filmmakers to give you work?

(Gets emotional) I did and whatever work I got, I did with honesty. I even got Bhojpuri movies. A large part of my years in the industry have gone in paying my mother's medical bills. In fact, not just her, I have been paying for the rest of my family too. That's exactly why I was looking out to marry a rich guy who can look after my mother.

But you didn't get much work in Bollywood after calling up filmmakers...Yes. So, I started making videos which showcased my talent. Those videos helped me to get shows.

Has your outspoken nature come in the way of making friends (in the industry)?

Yes, certain celebrities used to laugh on my face and say 'Oh my God, Oh s**t'.

Over to 'Bigg Boss 14'. Did you feel from Day 1 that Rubina Dilaik will be the winner?

Yes. 'Bigg Boss' has made many lives; it helped me too, financially. The Rs 14 lakh- and even the money I got from the spoof marriage with Deepak Kalal- helped me in my mother's treatment.

It is strongly felt in the industry that you seek publicity...

I don't know why that tag hasn't left me. On the contrary, my acts aim at just comedy.

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Telly Stars Talk - Rakhi Sawant on her complicated marriage and bankruptcy: 'I have seen hell on earth' - Times of India

The CDC said Thursday that those who have been fully vaccinated against COVID-19 largely no longer need to wear masks or practice social distancing indoors. "If you are fully vaccinated, you can start doing the things that you had stopped doing because of the pandemic," CDC Director Rochelle Walensky said. The exceptions are where masks are "required by federal, state, local, tribal, or territorial laws, rules, and regulations, including local business and workplace guidance," the CDC said. Masks are also still required during travel, and the CDC is advising they still be worn when going to doctors, hospitals, or long-term care facilities, as well as in prisons, jails, or homeless shelters. Unvaccinated people remain at risk and should still mask. But "we have all longed for this moment when we can get back to some sense of normalcy," Walensky said, and for vaccinated people, "that moment has come."

The rest is here:

5 things you need to know now - Federal judge dismisses NRA's bankruptcy case - The Week Magazine

National Rifle Association CEO Wayne LaPierre at the group's annual meeting in Dallas in May 2018. A secretive figure, LaPierre makes few public appearances outside of carefully scripted speeches. Daniel Acker/Bloomberg via Getty Images hide caption

National Rifle Association CEO Wayne LaPierre at the group's annual meeting in Dallas in May 2018. A secretive figure, LaPierre makes few public appearances outside of carefully scripted speeches.

Updated at 6:43 pm ET

A federal bankruptcy judge dismissed an effort by the National Rifle Association to declare bankruptcy on Tuesday, ruling that the gun rights group had not filed the case in good faith.

The ruling slams the door on the NRA's attempt to use bankruptcy laws to evade New York officials seeking to dissolve the organization. In his decision, the federal judge said that "using this bankruptcy case to address a regulatory enforcement problem" was not a permitted use of bankruptcy.

The bankruptcy trial had paused other legal challenges the NRA had been facing, but this decision returns the group to its confrontation with the New York attorney general, who is seeking to shut it down over alleged "fraud and abuse."

"The @NRA does not get to dictate if and where it will answer for its actions, and our case will continue in New York court," New York Attorney General Letitia James said in a tweet after the ruling. "We sued the NRA to put an end to its fraud and abuse, and now we will continue our work to hold the organization accountable."

During the trial, the NRA said it had enough money to pay its creditors. Instead, it declared bankruptcy for a tactical reason: to avoid the reach of the New York attorney general. Last year, the attorney general sought a court's approval to dissolve the NRA, alleging a wide variety of financial misconduct, chiefly by the NRA's top executive: CEO Wayne LaPierre.

In response to the judge's dismissal, the NRA said that it had taken steps to improve internal financial controls and would continue to pursue its gun rights mission.

"Although we are disappointed in some aspects of the decision, there is no change in the overall direction of our Association, its programs, or its Second Amendment advocacy," LaPierre said in a statement. "We remain an independent organization that can chart its own course... The NRA will keep fighting, as we've done for 150 years."

