San Jose Bankruptcy Lawyer Discusses City of Los Angeles Files Objection To Delta’s Bankruptcy Reorganization Plan
San Jose Bankruptcy Lawyer Discusses City of Los Angeles Files Objection To Delta’s Bankruptcy Reorganization Plan
The California city of Los Angeles has filed an objection to Delta Air Lines Inc.’s Chapter 11 bankruptcy reorganization plan, claiming that the plan cannot be approved because of the undue authority it gives Delta to reject certain leases.
The city of Los Angeles owns Ontario International Airport and Los Angeles International Airport, both airports in Southern California where Delta maintains its leases and runs its operations. The city claims that Delta’s disclosure statement does not describe the possible effect that ending its Terminal 5 lease at LAX would have on the airline company’s financial performance and operations. Without this information, the city of LA and other creditors cannot accurately evaluate the workability of Delta’s reorganization plan.
LA also says that Delta’s reorganization plan improperly gives the airline company broad discretion to defer its decisions when it comes to rejecting or assuming certain unexpired leases beyond the effective plan date.
The airline company, which filed for Chapter 11 bankruptcy in 2005, estimates that it will be worth $9.4 billion to $12 billion if it emerges from bankruptcy protection as planned and as a standalone company by mid-2007.
Currently, however, only the disclosure statement and not the reorganization plan is at issue. A separate hearing will be held for the reorganization plan. Delta filed its disclosure statement and reorganization plan on December 19, 2006. It amended it last Friday.
The IRS offers the following information regarding Disclosure Statements in Chapter 11 bankruptcy cases:
The Disclosure Statement (DS):
Chapter 11 is the only chapter of the Bankruptcy Code that requires a Disclosure Statement (DS) to accompany a proposed Plan of reorganization for the debtor.
The DS may be quite long or relatively brief, but it should generally explain what the proposed Plan means to particular creditors and to other interested parties.
The DS should provide these interested parties with enough information about the debtor and the proposed Plan so that they may decide whether to support or oppose the proposed Plan.
The precise contents of a DS are not mandated by the Bankruptcy Code, but certain topics are ordinarily discussed in a DS as a matter of common practice and in accordance with case law.
The contents of a DS are not binding on the IRS in the way that the provisions of a confirmed Plan or the confirmation order are, but the DS approval process provides the IRS with an opportunity to explore uncertain relevant facts regarding the debtor and to clarify ambiguities in a proposed Plan.
Once the DS is approved by the bankruptcy court, a proposed Plan may also move to a confirmation hearing and to confirmation in a relatively short time frame.
The Purpose and Content of a Disclosure Statement:
In a Chapter 11 case, the bankruptcy court generally must first approve a proposed DS of a Plan proponent as containing "adequate information," with notice and a hearing for interested parties, before the Plan proponent may solicit votes from interested parties for the acceptance of a proposed Plan.
Before filing a bankruptcy petition, however, a prospective Chapter 11 debtor or another party may circulate a proposed bankruptcy Plan and DS for tentative approval by other interested parties, as often happens when a business hopes to file a Prepackaged Chapter 11 Plan.
In the Chapter 11 cases of electing "small business" debtors, bankruptcy courts may also conditionally approve a DS, without first giving interested parties notice and a hearing, and then allow the Plan proponent to circulate the conditionally approved DS and proposed Plan for approval at a combined hearing on the DS and the Plan. B.C. § 1125.
The "adequate information" required for court approval of a DS means information of a kind, in sufficient detail and as far as reasonably practicable, as would enable a hypothetical reasonable holder of a claim (a creditor) or of an interest (e.g., a stockholder) to make an informed judgment about whether to accept or reject the proposed Plan. B.C. § 1125(a).
Usually, the DS will set forth the recent history of the debtor, the reasons why the debtor filed a bankruptcy petition, and the measures the debtor has undertaken to reverse its financial setbacks.
The DS should also give a brief description of the proposed Plan and the treatment to be given to the debtor’s various creditors under the proposed Plan.
Bankruptcy courts also require that a DS contain a discussion of the following matters:
-the debtor’s available assets and their value;
-claims made against the estate;
-a liquidation analysis, setting forth the estimated return that creditors would receive if the debtor was in a Chapter 7 case;
-the future management of the debtor;
-the risks being taken by creditors and interest holders under the proposed Plan;
-the existence, likelihood, and possible success of litigation involving the debtor; and
-the likely tax consequences of the proposed Plan, for the debtor and for creditors.
Our attorneys at Sagaria Law, P.C. represent clients in Alameda County, Santa Clara County, and Monterey County, including the cities of Emeryville, Los Gatos, and Carmel, in Chapter 7, Chapter 11, and Chapter 13 bankruptcy cases. Contact Sagaria Law, P.C. to schedule a free consultation. Our offices are conveniently located in Fremont, Monterey, and San Jose.
Los Angeles Objects To Delta Plan, Chron.com, January 25, 2007
Legal Reference Guide for Revenue Officers, IRS Manual
Related Web Resources:
Delta's Restructuring, Delta.com
Title 11 Bankruptcy, U.S. Code, Cornell Law School
