Delaware Business Bankruptcy Report

Delaware Business Bankruptcy Report

Everyware Global, Inc., Leading Global Marketer Of Food Preparation Products, Files Prepackaged Bankruptcy Case

Posted in Delaware Chapter 11 Filings, Delaware Chapter 11 News, Judge Laurie Selber Silverstein, United States Bankruptcy Court - District of Delaware

On April 7, 2015, Everyware Global, Inc. and 12 affiliates filed a prepackaged chapter 11 case in Delaware.  Affiliates include such names as Oneida, Anchor Hocking, Kenwood Silver, Sakura and Universal Tabletop.  The case is docketed as case no. 15-10743 and has been assigned to the Honorable Laurie Selber Silverstein.  A chapter 11 plan and disclosure statement has been filed with the petition.

Joel Mostrom, the CFO of each of the debtors, has filed a declaration filed in support.  According to Mr. Mostrom, as of September 30, 2014, the debtors reported total assets of $237.8 million and total liabilities of $380.4 million.  As of the petition date, the debtors’ funded debt obligations include a $248.7 million term loan facility and a $60 million ABL.

Under the prepackaged plan, the debtors intend to pay general unsecured creditors 100% in cash.  The $248.7 million term loan facility will be converted to approximately 96% of new equity.  The remaining 4% will be allocated to the debtors’ existing shareholders in exchange for their support of the plan.  The debtors have also received commitments for a $40 million DIP facility and continued access to their ABL facility to continue operations during the chapter 11 case.

The Debtors are headquartered in Lancaster, Ohio.

Northwest Missouri Holdings, Inc. and Three Affiliates File Bankruptcy

Posted in Delaware Chapter 11 Filings, Delaware Chapter 11 News, Judge Brendan Linehan Shannon, United States Bankruptcy Court - District of Delaware

On April 6, 2015, Northwest Missouri Holdings, Inc. and three affiliates, filed voluntary chapter 11 petitions in Delaware.  The three affiliates are Oregon Farmers Mutual Long Distance Inc., The Oregon Farmers Mutual Telephone Company and South Hold Cablevision, Inc.  As of this post, only the petition is on file.  The case is docketed as case no. 15-10728 and has been assigned to The Honorable Brendan Linehan Shannon.

Littleford Day, Inc. of Florence, Kentucky Files Chapter 11

Posted in Delaware Chapter 11 Filings, Delaware Chapter 11 News, Judge Kevin Gross, News, United States Bankruptcy Court - District of Delaware

On April 2, 2015, Littleford Day, Inc., located in Florence, Kentucky, filed a chapter 11 bankruptcy petition in Delaware.  “[A] recognized leader for the supply of Industrial Mixers, Dryers and Reactors”, according to its website, www.littleford.com, Littleford has been in business since 1882.  The case is docketed as case no. 15-10722 and has been assigned to The Honorable Kevin Gross.

According to the Declaration of J. Garvin Warden, filed in support of the petition, Littleford has reduced its workforce over the past year from a high of 65 to 27 on the petition date.  Mr. Warden notes significant operational costs and a dramatic reduction in orders since the end of 2014: “Despite good faith efforts to reduce costs and enhance revenue, the Company has simply been unable to maintain adequate cash flow to satisfy its mounting obligations.”

Mr. Warden’s Declaration explains that Littleford has explored various restructuring strategies, but has determined that a sale offers the best opportunity to get the best value for the company.  After searching for a buyer, Littleford has determined to enter bankruptcy with Loedige Littleford Process Technology, LLC (“LLPT”) as a stalking horse.  S-Two LLC owns 25% of LLPT.  Two of the debtor’s 46 shareholders are members of S-Two.  According to Mr. Warden, no other parties affiliated with the debtor are affiliated with LLPT.

Prior to the petition date, Littleford owed in excess of $1.9 million in secured debt to The Merchants Bank and Trust Company.  In mid-March 2105, the debtor cashed out marketable securities and provided some additional cash, and paid off the secured debt.  As of the petition date, the debtor has no available line of credit and is only able to operate with DIP financing.  Unable, however, to find anyone else willing to offer DIP financing, LLPT has agreed to provide a $750,000 DIP facility in connection with its stalking horse bid.

According to Mr. Warden, the value of the LLPT bid is $1.75 million.

Morris James Launches Data Privacy and Information Governance Group

Posted in News

Morris James LLP has formed a Data Privacy and Information Governance Group.