The NRA had argued during the case it was being persecuted for its political views. The group asked a federal bankruptcy judge to halt its other legal cases and allow it to reorganize in Texas, where it might be out of the reach of New York's attorney general.

"In the parlance of bankruptcy, we have a predatory lender who is seeking to foreclose on our assets," argued Greg Garman, an attorney representing the NRA.

But the monthlong trial had the side effect of putting into the public record details of personal spending by senior NRA officials. It also painted the picture of an organization in crisis, with some of the sharpest criticism coming from current or former organization insiders.

Testimony included examples of the nonprofit organization's tax-exempt funds being used for wedding expenses, private jet travel and exotic getaways. For example, LaPierre's private travel consultant, who was paid $26,000 a month to cater to him personally, testified about how LaPierre instructed her to alter travel invoices for private jets so as to hide their true destinations.

The trial also gave a rare look into the behavior of LaPierre, who has led the controversial organization for almost 30 years. A secretive figure, LaPierre makes few public appearances outside of carefully scripted speeches.

During questioning, he admitted to annual trips to the Bahamas, where he would stay on a luxury yacht belonging to an NRA vendor a conflict of interest he did not disclose at the time, which testimony and court proceedings showed was in contravention of NRA policy. Instead, he justified the Caribbean trips to the court as a "security retreat" that was necessary for his safety and that of his family members.

LaPierre appeared to irritate the judge overseeing the case repeatedly by rambling on, talking about his privileged conversations with his attorneys and not directly answering questions.

"I'm about to say something I've said for a day and a half now. Can you answer the questions that are asked?" the judge asked LaPierre at one point. "Do you understand that I've said that to you more than a dozen times over the last day?"

"Yes, sir, your honor. I'm sorry, I'm I'm doing my best," LaPierre responded.

The NRA claims it is financially sound, but investigations and litigation have hampered the group. Information provided during the trial indicated that in a span of less than three years, the organization had spent $72 million on its primary law firm alone. For context, the group took in $291 million in revenue in 2019, the most recent year for which there are public records available.

Since 2019, when infighting among NRA officials burst into public view with the dramatic resignation of its then-President Oliver North, the NRA has careened from crisis to crisis. A number of NRA board members have resigned in protest as tales of alleged executive misconduct have surfaced. The NRA severed its relationship with its key advertising firm, Ackerman McQueen, leading to costly lawsuits and the airing of yet more dirty laundry.

With the bankruptcy case dismissed, the NRA now returns to its prior state of vulnerability: fighting for its survival against a New York attorney general who seeks to shut the whole organization down.

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NRA Bankruptcy Case Denied, Allowing New York Dissolution Case To Move Forward - NPR

Hertz, whose car-rental bands also include Dollar and Thrifty, lost almost all their revenue when travel shut down due to the coronavirus this year. Wochit

Hertz saw its business strengthen in the first quarter, as it put the gas pedal on efforts to exit bankruptcy.

On Friday, Estero-based Hertz Global Holdings parent of The HertzCorp. reported quarterly profits of $190 million, or $1.21 a diluted share.

That compared to losses of $356 million, or $2.50 a share, a year ago.

Adjusting for one-time expenses and gains, Hertz said it lost $52 million, or 33 cents a share.

Revenues totaled nearly $1.3 billion in the quarter ending March 31. That was down from but much closer to the $1.9 billion Hertz reported forthe same monthslast year whenthe financial blow from thepandemic hadonly justbegun to show up on its bottom line.

For comparison, the company had revenue of $2.1 billion in the first quarter of 2019.

Latest: Hertz deems competing bid for its reorganization plan 'superior'

In case you missed it: Judge makes milestone decisions in Hertz's bankruptcy case

Previously: Hertz switches gears, chooses new sponsors to emerge from bankruptcy in June

An aerial view of Hertz's global headquarters in Estero.(Photo: USA TODAY NETWORK - FLORIDA FILE PHOTO/Dorothy Edwards)

Hertz hasimproved upon its financial results from last year by cutting costs, so that they're better aligned with demand.

Over the past few months, Hertz's business has also improved markedly, as more Americans get vaccinated, making them more comfortable with travel, at least within the United States.

