California Bankruptcy Lawyer Blog

Nearly two years after filing Chapter 11 bankruptcy, national grocery chain Winn-Dixie announced that it is exiting bankruptcy protection. Winn-Dixie’s reorganization plan had been approved by creditors and U.S. Bankruptcy judge Jerry Funk on November 9. The company now has $725 million in exit financing from Wachovia. Winn-Dixie says it will issue 54.5 million shares of new stock to unsecured creditors within the next 45 days. Any preplan common stock has been cancelled. Winn-Dixie has 522 stores in five states and about 55,000 employees.

According to Bank of America Business Capital, 85% of Chapter 11 bankruptcy cases never achieve the stage of the process where a reorganization plan is confirmed. Bank of America Business Capital suggests that company executives in charge of a reorganization effort take the following areas into consideration so as to ensure a successful Chapter 11 bankruptcy case.

1) Secure DIP Financing
Remain intimately involved with the negotiation of debtor-in-possession financing ("DIP Financing") or cash collateral order with the company's secured lenders. Too many times, the company files bankruptcy with no DIP financing or agreed-upon cash collateral order that results in bounced checks, missed payroll, and other crippling financial repercussions.

2) Watch Cash Closely
To ensure that your company receives the financing it needs, make sure the company is operating as close to break-even as possible. Create a realistic, achievable cash budget, rather than "best efforts" budgets. "Best efforts" budgets are regarded as goals by the company for which they expect praise for partial achievement. Unfortunately, failure to totally meet financial projections destroys a company's creditability with the secured lenders. Missed projections in a Chapter 11 filing could result in your company’s liquidation.

Continue reading " Winn-Dixie Emerges From Chapter 11 Bankruptcy Protection" »

Calpine Corp. announced last week that it had sold generators, turbines, and other equipment as part of its restructuring efforts under Chapter 11 bankruptcy.

The San Jose-based power company said it had made about $112 million by selling the equipment. The company has been selling different assets to reorganize itself. In September, a bankruptcy court approved the sale of Calpine’s power plant in Massachusetts for $90.2 million.

Declaring that it had $17.2 billion in debt and $26.6 billion in assets, Calpine had voluntarily filed for bankruptcy protection last December. A number of its subsidiaries also filed under Chapter 11. Calpine offers electrical services in 21 US states and 3 Canadian provinces.

Reorganizing Under Chapter 11
After a company qualifies for Chapter 11 bankruptcy, the U.S. Trustee will appoint at least one committee to represent a company’s creditors and stockholders:

Continue reading "As Part Of Reorganization Efforts After Filing Chapter 11 Bankruptcy, San Jose Based-Calpine Corp. Sells Equipment For $112 Million " »

he American Bankruptcy Institute and the Dow Jones' Daily Bankruptcy Review are saying to expect a wave of corporate bankruptcy filings in the next six to eighteen months. Bankruptcy experts are attributing the expected rise of loan default rates to be one reason for the predicted increase of filings.

In general, there are two major types of bankruptcies that a company will file. Chapter 7 bankruptcy and Chapter 11 bankruptcy.

Chapter 11 bankruptcy allows a debtor to stay in business and avail of bankruptcy protection while they work out a plan to increase their profitability and decrease their debts. They are also required to work out and follow a bankruptcy reorganization plan that they must develop while working with an appointed committee.

Public companies will usually file under Chapter 11, because it allows them to run their business while supervising its reorganization as they implement a plan to pay their debts. Should their efforts fail, however, a company could be forced to liquidate its assets so that the debts still are paid.

Continue reading "More Corporate Bankruptcies Expected In the United States, According To New Report" »

Just a little over one year after the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) went into effect, the number of Chapter 13 Bankruptcy filings has decreased.
For example, According to statistics released by the Administrative Office of the U.S. Courts, Chapter 13 filings fell 19.5 percent to 355,756 in March 2006 from 441,838 in March 2005.

According to the National Foundation of Credit Counseling, however, this does not mean that people are handling their financial affairs better. In fact, there was actually a rush of people who filed for Chapter 7 bankruptcy prior to the implementation of the Bankruptcy Abuse Prevention and Consumer Protection Act because there was a possibility that they would not meet the new requirements for filing for Chapter 7 protection.

Initiatives of the BAPCPA include:

•Implementing the new “means test” to determine whether a debtor is eligible for chapter 7 (liquidation) or must file under chapter 13 (wage-earner repayment plan).
•Supervising random audits and targeted audits to determine whether a chapter 7 debtor’s bankruptcy documents are accurate.
•Certifying entities to provide the credit counseling that an individual must receive before filing bankruptcy.
•Certifying entities to provide the financial education that an individual must receive before discharging debts.
•Conducting enhanced oversight in small business chapter 11 reorganization cases.