The Data Privacy and Information Governance Group is an interdisciplinary team of corporate and fiduciary duty attorneys, attorneys well-versed in electronic data storage and discovery, attorneys with bankruptcy and insurance-related backgrounds, and non-attorney IT staff knowledgeable about trends in data security and technology. Together, the group advises boards of directors and officers in assessing and managing risk and defending claims for alleged breach of fiduciary duty arising from data breaches. Continue Reading

Reviewing ‘Caesars’ and Bankruptcy Venue in the Ides of March

Posted in Articles
Monzo

The realities of the bankruptcy venue provisions require potential debtors and their advisers to prudently weigh the legal significance of a bankruptcy filing in various courts. In a recent decision, U.S. Bankruptcy Judge Kevin Gross of the District of Delaware reviewed the Bankruptcy Code’s venue provisions and considered the various interests of a bankruptcy estate’s stakeholders when he transferred a “first-filed” bankruptcy petition from Delaware’s bankruptcy court to the court’s counterpart in the Northern District of Illinois, in In re Caesars Entertainment Operating (Bankr. D. Del. Feb. 2, 2015). Continue Reading

Delaware USDC Rejects Chapter 7 Trustee’s Request for Direct Appeal to Third Circuit

Posted in Adversary Proceedings, Appeals, Avoidance Actions, Case Summaries, Judge Leonard P. Stark, New Value, Preferences, United States District Court - District of Delaware

In the on-going saga of the Conex v. Car-Ber Testing, Inc. adversary proceeding (see our prior post here), Judge Leonard P. Stark, of the United States District Court for the District of Delaware, denied the Chapter 7 Trustee’s request to allow a direct appeal to the Third Circuit Court of Appeals of the Bankruptcy Court’s opinion that permitted the defendant in a preference action to use the new value defense – even though the “new value” had been paid post-petition.  Stanziale v. Car-Ber Testing, Inc., Civ. No. 14-cv-179-LPS (D. Del. Mar. 23, 2015)

The basis of the underlying opinion was the Third Circuit’s opinion in the case of Friedman’s Litigation Trust v. Roth Staffing Companies LP, Case. No. 13-1712 (see our Friedman’s blog post here).

In ruling that a direct appeal to the Third Circuit was unwarranted, the District Court’s opinion concluded that there is no conflicting law on the issue.  Rather, the Friedman’s decision “squarely applie[d] to this case.”  Op. at 6.  “Appellant is not arguing the absence of controlling law; rather he is arguing the absence of a decision that adopts his position.”  Op. at 5-6.

The Court also found lacking the Trustee’s argument that public interest was invoked because the underlying opinion could affect 16 other pending adversaries.  “The fact that an appeal will affect other parties to Debtors’ bankruptcy does not establish an issue of public importance.”  Op. at 6.

Finally, the Court was not persuaded that allowing a direct appeal would materially advance the case.  [T]here is nothing extraordinary or urgent about this situation that recommends departing from the standard appellate process. The matter is primed for briefing before this Court; whereas, the Third Circuit must first review and accept a certification request before the appeal can proceed in that Court.”  Op. at 7.  “The Court does not find that certification will materially advance this case.”  Op. at 7.

Streetwear Company, Karmaloop, Inc., Files for Chapter 11 Protection

Posted in Delaware Chapter 11 Filings, Delaware Chapter 11 News, Judge Kevin Gross, News, United States Bankruptcy Court - District of Delaware

On March 23, 2015, Karmaloop, Inc., and one of its affiliates, KarmaloopTV, Inc., filed voluntary petitions under chapter 11 of the Bankruptcy Code in Delaware.  Karmaloop is based in Boston Massachusetts.  The cases are docketed as case 15-10635, and have been assigned to The Honorable Kevin Gross.

The Declaration of Brian L. Davies, Jr. was filed in support of the petitions and various first-day motions.  Mr. Davies is the Managing Director at CRS Capstone Partners, LLC, and is currently engaged as the Chief Restructuring Officer of the debtors.  Mr. Davies had previously served as the interim CFO for Karmaloop.

According to Mr. Davies’ declaration, Karmaloop was founded in 1999 and “specializes in the sale of global streetwear fashion and culture.”  According to Mr. Davies, the debtors’ businesses “have fallen victim to the shift in retail purchasing that is occurring, especially among retailers in the young adult age bracket, as such consumers have moved away from purchasing traditional brands.”  Mr. Davies also cites to lack of capital, inability to fully adapt to business strategies that result in better margin opportunities, and over-ambitious expansion efforts, as reasons for the debtors’ financial crisis.

