The Delaware Bankruptcy Court issued a notice stating that the comment period for its Local Rules is currently open.  Per the notice, the comment period is open from October 1 through October 30, 2020.

A current version of the Local Rules of the Delaware Bankruptcy Court, effective February 1, 2020, can be found here.

Carl D. Neff is a bankruptcy partner with the law firm of FisherBroyles, LLP, and practices in Delaware. You can reach Carl at (302) 482-4244 or at Carl.Neff@FisherBroyles.com.

There has been no shortage of significant bankruptcy filings in 2020 as a result of the ongoing pandemic.  Large companies such as J.C. Penney, Brooks Brothers, Lucky Brand, GNC, subsidiaries of Regus, and others, have all filed for bankruptcy protection, citing the coronavirus for sharply reduced sales at their brick and mortar stores.

These filings and others have had strong implications for commercial landlords across the country.  Accordingly, this article provides a much needed “Top 5” tip list for commercial landlords to consider when their tenant files for bankruptcy.

Tip No. 1 – Respect the Automatic Stay Under Section 362(a) of the Bankruptcy Code

Once a debtor files for bankruptcy, the automatic stay of Section 362(a) of the Bankruptcy Code immediately takes effect.  This is a very powerful tool that protects a debtor during the pendency of a bankruptcy proceeding.  In a voluntary bankruptcy petition, the stay automatically becomes effective, without the need for a hearing or court approval.

As such, a commercial landlord should not take any action to violate the automatic stay.  This would include filing a lawsuit against the debtor, taking action to continue a pending lawsuit against the debtor, making demands to collect unpaid rent, etc.  If, for example, a landlord filed an eviction action prior to the bankruptcy filing, then it must seek and obtain an order lifting the automatic stay before it can take any further action in the litigation.  Failure to adhere to the protections of the automatic stay may subject a landlord to sanctions and punitive damages.

Tip No. 2 – Recognize that a Debtor Must Timely Pay Post-Petition Rent While Occupying the Leased Property

While a debtor continues to occupy a leased property during the pendency of a bankruptcy action, the debtor must comply with all of its obligations under the lease.  This includes timely paying rent owing to the landlord that is due after the filing of the bankruptcy action.

If the debtor does not timely pay its rent while continuing to occupy the premises after the bankruptcy filing, then the landlord may file a motion for an administrative claim with the bankruptcy court.  An administrative claim is afforded the highest priority under the Bankruptcy Code, and such claims are paid before general unsecured creditors.

Tip No. 3 – Timely File a Proof of Claim With the Bankruptcy Court for All Amounts Owing to the Landlord

It is very important that a landlord file a proof of claim with the bankruptcy court.  Often times, in the months leading to a bankruptcy filing, the tenant-debtor will fall behind in its rental payments.  Shortly after the bankruptcy petition is filed, a debtor is required to file schedules of assets and liabilities with the bankruptcy court, which lists all debts owed by the debtor before the filing of the bankruptcy petition.  If the amounts owed to the landlord are not listed, or the amount listed is incorrect, then a proof of claim must be timely filed by the landlord.

In each bankruptcy case, a “general bar date” is set to file a proof of claim, with notice being provided to all creditors.  A proof of claim for pre-petition debts owed by the debtor must be filed before the bar date in accordance with the instructions provided in the notice.  Failure to do so may result in the claim being struck by the court.

Tip No. 4 – Be on the Lookout for the Debtor to Assume, Assign or Reject the Lease

During the pendency of a bankruptcy action, a debtor has the choice to either assume the lease, assign the lease to a third-party, or reject the lease.  These actions trigger important deadlines of which any landlord should be keenly aware.  If a debtor assumes or assigns the lease, then it is responsible to pay all “cure costs” associated with the lease.  This includes all back-owed rent (including pre-petition rent), and in many jurisdictions, other amounts owed under the contract, including interest, late fees, and potentially attorney fees, if provided for under the lease.  When a debtor moves to assume or assign a lease, it must also provide notice of the proposed cure cost.  If the cure cost is not correct, then a landlord must timely file an objection to the cure amount with the bankruptcy court.

