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Redefining Extraordinary Circumstances in the Wake of COVID-19: Finding Consistency in Difficult Times

Editor’s Note:  This was originally published in CFO.com on April 21, 2020.

Humanity has largely embraced the “we are in this together” mentality from a health crisis perspective. Yet, even as world leaders scramble to contain the COVID-19 pandemic, we have yet to fully grasp the follow-on impact from the pandemic and particularly, how it will affect world economies. For this “second phase” of the world’s response to the pandemic, the ultimate question is whether business and financial counter-parties will equally share the risk of loss. Bankruptcy judges have jurisdiction to fashion remedies for parties in their courtroom, but Congress and COVID-19 have left them no choice but to rule on issues immediately in front of them without the ability to limit the impact of their decisions on other market players. With a goal of tempering the COVID-19 related damage, recent difficult decisions in U.S. Bankruptcy

Coronavirus: UK’s first judgment on the Job Retention Scheme – the Carluccio’s administration

April 17, 2020

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On Monday 13 April 2020, the High Court released its judgment in the United Kingdom’s first case relating to the government’s recently announced Coronavirus Job Retention Scheme (“CJRS”).

The case considered the use of the CJRS by the Administrators of Carluccio’s Limited (“Carluccio’s”). Due to Carluccio’s being in administration, it was heard by the High Court as a matter of urgency.

The case raised several important points because the government had only outlined the CJRS in broad terms, nor has it detailed the way the CJRS interacts with existing insolvency legislation.

This blog deals with the administration and insolvency issues as well as the employment law implications regarding employees impliedly consenting to changes to their terms of employment.

Facts

  • Carluccio’s entered administration subsequent to the imposition of the government’s ‘lockdown’ measures aimed at reducing the spread of COVID-19.
  • The Administrators’ current strategy is to “mothball” Carluccio’s whilst it seeks

Just File Your Notice of Appeal!

Generally, a notice of appeal of a bankruptcy-court order must be filed “within 14 days after entry of the judgment, order, or decree being appealed.” Fed. R. Bankr. P. 8002(a)(1). But what if a litigant’s motion for attorneys’ fees or costs incurred in connection with the judgment remains pending on the fourteenth day after entry? The First Circuit recently answered this question unequivocally: File the notice of appeal!

In In re Empresas Martínez Valentín Corp., No. 18-2103, 2020 U.S. App. LEXIS 2701 (1st Cir. Jan. 28, 2020), creditor PC Puerto Rico (“PCPR”) filed its notice of appeal 237 days after the fourteen-day deadline, waiting for the bankruptcy court to decide the Debtor’s motion for attorneys’ fees and costs incurred in litigating the adversary proceeding to judgment. PCPR argued that the notice of appeal was timely because: (i) the time for appeal did not begin until

Death of the Bob Richards Rule?Supreme Court Limits Federal Common Law ( Rodrigues v. Fed. Deposit Ins. Corp.)

February 25, 2020

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When can a Federal Court employ a federal common law rule to make its decision in the case?  Justice Gorsuch answer this in Rodriguez v. Fed. Deposit Ins. Corp., U.S., No. 18-1269, 2/25/20.[1]  The answer . . . less often than you might think.

Leave it to a bankruptcy case to stir up Supreme Court worthy controversy over who exactly reaps the benefit of a whopping $35,351,690 operating loss.  In this instance, that controversy resolved a circuit split and gives us clear guidance on when federal common law can be employed and when a court should stick to state law.

