Bankruptcy, Insolvency, and Restructuring

Smart investors with an appetite for risk can find bargains in acquiring or financing financially distressed businesses whose troubles scare away competing investors. A business owner who desires to exist an unsuccessful investment may limit his or her losses through a well-executed plan to sell the business or its assets, whether as a going concern or through piecemeal liquidation of individual assets, inside or outside of bankruptcy.

Where insolvency or bankruptcy is involved, special considerations apply. The Bankruptcy Code powerfully incentivizes buyers to purchases business assets, sometimes whole companies, out of bankruptcy. In many circumstances, a bankruptcy judge’s order approving a sale results in the buyer receiving the assets “free and clear” of associated liabilities. The liabilities transfer from the purchased assets to the cash purchase price under the bankruptcy court’s jurisdiction. Lenders may be willing to finance purchases of troubled businesses out of bankruptcy when they would not touch the transaction without the cleansing effect of a bankruptcy sale order.

However, not all sales and financial infusions into distressed businesses require a bankruptcy filing. Much can be accomplished outside of bankruptcy with the consent of the major creditors and shareholders. See Bankruptcy-avoidance strategies and counseling. Major creditors may be induced to give that consent by the prospect of a sale providing a better return for them than other options. Foreclosure under state law remains an available vehicle in many instances for a secured creditor to get clean title to the assets of the troubled debtor. See Deeds in lieu, short sales, and foreclosures.

It is important in all these situations to focus on contracts and leases that may be an important part of the value of the troubled company or its assets. The rights of the third parties which entered into those contracts or leases with the troubled company must be considered, as it is not always possible to transfer those contracts or leases to a buyer over their objections.

Birch Horton Bittner & Cherot has experienced bankruptcy and creditors’ rights attorneys in both its Anchorage and Washington, D.C., offices. We frequently represent clients in transactions where the possibility of the other party seeking bankruptcy protection must be fully addressed and the transaction must be documented accordingly.

Our attorneys participate in bankruptcy cases in Alaska; the northwest; the Washington, D.C., area; New York; Delaware; and elsewhere. In any given case, we may represent the secured creditor, an unsecured creditor or a creditors’ committee, the debtor, the suppliers of goods or services to the debtor, a union or another interested party.

We counsel borrowers as well as lenders in planning transactions. We have represented debtors in successful Chapter 11 reorganizations, and we have also provided strategic advice that has assisted firm clients in avoiding bankruptcy entirely. Our firm has a record of success in insolvency-related and lender-related litigation, both in bankruptcy and non-bankruptcy courts.

Representative matters include:

• Debtor’s counsel in a successful Chapter 11 reorganization of a seafood processor and in the reorganization of a sawmill; assisted in representation of large airline debtor through its Chapter 11 case
• Represented lead secured creditors in numerous Chapter 11 cases
• Counsel to unions in Chapter 11 cases of national and regional airlines
• Represented lenders in disputes over title to real property involved in bankruptcy proceedings
• Counsel for suppliers of wholesale telecommunications services to telecommunications debtors including WorldCom, Global Crossing, Touch America, ICG, E.spire and others; obtained enhanced recovery for clients through objections to Chapter 11 plan confirmation
• Represented the Port of Seattle with respect to its interests in the bankruptcy of an Alaska-based air carrier, Markair, Inc., including representation regarding the collection of passenger facilities charges and an avoidance action filed by the Chapter 7 trustee
• Defended a national bank against multiple-plaintiff consumer litigation alleging violation of automatic stay/discharge injunction in reporting account status to credit reporting agencies
• Associate counsel for unsecured creditors committee consisting of personal injury claimants in Chapter 11 bankruptcy of not-for-profit trade association with $20 million in assets
• Defended numerous preference and other avoidance actions filed by bankruptcy trustees and debtors-in-possession

We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.