By contrast, if the debtor seeks to reject the lease, then the landlord must file a claim with the court for all “rejection damages” owed by the debtor for terminating the lease.  This would include all rent owed to the landlord for the remainder of the lease, which may be subject to caps set forth in the Bankruptcy Code.  Often times, the rejection notice will provide a landlord with a short turnaround time to file a rejection claim, usually 30 days.  These types of damages are generally treated as unsecured claims.

Tip No. 5 – Take Steps to Protect the Landlord

There are several ways in which a landlord may better protect itself before a debtor files for bankruptcy.  These steps include obtaining a personal guaranty of the lease, requiring a letter of credit, and a security deposit.  A personal guaranty from additional individuals or entities is one way to maximize recovery. Provided that a lease guarantor is not in bankruptcy, nothing in the Bankruptcy Code prevents a landlord from taking action against a guarantor to a debtor-tenants’ lease.

A letter of credit is also a useful tool, which permits a landlord to draw down on the proceeds of the letter of credit in the event of default.  A letter of credit often times is not considered property of the bankruptcy estate.  There is a split of authority as to whether a lost profit damage claim of a landlord for the remainder of the lease term is capped under the Bankruptcy Code.

Finally, a security deposit is always recommended.  While generally considered property of the debtor’s estate, a landlord may be permitted to exercise its rights of set-off of its claim against the security deposit.  This may place the landlord in a superior recovery position than general unsecured creditors.

Bonus Tip – Retain Experienced Bankruptcy Counsel

There is no substitute for retaining experienced and local bankruptcy counsel to protect a landlord’s rights during the pendency of a bankruptcy case.  As demonstrated above, there are many notices, orders, and accompanying deadlines set forth in bankruptcy filings that must be followed, and can easily be missed by a non-attorney not familiar with the Bankruptcy Code or the local rules of the particular jurisdiction in which the bankruptcy action is filed.  Retaining experienced counsel at the onset of the bankruptcy case can help commercial landlords avoid common pitfalls and maximize their recovery against their debtor-tenant.

Carl D. Neff is a bankruptcy partner with the law firm of FisherBroyles, LLP, and practices in Delaware. You can reach Carl at (302) 482-4244 or at Carl.Neff@FisherBroyles.com.

The United States Bankruptcy Court for the District of Delaware issued an Order establishing Bar Dates for filing proofs of claim in Subchapter V Cases.  The Bar Dates are set at the filing of the case for creditors and governmental units. The Bar Dates are 60 days and 180 days, respectively from the date of the order of relief and they should be included in the Notice of Commencement of the case.

A copy of the General Order can be found here.

Carl D. Neff is a partner with the law firm of FisherBroyles, LLP, and practices in Delaware.  You can reach Carl at (302) 482-4244 or at Carl.Neff@FisherBroyles.com.

On September 1, 2020, the United States District Court for the District of Delaware issued a Standing Order Re: Criminal and Civil Jury Selections; Jury Trial; and Transition to Phase 2.  Per the Standing Order, the Delaware District Court will move into Phase 2 starting September 15, 2020, which permits the District Court to conduct jury trials at the discretion of the presiding judge.

On September 3, 2020, the Delaware Bankruptcy Court issued a Notice Regarding Transition to Phase 2, pursuant to which the Bankruptcy Court will likewise move into Phase 2 starting September 15, 2020.  Per the Notice, hearings will continue to be held remotely unless ordered otherwise by the presiding judge.

Carl D. Neff is a partner with the law firm of FisherBroyles, LLP, and practices in Delaware.  You can reach Carl at (302) 482-4244 or at Carl.Neff@FisherBroyles.com.

As reflected in the prior post, RGN Group Holdings, LLC, and various of its affiliates (“RGN” or the “Debtors”), which are subsidiaries of Regus, have filed for bankruptcy.  As part of the first-day motions filed by the Debtors, RGN sought approval of proposed termination notification procedures, through its Motion to Approve Interim and Final Orders Establishing Notification Procedures for Lease Termination (the “Lease Termination Notification Motion”).

By way of update, the Court denied the Lease Termination Notification Motion on an interim basis, in light of several objections filed by landlords affected by the motion.  Per the Court order, a hearing to determine whether to grant the Lease Termination Notification Motion on a final basis will be held on September 29, 2020, at 10:00 a.m. (prevailing Eastern Time), with objections due by no later than September 11, 2020, at 4:00 p.m. (prevailing Eastern Time).