"This quarter we realized the first effects of the leisure travel rebound and capitalized on strong demand-driven pricing in destination markets that exceeded 2019 levels," saidPaul Stone,HertzGlobal's president and CEO, in a statement. "We're continuing to see improved demand and are optimistic about a sustained recovery."

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With that optimism, Hertz is working aggressively to replenish its fleet, "despite the constraints of the global semiconductor shortage and its impact on the automotive supply chain," Stone said.

"Most importantly, I'm exceptionally proud of our employees who are working tirelessly to serve our customers as they're ready to be on the road again," he said.

Hertzunloaded almost 200,000 carslast year as part of its bankruptcy deal with creditors.

In late March, the company completed the sale of its Donlen vehicle leasing and fleet management business to Athene Holding Ltd. for$891 millionin cash, putting it on a stronger financial footing to emerge from bankruptcy next month.

The company, Stone said, is "making great progress towards concluding the bankruptcy process" by June 31.

"We remain on track to emerge in June and are poised to do so with more efficient operations and a stronger balance sheet for the future," he said.

Need a rental car?You're not alone. Shortage starts to hit home, and everywhere else

Paul Stone, CEO of Hertz(Photo: Courtesy Hertz Global Holdings)

On Monday, Hertz held a closed-door auction to choose the best financial sponsors for its reorganization plan after a bidding war broke out for ownership of the new company a few weeks ago.

Two groups have been aggressively competing to fund the exit plan since mid-April.

Hertz had not yet announced the results from the auction by the newspaper's deadline Monday.

Last week, Stone said in a news release that he anticipates the exit plan will "deliver a robust recovery for creditors and shareholders" alike,no matter who backs it.

More than a month ago, Hertz's directors determineda trio of companies Centerbridge Partners L.P., Warburg Pincus LLC and Dundon Capital Partners LLC hadthe "highest and best" financial proposal, selecting it as the equity sponsorfor its reorganization plan.

Then came a competing offer at the 11th hour, just as Hertzsought court approval to move ahead with its chosen sponsors.

A customer looks to rent a car at Hertz.(Photo: The News-Press / file)

Hertz conducted another round of bidding to givethe alternativegroup what it described as a "full and fair opportunity to present their best proposal."

As a result, theunderdog a group made up of Knighthead Capital Management LLC, Certares Opportunities LLC and Apollo Capital ManagementLP emerged with a "superior" proposal.

Hertz confirmed itreceived the revised offer last Tuesday, then announced Wednesday that it "constitutes a superior proposal" to the one put forward by its chosen plan sponsors.

The current plan sponsorsnotified Hertz that they wanted to make a counteroffer, triggering the court-approved auction.

Hertz held the auction ina"virtual room," under the supervision of its attorneys.

The companyoriginally announced the competinggroupKnighthead Capital Management and Certares Opportunities LLC as itspotential equity sponsors. The group lost its strongholdafter its successors stepped forward with a more favorable plan in the eyes of Hertz and its creditors.

Hertz hasn't publicly shared any of the details of the competing plans, but some information has leaked out to the national news media.

Bloomberg reported that the competing plan Hertz deemed as superior last week "aims to fund the exit through a direct common stock investment of $2.9 billion, preferred stock worth $1.5 billion and a $1.36 billion rights offering."

Hertz is in a hurry to get out of bankruptcy, with a court hearing scheduled for May 14 for the judge toapprove its plan sponsors.

By the third quarter, Hertz anticipatesthe demand for its cars to be much stronger, as itusually surgeswith travelers seeking summergetaways, so it wants to be ready for that business.

The sooner Hertz can speed its way out ofbankruptcy the better because it's so costly and the company desperately needs cashto rebuild its fleet and remain competitive.

The lobby of the Hertz global headquarters in Estero.(Photo: The News-Press file photo)

Hertz fell into bankruptcy last May, a little more than two months after COVID-19 became a global pandemic, bringing the tourism and travel industry to a virtual halt.

Catch up: Hertz bankruptcy could leave potholes in Southwest Florida economy

At the time of its Chapter 11 filings, the company had racked upnearly $20 billion in debt.

In addition to its namesake brand, Hertz operates the DollarandThriftycar rental services.