When counseling the financially stressed business and business-owners, Birch Horton Bittner & Cherot attorneys strive to find solutions that do not involve filing for bankruptcy. There are some situations in which bankruptcy is unavoidable. See Business bankruptcy cases (including business owner bankruptcy). However, in many situations there are better solutions. See Loan modifications (workouts and forbearances).

Business owners need to understand that their first instinct of doing whatever it takes to keep a failing business going is not always their best option (sometimes it is). Many business bankruptcies are filed for the purpose of selling the troubled business, which can maximize the return to the creditors and salvage a bad situation for the owner. See Acquiring, financing, and selling distressed businesses and assets.

There are a variety of situations. Sometimes the failing debtor is a business entity (corporation, LLC, etc.) and the business owner is not personally liable for the business debts. In other situations, the business owner is personally liable for business entity debts. The specifics of the situation impact the analysis of the best option for addressing financial problems.

Birch Horton Bittner & Cherot represents both creditors and debtors. The experience representing creditors is useful in representing debtors in other cases, and vice versa.

When representing a creditor, the focus is on taking the necessary steps to preserve the creditor’s right and execute strategy to maximize recovery. There are times when the debtor is under pressure and may reach agreements with a creditor which has paid close attention to the proceedings and presented issues that the debtor chooses not to litigate. In addition to representing individual creditors, Birch Horton Bittner & Cherot also represents creditor committees. See unsecured creditor committee representation.

When representing a debtor, the focus is on setting goals for the bankruptcy case (going concern sale, reorganization and financial rehabilitation, liquidation) and financing the case, and then prosecuting the case as efficiently as possible. It may be necessary to negotiate resolution to creditor objections. Bankruptcy case are generally filed only when other strategies for resolving financial issues have been considered or tried and are not feasible. See Bankruptcy-avoidance strategies and pre-bankruptcy counseling.

In addition, it is important to anticipate litigation that may be spawned by the bankruptcy filing. See Bankruptcy and Insolvency-Related Litigation.

A significant portion of corporate bankruptcy cases involve regulated businesses, government contractors, and/or substantial claims by government creditors. Regulated industries include utilities, transportation companies, agricultural concerns, businesses utilizing public lands for various purposes, financial businesses, and many others. Government contractors are subject to procurement and other regulations unique to that field.

Regulatory obligations are less subject to modification in bankruptcy than financial obligations owed to creditors and so can powerfully influence the course of bankruptcy cases. The bankruptcy of a government contractor also differs from other cases, e.g., due to special procurement laws concerning bankruptcy and assignments. Additionally, governmental creditors have certain advantages, and their claims require special attention. They often are intertwined with regulatory issues that may impact the viability of the debtor business.

Birch Horton Bittner & Cherot attorneys have represented debtors, government creditors, and private creditors in these types of cases. Birch Horton Bittner & Cherot has a Washington, D.C., office that focuses on regulatory matters, bankruptcy attorneys in both its Anchorage and D.C. offices, and attorneys who individually handle both regulatory matters and bankruptcy cases. If you have a particular troubled business in mind, please review both the Birch Horton Bittner & Cherot website page for the relevant regulatory specialty (e.g., government contracting, health care, telecommunications, natural resources, public lands, etc.) and our bankruptcy and restructuring pages.

The Chapter 11 bankruptcy of a debtor can work to the advantage of general unsecured creditors because the creditors can join together to appoint an attorney to represent them collectively – generally paid for by the debtor, rather than by the creditors directly. Birch Horton Bittner & Cherot’s bankruptcy attorneys have substantial experience in this role of representing creditor committees. The creditor committees’ attorney serves as a check on the power of both secured creditors and the debtors’ management, both of which are often incentivized to favor resolutions providing low value to unsecured creditors. Committees may also investigate questionable transactions in the period leading up to the debtor’s bankruptcy filing that may be subject to being set aside for the benefit of creditors. See Bankruptcy and insolvency-related litigation.