In addition, the Debtors have recently sought to reject a lease to which RGN is a counter-party, through their Motion to Authorize (I) the Rejection of a Certain Unexpired Lease, (II) Authorizing the Abandonment of Certain Personal Property, and (III) Granting Related Relief (the “Rejection Motion”).  Per the Rejection Motion, RGN seeks an order rejecting its lease with Merchandise Mart, L.L.C., in Chicago, Illinois.

Under Section 365 of the Bankruptcy Code, a debtor that is a tenant to a lease “may assume or reject” an unexpired lease.  If the debtor rejects the lease, the landlord may assert a “rejection damage” claim against the debtor, which is generally afforded general unsecured priority.

Stay tuned for further updates in the RGN bankruptcy proceedings before the Delaware Bankruptcy Court.

Carl D. Neff is a partner with the law firm of FisherBroyles, LLP, and practices in Delaware.  You can reach Carl at (302) 482-4244 or at Carl.Neff@FisherBroyles.com.

RGN Group Holdings LLC, and certain of its affiliates (“RGN” or the “Debtors”) filed voluntary Chapter 11 bankruptcy petitions in the United States Bankruptcy Court for the District of Delaware on August 17, 2020.

According to court filings, the Debtors are subsidiaries of Regus Corporation, a Delaware corporation that, together with its affiliates offers a network of on-demand office and co-working spaces, and ancillary services and support, to a variety of clients across a host of industries in over 1,000 locations in the United States and Canada. The Debtors operate Regus shared office suites in a multitude of locations.

Per the Declaration of James S. Feltman in Support of the Chapter 11 Petitions and First-Day Relief, Covid-19 has “severely disrupted business plans and operations for certain locations within the company’s U.S. portfolio.  With the near universal adoption of work-from-home policies by U.S. businesses during the early months of the pandemic, demand for temporary office space has been depressed…”  Decl., ¶ 27.  This has impacted the company’s liquidity at the level of the Debtors’ U.S. portfolio.

As part of its first-day relief, RGN has filed a Motion to Approve Interim and Final Orders Establishing Notification Procedures for Lease Termination (the “Lease Termination Motion”).  The Notice Procedures proposed by the Lease Termination Motion, among other things, generally require a commercial landlord to any lease with the Debtors to provide sufficient notice prior to the effective date of any intended action to terminate a lease.  Landlords implicated by the Lease Termination Motion should consult with counsel to determine its impact upon them.

A hearing on the Lease Termination Motion is scheduled for Tuesday, August 25th at 2:00 p.m. before the Delaware Bankruptcy Court.  While in bankruptcy, RGN plans to continue to approach landlords to re-negotiate leases while the automatic stay is in place under Section 365 of the Bankruptcy Code.  Pursuant to the notice filed by the Debtors, objections to the Lease Termination Motion may be filed up to the start of the hearing.

The cases are pending before the Honorable Brendan L. Shannon.  The lead case number is Case No. 20-11961-BLS.

Carl D. Neff is a partner with the law firm of FisherBroyles, LLP, and practices in Delaware.  You can reach Carl at (302) 482-4244 or at Carl.Neff@FisherBroyles.com.

Arandell Holdings, Inc. and its affiliated debtors (“Arandell” or the “Debtors”), a catalog printing services company, recently filed for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court for the District of Delaware.

According to the Declaration of Bradley J. Hoffman in Support of the Chapter 11 Petitions and First Day Motions, Arandell is a 100 year old commercial printing company, based out of Wisconsin.  Among other things, Arandell had recently experienced substantial issues with its Kentucky plant, which had been abandoned by its prior owners and had been idle for six months leading up to the bankruptcy filing.  In addition, the Debtors had been experiencing significant liquidity issues.

According to the petition for relief, Arandell reports assets in the range of $10 million to $50 million, and liabilities in the range of $100 million to $500 million.  The petition reflects less than 1,000 creditors, and estimates that funds will be available for distribution to unsecured creditors.

The Debtors’ first-day motions were entered by the Court on an interim basis on August 14, 2020.  A final hearing on the first-day motions is scheduled for September 15, 2020 at 1:00 p.m. E.T. before the Delaware Bankruptcy Court, with objections due September 8, 2020.

The lead case number is Case No. 20-11941.  The Debtors’ cases are before the Honorable John T. Dorsey.