Continue reading "According To U.S. Courts' Administration Office, There Are Less Chapter 13 Bankruptcy Filings In 2006" »

In California, Fremont-based Curon Medical Inc. has shut down its operation, fired all of its employees, and filed for Chapter 7 bankruptcy.

In the bankruptcy statement that the East Bay life sciences company filed with the SEC on Wednesday, Curon said that their board had met Monday and decided to voluntarily file for bankruptcy protection. This decision led to the firing of all 32 employees and the resignation of the entire board.

When a company files for Chapter 7 bankruptcy, this generally means that the company has agreed to cease operations and shut down its business. An appointed trustee will then sell, or liquidate, the bankrupt company’s assets to pay off the company’s debts.

Secured creditors, meaning the investors who’ve taken the least risk, are paid first. These are creditors whose credit is usually backed by collateral and who know they will be paid first should a company go bankrupt.

Continue reading "Curon Medical Inc. of Fremont, California Shuts Down And Files For Chapter 7 Bankruptcy" »

Last week, the U.S. Supreme Court heard oral arguments in Marrama v. Citizens Bank of Massachusetts. The case asks the question of whether a debtor can convert their Chapter 7 Bankruptcy filing to a Chapter 13 Bankruptcy filing.

Marrama had initially filed for Chapter 7 Bankruptcy, but he tried to change his filing to Chapter 13 to preserve $85,000 worth of interest in a piece of property. Citizens Bank of Massachusetts opposed the conversion and a bankruptcy court agreed with the bank. Citizens Bank said that by purposely trying to hide the trust that held this piece of property, Marrama shouldn’t be allowed to convert his petition now to save the asset. The bankruptcy panel agreed with the court’s decision, as did the U.S. Court of Appeals for the Fifth Circuit.

Chapter 7 Bankruptcy (also called Liquidation Bankruptcy):
· Cancels the debtor debts; generally, the court will have to liquidate certain assets if it benefits the creditors.
· To qualify for Chapter 7 Bankruptcy, the debtor’s current monthly income (your average income over the last six months before you file) must not be higher than their state’s median income; they must also prove that they cannot pay back at least $6,000 of their debt over a five year period (In California, the median for a single earner is $43,107. The median for a family of four is $70,172).
· Costs $299 in filing and administrative fees, and commonly requires only one trip to the courthouse.

Continue reading "US Supreme Court Considers Question Of When A Debtor Can Convert To Chapter 13 " »

Last week, U.S. Bankruptcy Judge Jerry Funk said that he was approving Winn-Dixie Stores, Inc.’s plan to emerge from bankruptcy protection in 30 days. Judge Funk said the supermarket chain had fulfilled the legal requirements to exit from Chapter 11 reorganization and could do so after it receives more than $700 million in exit financing from Wachovia Corp.

Winn-Dixie plans to invest in its current stores and open new stores. The company had filed for Chapter 11 Bankruptcy last year when it sold warehouses and closed down hundreds of stores. Winn-Dixie is one of the largest food retailers in the United States.

U.S. Courts.gov provides information about the reorganization plan when filing for chapter 11 Bankruptcy:

Acceptance of the Plan of Reorganization
As noted earlier, only the debtor may file a plan of reorganization during the first 120-day period after the petition is filed (or after entry of the order for relief, if an involuntary petition was filed). The court may grant extension of this exclusive period up to 18 months after the petition date. In addition, the debtor has 180 days after the petition date or entry of the order for relief to obtain acceptances of its plan. 11 U.S.C. § 1121. The court may extend (up to 20 months) or reduce this acceptance exclusive period for cause. 11 U.S.C. § 1121(d). In practice, debtors typically seek extensions of both the plan filing and plan acceptance deadlines at the same time so that any order sought from the court allows the debtor two months to seek acceptances after filing a plan before any competing plan can be filed.

Continue reading "Federal Judge Says Winn-Dixie Can Emerge From Chapter 11 Bankruptcy Protection" »

Copeland Sports says that it is requesting permission from the U.S. Bankrutpcy Court in Delaware to sell sporting goods stores for $21.7 million by Thanksgiving. Sports Authority, a Colorado-based sporting goods store, has already to agree to buy 7 to 13 of Copeland Sports’s stores.

Copeland Sports had filed for Chapter 11 Bankruptcy in August to restructure its company and figure out how to get out of debt. The Copeland family, which founded the company in 1971 and later sold it in 2002, then bought the company back. Before filing for bankruptcy, Copeland Sports had 31 specialty sporting goods stores in Nevada, Oregon, Utah, and California.