In May 2013,Hertzannounced the relocation of its global headquarters from New Jersey to Estero,following the acquisition of the Dollar Thrifty Automotive Group.

The new multimillion-dollar headquarters opened in 2015.

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Hertz sees signs of turnaround as it approaches exit from bankruptcy - News-Press

Litigation funding has becoming increasingly common for general litigation matters, although its validity will still depend upon applicable state law. See generally Robert Miller, J.D., Annotation, Enforcement and Funding of Litigation Funding Agreements,72 ALR 6th 385 (2012). According to a recent posting by CNBC, there are roughly 40 entities involved in U.S. commercial litigation financing, with assets under management of $9.5 billion. Its increasing presence, however, has not yet carried into the bankruptcy arena, but two recent U.S. District Court decisions, on appeal from the rulings of two different bankruptcy courts, may change the legal landscape for this type of arrangement in bankruptcy cases.

Litigation funding refers to an arrangement whereby a lender provides funds to a plaintiff in planned or pending litigation, or to the plaintiff's attorney, in exchange for the right to receive an amount out of the proceeds of any realized settlement, judgment, award, or verdict that may be received in the civil lawsuit. In bankruptcy cases, common plaintiffs include the trustee, a debtor in possession or a creditors committee.

In Dean v. Seidel, Civil Action No. 3:20-CV-01834-X, 2021 WL 1541550 (N.D. Tex. Apr. 20, 2021), the United States District Court for the Northern District of Texas affirmed the bankruptcy courts approval of a litigation funding agreement under which a creditor of the bankruptcy estate agreed to advance up to $200,000 to the chapter 7 trustee for litigation fees to prosecute claims against third parties. Id. at *1. The agreement further provided that all recoveries from these claims would be used first to pay the trustees statutory commission and allowed expenses, second, to reimburse the advancing creditor, third, to pay it a 30% investment return, and finally, to distribute the balance to creditors.

The agreement in Seidel was challenged by the debtor as violating the priority scheme of section 507 of the Bankruptcy Code because it would allow one creditor to receive a disproportionate share of the litigation recoveries as compared to other similarly situated creditors and also as violating section 550 of the Bankruptcy Code on the theory that litigation recoveries must be for the benefit of the estate. Id. at *1. The district court did not consider those challenges persuasive, and in upholding the agreement, found it important that the trustee attempted but was unable to negotiate a contingency fee arrangement with attorneys who were approached about taking the case. Id. at *2.

Interestingly, the bankruptcy court had approved the arrangement as a term of retention of special counsel under sections 327 and 328 of the Bankruptcy Code, but remarked that it was a bit like a section 363 or 364 transaction. Id. The grounds for approval were not disturbed on appeal. Although the district court had some reservations about the litigation funding agreement, due to what it termed legitimate ethical concerns, and the lack of any supporting caselaw, it affirmed because it was not left with the definite and firm conviction that a mistake had been made, id., which is the clearly erroneous standard of review on appeal.

The approval of a litigation funding agreement in another bankruptcy case recently withstood challenge on appeal to a district court, but on standing grounds. In Valley National Bank v. Warren, Case No. 8:20-cv-1777-KKM, 2021 WL 1597960 (M.D. Fla. Apr. 23, 2021), the liquidating trustee in a chapter 11 case sought approval of a litigation funding agreement with a third-party whereby it would finance the fees and expense of litigating an adversary proceeding against Valley National Bank for aiding and abetting breach of fiduciary duty and for the avoidance and recovery of $3 million in fraudulent transfers. Based on a review of the proceedings, the funding agreement provided that the funder would pay the monthly fees and expenses of the liquidating trustees professionals and that from any litigation recovery, would first be reimbursed for those payments and then receive 85% of the recovery. The funder was also granted a first priority lien and security interest in the cause of action and other collateral.

The bankruptcy court approved the agreement as a financing under section 364 of the Bankruptcy Code, over the banks objection that the funders financial interests would impair the good faith efforts of the liquidating trustee in negotiating a settlement with the bank. Id. at *2. On appeal, the United States District Court for the Middle District of Florida held that the bank lacked Article III standing to appeal, as well appellate standing under the person aggrieved standard for bankruptcy appeals. Id. at *3-6. Essentially, the district court held that the bank could not establish a concrete injury that was not speculative or remote for Article III standing, and that the bank was not aggrieved because it was not directly and pecuniarily affected by the approval.