Carl D. Neff is a partner with the law firm of FisherBroyles, LLP, and practices in Delaware.  You can reach Carl at (302) 482-4244 or at Carl.Neff@FisherBroyles.com.

Today, the United States Bankruptcy Court for the District of Delaware issued an Order Regarding Service Pursuant to Del. Bankr. L.R. 5005-4 and 9036-1, which directs parties not to serve hard copies of documents that are filed through the CM/ECF system.  Citing the restrictions imposed by the pandemic and restricted access to regular places of business, the Delaware Bankruptcy Court has ordered parties to solely serve documents through email or other electronic means.  The order is effective today, August 14, 2020.  A copy of the order can be found here.

Carl D. Neff is a partner with the law firm of FisherBroyles, LLP, and practices in Delaware.  You can reach Carl at (302) 482-4244 or at Carl.Neff@FisherBroyles.com.

In October 2019, Bayou Steel BD Holdings, LLC, and its affiliated debtors (“Bayou Steel” or “Debtors”) filed for bankruptcy before the District of Delaware.  By way of background, the company sought protection from creditors after a “severe lack in liquidity” led to a default on its senior secured debt.  Bayou, which produces steel products like reinforcing bars and beams, has offloaded much of its remaining inventory and sell its assets during bankruptcy.

Since the bankruptcy filing, Bayou Steel’s bankruptcy case was converted from a Chapter 11 reorganization to a Chapter 7 liquidation and has been taken over by an independent trustee.  Judge Karen B. Owens granted the unsecured creditors committee’s motion to convert the case, because Bayou Steel was administratively insolvent.  This means that the Debtors may lack the means to pay priority and post-bankruptcy claims.

Relatedly, a Notice of Deadline for Request for Payment of Certain Administrative Expense Claims Pursuant to 11 U.S.C. Section 503(b).  Pursuant to the Notice, the deadline to file requests for payment pursuant to section 503 of the Bankruptcy Code is September 10, 2020 at 5:00 p.m. (Prevailing Eastern Time). Accordingly, any creditor seeking to submit a claim against the Bayou Steel should timely submit a claim by then.

Administrative expense claims are actual and necessary costs and expenses involved in preserving the value of a bankrupt entity’s estate. Section 503(b)(1)(A) of the Bankruptcy Code involves administrative expense claims consisting of wages, salaries, and commissions for services rendered to the bankrupt entity.

Section 503 of the Bankruptcy Code authorizes payment of administrative expenses before other kinds of obligations owed by an entity operating in bankruptcy because, generally speaking, administrative expenses are critical to preserving the estate’s value and therefore benefit the creditors.

Carl D. Neff is a partner with the law firm of FisherBroyles, LLP, and practices in Delaware.  You can reach Carl at (302) 482-4244 or at Carl.Neff@FisherBroyles.com.

 

Tonopah Solar Energy LLC, the owner of a Nevada solar energy power plant, filed for bankruptcy on on July 30th before the United States Bankruptcy Court for the District of Delaware.  According to its petition, the debtor has between $100 million and $500 million in liabilities.

Tonopah Solar Energy LLC still owes $425 million on a loan from the U.S. Department of Energy, but reached a settlement under which the department will recover at least $200 million, according to documents filed in the Delaware Bankruptcy Court.  The settlement remains subject to court approval.

Tonopah is owned by SolarReserve, the startup that developed the plant; Cobra Energy Investments LLC, a division of Spanish infrastructure company ACS; and Banco Santander SA, according to court papers.  Interestingly, Tonopah just received a written opinion from the Delaware Court of Chancery in its favor earlier in July denying a books and records demand by SolarReserve CSP Holdings, LLC, a holding company established to hold an indirect interest in Tonopah, under the company’s limited liability company agreement.  A recent discussion of the opinion by the Delaware Business Dispute Blog can be found here.

Tonopah began operating in 2015.  However, its facility suffered issues with its energy storage system which caused the power plant to cease operations. Operations resumed in July 2017 and remained online until early April 2019, when a second leak in the tank was discovered. Tonopah has not operated since the first half of 2019.

The Debtor’s case has been assigned to the Honorable Karen B. Owens.

Carl D. Neff is a partner with the law firm of FisherBroyles, LLP, and practices in Wilmington, Delaware.  You can reach Carl at (302) 482-4244 or at Carl.Neff@FisherBroyles.com.