October 20, 2020 - On September 30th the LSTA hosted the latest in its quarterly series of webinars covering Recent Developments in Bankruptcy Law. This installment was moderated by the LSTA’s Tess Virmani and, as usual, featured Richard Levin of Jenner Block. Mr. Levin began by highlighting an important recent trend in Chapter 11 cases relating to venue and discussed recent Congressional legislation that could have a significant negative impact for secured creditors in Chapter 11 cases.
On venue, Mr. Levin explained that while during the past few default cycles most large bankruptcy cases have been brought in Delaware or the Southern District of New York, in the current cycle, far more cases are being filed in the Southern District of Texas (and a few in Richmond, Virginia). Mr. Levin described this trend not as much “venue shopping” as “judge shopping”. Companies and their bankruptcy lawyers try to get before specific judges because they might be very efficient in making rulings and moving cases, they may be viewed as sophisticated and consistent or even “debtor-friendly”. Some jurisdictions have made it easy to be assigned to specific judges. For example, only two judges in the Southern District of Texas handle “complex cases” so, by filing there, you are assured of getting one of them. Similarly, as reported in the Wall Street Journal, many companies approaching bankruptcy lease office space in White Plains, New York, knowing that if they file for bankruptcy there they will be assigned Judge Robert Drain.
Mr. Levin then addressed legislation, H.R. 7370, which was introduced in June and “marked up” in the House Judiciary Committee in September and sent on for consideration by the full House. The bill proposes to modify provisions of Chapter 11 bankruptcy in ways that would dilute secured creditors by expanding and advantaging claims available to employees and retirees and would also further limit executive compensation for companies who file for Chapter 11. Specifically, the bill would (i) increase the maximum value of certain wage and benefit claims entitled to priority payment; (ii) allow certain claims for losses related to defined contribution plans if the employer or plan sponsor has committed fraud or otherwise breached its fiduciary duty; (iii) allow, as an administrative expense of the estate, severance pay owed to employees and contributions to an employee benefit plan; (iv) impose significant restrictions on the rejection or amendment of a collective bargaining agreement; (v) require a court, in approving a Section 363 sale of business assets, to consider the extent to which a bidder has offered to maintain existing jobs and assume benefit obligations; and (vi) allow claims related to pension losses. The bill would also impose limitations on executive compensation enhancements, prohibit executives from receiving certain retiree benefits if such benefits were reduced or eliminated for other employees or retirees, and revise other requirements related to court approval of such compensation.
The remainder of the webinar focused on important bankruptcy cases concerning topics such cram down and subordination, equitable mootness, fraudulent transfers and others. A replay of the webinar and the associated presentation are available here.