There have been other bankruptcy decisions that have approved of litigation funding arrangements on their merits, but not as a form of financing under 364 of the Bankruptcy Code. In Realan Investment Partners, LLLP v. Meininger (In re Land Resource, LLC), 505 B.R. 571 (M.D. Fla. 2014), the chapter 7 trustee entered into a litigation funding agreement with a surety that had issued bonds for the debtors benefit prior to the bankruptcy filings. Under the agreement, the surety agreed to fund up to $750,000 for the fees and costs of certain fraudulent transfer litigation brought by the chapter 7 trustee and, in exchange, was to receive a sliding scale percentage of the recovery proceeds after reimbursement of the amount funded. Id. at 576. The percentages started at 80% of the net recovery up $1 million and gradually declined to 35% of any net recovery in excess of $3 million. Id. The agreement was approved by the bankruptcy court as a settlement under Fed. R. Bankr. P. 9019, over the objection of the defendants in the fraudulent transfer action, and its approval was affirmed on appeal on that basis. Id. at 587.

In affirming the bankruptcy court, the district court found most important the testimony of the chapter 7 trustees counsel that the litigation could not continue without the funding, while adding its recognition that the real reason for the objection and appeal by the defendants was for them to be free of the litigation. Id. at 587. The district court also rejected arguments that the agreement should have been reviewed under the standard for a sale of assets under 363 of the Bankruptcy Code or as a financing under 364 of the Bankruptcy Code.

In In re Ashford Hotels, Ltd., 226 B.R. 797, appeal dismissed 235 B.R. 734 (S.D.N.Y. 1999), the bankruptcy court approved a litigation funding agreement between a chapter 7 trustee and Allied Irish Bank (AIB), a major creditor of the estate, whereby AIB would pay $25,000 toward administrative expenses of the estate and fund the fees necessary for the trustee to defend an action against the debtor which sought to nullify an indemnity agreement in its favor. Id. at 800-01. The indemnity agreement, if enforceable, would require the indemnitors to pay AIBs outstanding loan to the debtor, and would allow for a successful recovery on the indemnity in a related action before Englands High Court. Id. In the event of a recovery, AIB would remit to the trustee the lesser of $500,000 or five percent of the net recovery. Id. at 801.

The agreement was presented, analyzed and approved as a settlement under Fed. R. Bankr. P. 9019, which, at bottom, requires approval if the settlement does not fall below the lowest point in the range of reasonableness. Id. at 804. The bankruptcy court had no trouble finding that the agreement met that standard, even though the parties who sought recission of the indemnity agreement offered $50,000 to the estate to drop the litigations defense. The court reasoned that it was the trustees decision that was being reviewed and that it met the standard for approval of a settlement under Rule 9019 particularly since it allowed for a potential future recovery of additional monies for the estate, whereas the indemnitors offer close[d] the door to future recoveries. Id. at 804.

The decision in In re 8 West 58th Street Hospitality, LLC Case No. 14-11524, 2017 WL 3575856 (Bankr. S.D.N.Y. Aug. 4, 2017) involved an unusual arrangement whereby the landlord of the chapter 11 debtors place of business agreed to fund litigation against a party that had defaulted on its obligations to take an assignment of the debtors under-market lease of the premises, which had been approved by the court on the debtors motion for assumption and assignment of the lease. Under the agreement, if the action against the assignee for surrender of the lease was successful, the landlord would buy the lease from the debtor for $1,250,000, and if the action was unsuccessful, the debtor and its principals would assign their claims against the assignee of the lease, which included a contempt proceeding, to the landlord for $1 million. Id. at *2.

The court approved the agreement as a transaction outside the ordinary course of business under section 363(b) of the Bankruptcy Code, which employs a business judgment standard, id. at *3, after it was clarified that the landlord would not have veto power over any settlement or other disposition of the litigation. Id. at *5. The court also rejected the argument that the agreement should be analyzed as a financing transaction under section 364 of the Bankruptcy Code, citing Ashford, as well as the argument that receiving fees from a third party would present a conflict for debtors counsel. Id. at *6-7.