The Davies Declaration notes that the debtors are in default under their prepetition senior facility.  As a result of the “rapidly deteriorating liquidity position,” the debtors were forced to file chapter 11 with a goal of salvaging their brands and business through a going concern sale.  To meet those objectives, Mr. Davies indicates in his declaration that the debtors’ prepetition senior lenders have proposed to provide debtor-in-possession financing.

In addition to the senior debt facility, the debtors have two levels of junior secured debt, according to Mr. Davies.  Approximately $10 million is owed to Eastward Capital Partners V, L.P., and another $15 million of debt owed to other junior and subordinated secured lenders.  In addition to certain trade debt, the Debtors also owe certain creditors unsecured amounts on promissory notes and loans.  These total approximately $22 million.

ComCap Acquisition LLC, which is an affiliate of one or more of the pre-petition senior lenders, has agreed to act as stalking horse for the proposed 363 sale, according to Mr. Davies.

USDC For Delaware Affirms Bankruptcy Court’s Denial Of Derivative Standing

Posted in Adversary Proceedings, Appeals, Avoidance Actions, Case Summaries, Judge Leonard P. Stark, United States District Court - District of Delaware

On March 13, 2015, the United States District Court for the District of Delaware, in the case of Walnut Creek Mining Company v. Cascade Investment, LLC, Civ. No. 14-738-LPS (In re Optim Energy, LLC, Bankr. Case No. 14-10262-BLS), affirmed an order of the United States Bankruptcy Court for the District of Delaware which denied derivative standing to the debtor’s largest unsecured creditor, Walnut Creek Mining Company (“Walnut Creek”).  Walnut Creek had sought to file an adversary proceeding seeking to recharacterize or subordinate Cascade Investment, LLC’s (“Cascade”) secured debt.  Cascade had guaranteed the debtor’s debt to Wells Fargo.  When the debtor breached the agreement, Cascade paid Wells, and, by virtue of a reimbursement agreement with the debtor, became a secured creditor of the debtor.

In considering Walnut Creek’s motion for derivative standing below, the Bankruptcy Court had determined that Walnut Creek’s complaint had failed as a matter of law to state claims against Cascade.  On appeal to the USDC, Walnut Creek claimed that the Bankruptcy Court had failed to consider certain factual allegations that supported the complaint.  Cascade countered that the Bankruptcy Court had properly rejected the factual allegations in the proposed complaint and noted further that the expiration of the “challenge period” set forth in the final DIP order should foreclose the filing of any action to challenge Cascade’s prepetition debt.  The USDC reviewed the Bankruptcy Court’s findings of fact for clear error and exercised plenary review over questions of law.

First the USDC confirmed that derivative standing requires a party to show three elements: (1) a colorable claim, (2) the trustee’s unjustifiable refusal to pursue the claim, and (3) the permission of the bankruptcy court to initiate the action.  Below, the Bankruptcy Court had dismissed Walnut Creek’s motion because the Court found that the complaint did not articulate a colorable claim for recharacterization or equitable subordination.  The USDC reviewed these findings de novo.

The USDC found that Walnut Creek’s allegation of inadequate capitalization of the debtor was “insufficient, standing alone, to state a claim for recharacterization.”  Further, even with the additional allegations made by Walnut Creek to the extent that a prudent lender would not have guaranteed the debtor’s obligations to Wells Fargo, the USDC said that had “no impact on Cascade’s and the debtor’s intention at the time of the transaction.  In short, the Cascade guarantee was required by Wells Fargo as a condition of the extension of the credit facility to the Debtor.  While perhaps it might have been imprudent for Cascade to guarantee the debtor’s debt, it did not impact Cascade’s and the debtor’s intent at the time of the transaction for this to be a debt transaction and not a capital infusion.

Moreover, the USDC was not impressed that the debtor and Cascade had treated transactions in 2010 and 2011 as equity transactions.  “How the Debtor and Cascade treated two transactions in 2010 and 2011 has no probative value as to their intent as of the time they entered into the Reimbursement Guaranty in 2007.”

