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Fall 2008 Edition Of Bankruptcy Resource Is Now Available
<p>The Fall 2008 edition of the <em>Absolute Priority </em>newsletter, published by the <a href="http://www.cooley.com/">Cooley Godward Kronish LLP</a> <a href="http://www.cooley.com/practices/detail.aspx?practiceid=000037410320">Bankruptcy & Restructuring </a>group, of which I am a member, has just been released. The newsletter gives updates on current developments and trends in the bankruptcy and workout area. Follow the links in this sentence to access a <a href="http://bankruptcy.cooley.com/uploads/file/Absolute Priority Fall 2008.pdf">copy of the newsletter </a>or to <a href="http://echo.bluehornet.com/clients/cooleygodward/survey.htm">register </a>to receive future editions. You can also <a href="http://bankruptcy.cooley.com/subscribe.html">subscribe </a>to the blog to learn when future editions of the <em>Absolute Priority </em>newsletter are published, as well as to get updates on other bankruptcy topics.</p>
<p>The latest edition of <em>Absolute Priority </em>covers a range of cutting edge topics, including:</p>
<ul>
<li>Claims and defenses under the WARN Act;</li>
<li>The Supreme Court's decision on transfer taxes and bankruptcy sales;</li>
<li>Section 363 "free and clear" sales in bankruptcy; and</li>
<li>The interplay between claim objections and the Section 503(b)(9) "20 day goods" administrative claim.</li>
</ul>
<p>This edition also has information on some of our recent representations of official committees of unsecured creditors in Chapter 11 bankruptcy cases involving major retailers. These include Mervyn's, Boscov's, Hancock Fabrics, Steve & Barry's, Goody's, Sharper Image, The Bombay Company, and Shoe Pavilion, among others. In addition, a note from my partner Adam Rogoff, the editor of <em>Absolute Priority</em>, discusses how the current economic problems will require lenders, unsecured creditors, and others to consider the impact of Chapter 11 bankruptcy on their rights.</p>
<p>I hope you find this latest edition of <em>Absolute Priority </em>to be a helpful resource.</p><img src="http://feeds.feedburner.com/~r/BusinessBankruptcyBlog/~4/440465729" height="1" width="1"/>
Second Liens And Recharacterization: Is More Litigation Around The Corner?
<p>In many Chapter 11 bankruptcy cases, unsecured creditors investigate whether a basis exists to recharacterize existing secured debt as equity. The reason? A successful challenge can turn first or second lien secured debt into "back-of-the-line" capital contributions, enabling unsecured creditors to realize a much greater recovery. A recent article by two of my <a href="http://www.cooley.com/practices/detail.aspx?practiceid=37410320">Bankruptcy & Restructuring Group </a>colleagues at <a href="http://www.cooley.com/">Cooley Godward Kronish LLP</a>, <a href="http://www.cooley.com/attorneys/bio.aspx?ID=39939801">Ronald R. Sussman </a>and <a href="http://www.cooley.com/attorneys/bio.aspx?ID=39944801">Michael A. Klein</a>, digs deeper into the complex issues behind these claims.</p>
<p>Appearing in the October 2008 edition of <a href="http://www.turnaround.org/publications/articles.aspx">The Journal of Corporate Renewal</a> published by the <a href="http://www.turnaround.org/Default.aspx">Turnaround Management Association</a>, the article is entitled <a href="http://bankruptcy.cooley.com/uploads/file/CorpRenLBOct08.pdf">"Recharacterization Battles Likely in Next Round of Bankruptcies</a>." You can access a copy of the article, reprinted with permission of The Journal of Corporate Renewal (© 2008, The Journal of Corporate Renewal), by clicking on its title in the prior sentence. It first discusses the concept of recharacterization itself, including the key factors courts typically apply. Next, the article compares recharacterization to the doctrine of equitable subordination under <a href="http://www.law.cornell.edu/uscode/html/uscode11/usc_sec_11_00000510----000-.html">Section 510(c) of the Bankruptcy Code</a> and examines some of the key differences between the two.</p>
<p align="left">After setting the stage, the article then looks ahead to what appears to be a coming wave of bankruptcy cases. It focuses on how future efforts by unsecured creditors to challenge <a href="http://bankruptcy.cooley.com/2007/01/articles/business-bankruptcy-issues/second-liens-and-intercreditor-agreements-are-those-bankruptcy-voting-provisions-really-enforceable/">second lien</a> loans -- a type of financing that has become a major part of corporate capital structures over the past several years -- may fare:</p>
<blockquote>
<p align="left">The next wave of bankruptcies undoubtedly will include attempts by unsecured creditors to recharacterize second lien debt as equity, especially when the second lien holder is an insider of the debtor. However, the current framework established by Bankruptcy Courts presents significant obstacles to unsecured creditors seeking to knock out the second lien claims of lenders that provided capital on a purportedly secured basis to a struggling debtor that was unable to find capital from alternative sources.</p>
</blockquote>
<p align="left">The article observes that, given the present state of the law, courts will have to embrace a more flexible legal standard if unsecured creditors are to have success in recharacterizing second lien debt as equity. It concludes by offering a different approach for addressing recharacterization with this new landscape in mind. Unsecured creditors, lenders, insolvency professionals and others confronting these issues will find the article to be a helpful and interesting read.</p><img src="http://feeds.feedburner.com/~r/BusinessBankruptcyBlog/~4/426142637" height="1" width="1"/>
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