As can be seen, litigation funding agreements for bankruptcy litigation have not received uniform analysis in bankruptcy cases, but they have been approved on various grounds. Given the more limited resources that are commonly found in bankruptcy cases, and as bankruptcy decisions approving these types of agreements become more widely known, it can be reasonably expected that they will be used more frequently as the litigation funding business continues to expand.

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Litigation Funding for Bankruptcy Litigation Gets a Boost from Recent Appellate Decisions - JD Supra

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Former Simpson Thacher attorney turned founder of the $1 billion Marble Ridge Capital LP fund, Daniel Kamensky, was sentenced to time in prison after pleading guilty to bankruptcy fraud. U.S. District Judge Denise L. Cote gave him a six-month sentence after Kamensky admitted to pressuring Jefferies Financial Group to not place bids for assets being sold by Neiman Marcus in insolvency proceedings.

As reported by Law360, Judge Cote said Kamensky was a good man but his behavior was deeply disturbing. In sentencing, she also pointed to Kamenskys attempt at covering up his actions:

The judge also credited Kamenskys explanation that his conduct in pressuring Jefferies not to bid for the retailers MyTheresa e-commerce assets and later asking for his contacts there to lie was a panic move.

He came undone. He tried to control what he could not control and in doing so he betrayed his profession, the judge said. He tried to get another person to lie for him. He tried to obstruct justice.

Kamensky apologized to the court and his family for his behavior:

There is no excuse for my behavior and I am deeply regretful and embarrassed for my conduct, he said. I was aware other bidders were going to come in. Whatever triggered my reaction, I will never know. It doesnt excuse my conduct what I did was wrong.

Kamensky will surrender to custody by June 18th.

Kathryn Rubino is a Senior Editor at Above the Law, and host of The Jabot podcast. AtL tipsters are the best, so please connect with her. Feel free to email herwith any tips, questions, or comments and follow her on Twitter (@Kathryn1).

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Former Biglaw Attorney Headed To Prison For Bankruptcy Fraud - Above the Law

The Chief Economist of the Bank of England, Andy Haldane, listens from the audience at an event at the Bank of England in the City of London, London, Britain April 27, 2018. REUTERS/Toby Melville

The Bank of England does not expect to see a wave of bankruptcies among British firms when the government ends its coronavirus emergency support for the economy, BoE Chief Economist Andy Haldane said on Friday.

Many debts racked up recently by companies are spread over long durations "which increases the chances of them being able to be paid back and therefore bankruptcy is not picking up very much from current relatively subdued levels," Haldane said.

"But ultimately there are risks around that and we'll need to track them through," he said in a presentation to businesses, a day after the BoE sharply raised its forecasts for British economic growth in 2021.

Data published last week showed company insolvencies in England and Wales fell to their lowest level in more than 30 years in early 2021 as the government's support helped businesses to ward off bankruptcy.

Haldane also said there were "significant risks" that inflation could come in either above or below the BoE's latest forecasts. These predict inflation will be close to its 2% target in two to three years' time, after an initial overshoot as the economy recovers from the pandemic.

"Currently we see those (risks) as being broadly symmetric, but they're big on both sides and there's no escaping that given where we are economically right now," Haldane said.

BoE Deputy Governor Ben Broadbent, speaking alongside Haldane, said policymakers were less likely to loosen policy than they thought three months ago.

"The bias toward easing that we might have had is less pronounced," he said.

Broadbent highlighted a change in the BoE Monetary Policy Committee minutes, which on Thursday stated: "The MPC would continue to monitor the situation closely and would take whatever action was necessary to achieve its remit."

In March that passage had read: "If the outlook for inflation weakened, the Committee stood ready to take whatever additional action was necessary to achieve its remit."

That gives you an idea of how some of the downside risks - although they are still there - have diminished, Broadbent said.