Addressing Walnut Creek’s claim of equitable subordination, the USDC did not find any inequitable conduct on the part of Cascade.  Noting Walnut Creek’s argument that “the inequitableness of the June 1, 2007 transaction was that Cascade designed the transaction to prioritize its interest ‘senior to trade creditors’ and ‘ahead of other bona fide creditors of the business,’ the Court was unpersuaded.  “This merely describes the mechanics of secured versus unsecured lending.”  Moreover, the Court observed, “[T]here is no dispute that Cascade actually bound itself as a guarantor to … Wells Fargo . . . , and – upon the Debtor’s default – actually paid the amount outstanding on that debt.”

As a result of the findings that Walnut Creek’s complaint failed to state claims for equitable subordination and recharacterization, the USDC affirmed the Bankruptcy Court’s order dismissing Walnut Creek’s motion for derivative standing.  The USDC did not address Cascade’s additional defense that expiration of the DIP Order’s challenge period would also have precluded the filing of the adversary action.

USA Synthetic Fuel Corporation Files Bankruptcy; Will Pursue A Sale

Posted in Delaware Chapter 11 Filings, Delaware Chapter 11 News, Judge Mary F. Walrath, News, United States Bankruptcy Court - District of Delaware

On March 17, 2015, following the lead of Quicksilver Resources Inc., USA Synthetic Fuel Corporation filed its own voluntary chapter 11 case in Delaware.  A copy of the petition is here.  The case is docketed as case no. 15-10599, and has been assigned to The Honorable Mary F. Walrath.

The Declaration of Dr. Steven C. Vick was filed in support of the petition and other first-day motions.  Dr. Vick is the CEO and President of USA Synthetic Fuel Corporation.  According to the Vick Declaration, “The Debtors are an environmentally focused, development state energy company pursuing low-cost, clean energy solutions through the deployment of proven Ultra Clean Btu Converter technology.”  The technology converts lower-value solid hydrocarbons, such as coal, into higher-value energy products.

Dr. Vick states in the declaration that in 2012 the debtors obtained approximately $36.6 million in aggregate principal amount of secured debt financing, and used those funds to procure land and other materials for ultimate construction of an Ultra Clean Btu Converter in Lima, Ohio.

Efforts to launch a $700 million bond and equity offering were cancelled when the Debtors failed to make certain payments under their prepetition secured indebtedness as a result of liquidity issues, mounting liabilities to employees, tax authorities, professional advisors, an appraisal of a Coal Asset, and an SEC investigation into certain accounting practices and internal controls.

In August 2014, the Debtors received a term sheet from their prepetition secured lenders which suggested a transaction in which the lenders would purchase substantially all the assets of the debtors in a bankruptcy 363 sale.  By March 2015, the debtors had found no viable alternative to the proposed transaction.  As a result, the debtors have entered bankruptcy with the purpose of auctioning their assets off with the prepetition lenders acting as the stalking horse.

Texas-Based Oil and Gas Company, Quicksilver Resources Inc., Files Bankruptcy

Posted in Delaware Chapter 11 Filings, Delaware Chapter 11 News, News, Uncategorized, United States Bankruptcy Court - District of Delaware

On March 17, 2015, Quicksilver Resources Inc., a Texas based oil and natural gas producer and developer, and 13 of its affiliates, filed chapter 11 bankruptcy petitions in the United States Bankruptcy Court for the District of Delaware.  The petition lists assets of $1.2 billion and liabilities of $2.35 billion.  The case is docketed as case no. 15-10585.

Vanessa Gomez Lagatta, Sr. VP, CFO and Treasurer of Quicksilver, filed a declaration in support of the petitions and first-day motions.  In her declaration, Ms. Lagatta states that as of December 31, 2014, the debtors had approximately 585,000 net acres of oil and gas properties with proven reserves of 1.1 Tcfe and over 2000 net producing wells.  She also notes that the debtors had, as of December 31, 2014, a consolidated net loss for the year of $103.1 million.

The Lagatta Declaration reveals that the debtors have 1.098 billion in secured debt facilities as of the petition date.  The debtors also have three series of unsecured notes (the 2019, 2021 and Senior Subordinated notes), aggregating approximately $975 million in what the Legatta Declaration characterizes as “unsecured senior obligations.”

In the 3rd quarter of 2014, the debtors launched a marketing process for their assets.  Notwithstanding their efforts, none of the bids produced any viable options for asset sales.  The unsuccessful marketing process, coupled with the recent precipitous drop in commodity prices, potential springing maturities under various credit agreements, and near term liquidity shortfalls helped drive the decision to file the chapter 11 cases.