The controversy arose between Simon Rodriguez (Trustee), the court appointed Chapter 7 Trustee for United Western Bancorp, Inc. (UWBI), which was a bank holding company, and the Federal Deposit Insurance Corporation (FDIC), the receiver for United Western Bank (the subsidiary Bank) over a $4,846,625 tax refund.[2] 

Taggart v. Lorenzen, The State Of Bankruptcy Contempt Power Eight Months Later

So you (allegedly) violated a bankruptcy court order. Whether the debtor alleges you violated the terms of a confirmed plan, failed to provide certain notices required by the bankruptcy rules, violated the discharge injunction, or any other court order, you may be wondering what potential redress the debtor may seek. Although many violations of bankruptcy court orders and rules do not provide for a private right of action, many debtors seek to have their rights vindicated (in the form of the greatest vindicator, cash) through an action for contempt. These civil and criminal contempt actions allow debtors to collect their damages caused by a violation of a court order, provide courts the means to coerce compliance with their orders, and allow courts to punish violators

Coronavirus and Distress – Do Your Contracts’ Force Majeure Clauses Cover You, Harm You, Mitigate Your Distress, Exacerbate Your Distress, or Warrant a Complete Overhaul?

February 3, 2020

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While no one can reliably predict the outcome, spread, or duration of the coronavirus outbreak, or its tragic human toll, its current effects on Asian and international supply chains are unprecedented.  The economic distress may be isolated in the coming weeks (and we pray that is the case, and for the human suffering to abate), or the distress could reverberate over the coming months, or longer.

If your own supply chain depends on Asian imports, or if you are part of a larger supply chain linked to or intertwined with Asia, then could force majeure be implicated?  Or could force majeure make things much worse for those depending on a reliable international supply chain?  Unfortunately, no contract clause may be less scrutinized during the drafting process than the force majeure provision.  Epidemic, pandemic, disease, quarantine, and the like are certainly included in what we may think is force majeure –

Bankruptcy Trustees Receive Early Holiday Present – a Circuit Level Win Against Colleges in the Tuition Clawback Cases

 

We here at the Global Restructuring & Insolvency Developments (GRID to our friends) have been following the tuition clawback wars for a few years – the cases in which a bankruptcy trustee sues a college to return tuition that the bankrupt parent paid for  their child when the parent was otherwise stiffing other creditors.  It is a textbook constructively fraudulent transfer because the parent(s) do not receive reasonably equivalent value (or anything, for that matter) for the payment of the kid’s tuition.  Our prior coverage is here and here.  (And for those of you who want to really geek out on this, here’s a video of an entire symposium panel on the topic, from our friends at the Emory Bankruptcy Developments Journal.)

Anywho, yesterday the First Circuit decided the long-awaited appeal in DeGiacomo v.

Five Tips for Avoiding a Catastrophic Loss From a Customer’s Bankruptcy

Editor’s note:  Our New York partner Stephanie Wickouski originally posted this fundamental yet insightful list of reminders for suppliers, wholesalers, and other vendors which continue to deal with retail distress on BCLP’s Retail Law Blog, one of the leading cross-disciplinary blogs on all legal issues affecting the retail and consumer products world.   If you live in retail, subscribe over there, too – you won’t regret it!

 

One day, you get a notice in the mail that an important customer has filed chapter 11. Your customer recently paid $250,000 on invoices that were delinquent for several months and still owes you $500,000. The customer, a brick-and-mortar store, sent form letters to its vendors expressing optimism that the chapter 11 process will allow the store to continue to operate while it locates a buyer which will continue to operate the store.

A few weeks

SCOTUS Clarifies What Happens When a Trademark Licensor Files Bankruptcy

Trademark licensors and licensees, as well as their stakeholders (including lenders), should heed the U.S. Supreme Court’s decision in Mission Product Holdings, Inc. v. Tempnology, LLC n/k/a Old Cold, LLC, No. 17-1657.  The Justices resolved a long-standing question arising from the intersection of bankruptcy and trademark law: whether a debtor/licensor’s rejection of a trademark license terminates the licensee’s right to use a trademark after rejection.  In an 8-1 decision, the Justices answered: “no,” rejection simply creates a breach, but not rescission.  If the license or applicable law grant continuing rights to the licensee upon a breach by the licensor, rejection under the Bankruptcy Code does not alter or terminate such continuing rights.

Section 365(a) of the Bankruptcy Code (11 U.S.C. § 365) is the starting point of the analysis (but critically, not the ending point as discussed below).  Section 365(a) permits debtors in bankruptcy to “assume

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