Federal bankruptcy laws govern how companies go out of business or recover from crippling debt. Chapter 11 of the Bankruptcy Code can be used by a bankrupt company to "reorganize" its business while it attempts to become profitable again. Although management remains in charge of daily operations, all major business decisions must be approved by a bankruptcy court.

Continue reading "Chapter 11 Bankruptcy-Protected Copeland Sports Announces Plan To Sell Stores" »

In San Pablo, California, Doctors Medical Center has been saved by a $20 million bailout plan that was approved by the California Medical Assistance Commission board last week. Under the details of the financial plan, the hospital, which had filed for bankruptcy, will receive a cash infusion this month and stay open for the near future. The money will be funneled in stages through the state to the West Contra Costa Healthcare District, which owns the hospital. Contra Costa County plans on later getting its money back through the district’s property tax revenue.

The county plans to later get its money back through the district's property tax revenue. The county and healthcare district will work together to set a contract that will delineate management responsibilities for a joint board.

Operating at a $1 million/month loss, the hospital has been forced to cut back on services, reduce pay, and lay off 300 employees. Under the new plan, the hospital is expected to start making a profit by mid-2007.

Doctors Medical Center and the West Contra County Healthcare District had filed for Chapter 9 Bankruptcy at the US Bankruptcy Court in Oakland in October 1, citing $50-$100 million in debts as well as assets.

Continue reading "In California, Bankrupt Doctors Medical Center Is Saved—For Now—With $20 Million Dollar Bailout Plan" »

At an auction last week, in U.S. Bankruptcy Court, Northern District of California, Pivot VoIP agreed to pay $2.65 million plus certain debt obligations for Zultys Technologies. Pivot VoIP is an independent company backed by IP telephony solutions provider Telrad Connergy that had been established by former Zultys engineers, who now plan to continue producing Zultys current product line and reseller channel.

In September, the VoIP hardware company had filed for Chapter 11 bankruptcy protection, citing more than $45 million of liabilities and just $1.8 million in assets. Company founder and president, Iain Milnes, had hoped to use the auction to reorganize Zultys but he was outbid.

Pivot will now begin the process of merging with Zultys.

Filing For Chapter 11 Bankruptcy:
Chapter 11 bankruptcy is typically used to reorganize a business, which may be a corporation, sole proprietorship, or partnership. A corporation exists separate and apart from its owners.

· A petition is filed in bankruptcy court in the area where the debtor filing has a residence or domicile. The petition can be either be voluntary—filed by the debtor—or involuntary—filed by creditors.

Continue reading "In San Jose, Pivot VoIP Pays $2.65 Million To Win Zultys Bankruptcy Auction" »

The world’s largest fast-food company no longer owns shares of the gourmet burrito and taco company. McDonald’s Corp. and Chipotle Mexican Grill, Inc. are terminating their partnership after eight years. McDonald’s had bought a stake in Chipotle when the company only had 14-restaurants located in Denver and helped turn it into a national chain while leveraging some of McDonald’s resources.

The decision to end their business partnership will give Chipotle more flexibility to grow and let McDonald’s focus on its core group of brands. Shareholders were allowed to exchange 16.5 million Chipotle Class B shares for 18.6 million common McDonald’s shares.

“Buy-Sell” provisions in shareholder’s agreements governs certain business decisions:
· Who can buy a departing shareholder's stock (this may include outsiders or be limited to other shareholders).
· What events will trigger a buyout.
· What price will be paid for a shareholder's interest in the corporation.

Continue reading "As McDonalds and Chipotle Grill End Business Partnership, Shareholders Exchange Chipotle Class B Shares for Common McDonald’s Shares" »

From 1999-2003, in the United States, the Federal Reserve says that more small business looked to non-banking sources, such as brokerages, finance and leasing companies, venture capitalists, relatives, other individuals, and credit/debit-card processors, for financial services.

Survey results were based on information on 42,400 U.S. firms.

A majority of the firms surveyed were small, owner-managed businesses. More than 80% of the firms surveyed had less than 10 employees.

Survey results show that commercial banks, however, were still the dominant provider of checking accounts, loans, lease financing, and credit lines. Small business also increased their use of “nonstandard work arrangements,” including working with consultants and contractors.

Of the companies surveyed, 47% of small firms registered as corporations (31% were “S” corporations and 16% were “C” corporations).

Continue reading "Federal Reserve Survey Say Small U.S. Firms Are Expanding Their Financing Sources" »