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Bank of England does not see COVID bankruptcy wave - Haldane - Reuters UK

That cant be allowed to happen. Bankruptcy judges should heed the formal objections filed by Massachusetts Attorney General Maura Healey and dozens of other state officials seeking to stop the family, which is not party to the companys bankruptcy proceedings, from shielding the majority of their fortunes from it in exchange for a $4 billion payment and forfeiture of company control.

The move, using an obscure legal device called a nonconsensual third-party release, would essentially strip state and local officials from the policing power they ought to possess to hold those responsible for the crisis responsible and fail to adequately compensate all those who have been harmed, according to a brief filed last week by Healey and other officials.

And beyond that, Congress must act to close this virtual escape hatch for wrongdoers to use company bankruptcy proceedings to escape individual personal liability.

A bevy of lawsuits accuse the Sacklers, the family that founded and controlled Purdue, and in particular Dr. Richard Sackler, of aggressively promoting and marketing OxyContin for years to increase the drugs use and maximize profit while misleading doctors and patients about the drugs addictiveness. They did this while seeking to shield their own family name well known in the world of philanthropy from the taint of scandal. Since their actions came to light, in part due to the efforts of the Globes sister publication STAT, museums from the Louvre in Paris to the Smithsonian Institutions in Washington have dropped the Sackler name. Tufts University has also dropped the name from its programs and buildings, including the medical school.

The company has also been in the crosshairs of federal and state officials, who accuse it of accelerated payments to members of the Sackler family after it was fined for its role in the opioid crisis. Between 2007 and 2017, based on the companys own court filings, the family was paid nearly $11 billion, compared to just $1.3 billion from 1995 to 2007. Healey called that disclosure the very definition of ill-gotten gains.

Yet, despite their own admitted guilt, state officials claim in their brief, filed in a New York bankruptcy court Friday, the company and other debtors seek to cram down an unconfirmable plan that, among other things, would absolve [the Sacklers] in exchange for the stretched-out payment of only a tiny fraction of their independent liability, unlawful gains, and current wealth, over the objection of Attorneys General from 24 States and the District of Columbia, representing 53% of the U.S. population.

Bankruptcy judges have wide discretion in approving proposed settlements, but in this case, the interest of justice requires that there be the possibility of holding family members responsible if they misled those seeking relief from chronic pain, sending millions of them down a painful and dangerous path of addiction. Doing otherwise runs contrary to the principles of fairness and equity by which all judges are bound.

And Congress should act to ensure that state attorneys general never again have to rely on the individual judges to guard against this misuse of bankruptcy courts. Legislation introduced by Representative Carolyn Maloney, Democrat of New York, and whose cosponsors include Massachusetts Representatives Katherine Clark, Ayanna Pressley, Stephen Lynch, and Jim McGovern, called the Stop Shielding Assets from Corporate Known Liability by Eliminating Non-Debtor Releases (SACKLER) Act, would close the loophole the Sacklers seek to exploit.

If the Sacklers deal is finalized something that could happen as soon as this month if the states objection is dismissed it would set a dangerous precedent that protects the wealth of wrongdoers so long as their companies go bankrupt. Thats a legacy that the courts and Congress must avoid.

Correction: A previous version of this article misstated that Richard Sackler was the founder of Purdue Pharma, instead of a member of the family that founded and controlled the company. It also misidentified whom the state officials claimed admitted guilt; it was the company and its debtors, not the Sackler family.

Editorials represent the views of the Boston Globe Editorial Board. Follow us on Twitter at @GlobeOpinion.

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Bankruptcy judges and Congress must close the Sackler loophole - The Boston Globe

Steven Church:

That's precisely what the argument was on the side of the New York attorney general and their allies who were arguing with them.

The NRA is making the claim that, even though they have plenty of money, this lawsuit is an existential threat to their existence, because one of the things that could happen is that the judge a judge in New York, if they side with the New York attorney general, could dissolve the NRA, and all of the NRA assets, which amounts to tens of millions of dollars, could be given away to other similar type nonprofits.

So they argued, because that's a threat, because that's a possibility, they should be allowed to file bankruptcy, even though they have plenty of cash, they're solvent, they're paying their bills on time, and it doesn't look like they face any immediate threats.

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Is the NRA's bankruptcy filing a way to escape regulation? - PBS NewsHour