IMH Financial Corporation (“IMH” or the “Company”) has recently filed for chapter 11 bankruptcy protection before the United States Bankruptcy Court for the District of Delaware.

IMH is a real estate investment holding company with assets consisting of: (i) the MacArthur Place Hotel & Spa in Sonoma California, (ii) thousands of undeveloped acreage and related water rights outside of Albuquerque New Mexico, (iii) other real estate assets, and (iv) significant tax attributes.

According to the First Day Declaration of Chadwick S. Parson, the Chief Executive Officer of IMH Financial Corporation, IMH has no material secured debt, and no funded unsecured indebtedness. It does not hold significant levels of debt, apart from a small loan and amounts owing to creditors.

JP Morgan is the holder of all of the shares of the Company’s Series A Senior Preferred Stock and has offered a lending facility of $10.15 million. IMH Financial Corporation will draw down $1.9 million from the facility, if approved by the Delaware Bankruptcy Court. Additionally, there is also an exit facility lending agreement up to $71 million to fund the Company’s obligations as part of the restructuring.

Under IMH’s proposed plan, shareholders owning Series B-1 Preferred Stock are projected to receive $8.9 million pro rata. The remaining common stock shareholders, apart from JP Morgan, are estimated to receive between $5 million and $7.5 million. Common stock shareholders are not allowed to sell their shares.

The Company already held a $37 million loan pertaining to a hotel property, The L’Auberge de Sonoma Resort Fund, LLC, which will continue to run in the background of all other restructuring activities. The Company’s remaining portfolio is comprised of over $2 billion of assets, many of them in the hotel industry.

IMH has taken on certain upscale real estate and restaurant projects in recent years. This is one of the sectors most badly affected by the 2020 health crisis.  By filing chapter 11 bankruptcy and obtaining first day relief, IMH intends to salvage its business and reorganize its capital structure.

The bankruptcy case is before the Honorable Christopher S. Sontchi.  The Section 341 meeting of creditors is scheduled for August 18, 2020 at 1:00 p.m.

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.

On July 28, 2020, an involuntary bankruptcy petition was filed against SonoCiné, Inc., an imaging ultrasound company.  A copy of the involuntary petition can be found here.  According to the petition, Global Link Medical Group, Inc. possesses a claim against the debtor for over $1.5 million.

Under Section 303 of the Bankruptcy Code, a debtor can potentially be “forced” into an involuntary bankruptcy.  11 U.S.C.§ 303(b)(1).  If a company has 12 or more creditors, an involuntary petition requires three or more creditors whose claims are not contingent as to liability or subject to a bona fide dispute as to either liability or amount to file the petition. If a company has less than 12 creditors, then only one creditor is required to file the petition.

If the involuntary debtor objects to the involuntary filing on a timely basis, for the company to be placed into bankruptcy, there must also be a showing that it is generally not paying its debts as they become due unless those debts are subject to a bona fide dispute as to liability or amount, or that a custodian has been appointed within the past 120 days to take possession or control of substantially all of its assets.

The involuntary bankruptcy petition was filed in the United States Bankruptcy Court for the District of Delaware, Case No. 20-11877.

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.

Bruin E&P Partners LLC and its affiliates (“Bruin”), a Houston oil and gas company backed by private equity firm ArcLight, filed for Chapter 11 bankruptcy  protection on July 16, 2020 in the Southern District of Texas. Like other companies in the oil & gas industry, the coronavirus pandemic has reduced global need for fuel and has affected the profitability of energy companies, causing a major disruption to the business.

Through the bankruptcy, Bruin seeks to optimize its balance sheet and restructure its capital in response to a potentially future volatile period in the oil market. The threat of a second wave of global lockdowns and tensions between Saudi Arabia and Russia give rise to uncertainty ahead.

In the detailed liquidation analysis provided in Bruin’s disclosure statement, Bruin shows a potential recovery between $173 million and $226 million. In another exhibit to the disclosure statement, forecast revenue for the following three years is set to fall between $209 million and $152 million.  Expected costs should allow a profitable EBITDA to be achieved, however, the bottom line should be a net loss for each year.  Bruin’s proposed plan of reorganization may be viewed here.

The net loss after tax, depreciation and amortization is mostly due to high depreciation rates. Capital expenditure is forecast in low numbers for cash flow management purposes. Bruin currently has approximately $20 million in cash at banks and intends to keep an identical level of liquidity for the following three years.

Bruin’s filing for chapter 11 bankruptcy is not a last resort but a strategic financial decision as it intends to continue day to day operations. There are no significant changes expected either to top management or the board of directors, and employee obligations should be honored as the company holds sufficient cash for anticipated expenses.

The cases are pending before the Honorable Marvin Isgur and are being jointly administered for procedural purposes under case number 20-33605.

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.

Global Eagle Entertainment Inc. filed for bankruptcy in Delaware on Wednesday, July 22, 2020, becoming the latest travel-related bankruptcy during the pandemic.  Global Eagle provides Wi-Fi services to airlines and ships, and plans to turn ownership over to Apollo Global Management Inc. and other lenders.

The debtors receive approximately a fifth of their revenue from Southwest Airlines Co. Global Eagle said it will continue serving customers throughout the bankruptcy proceeding, and plans to emerge from bankruptcy by the end of the year with $475 million less debt.

According to its petition, Global Eagle had approximately $630.5 million in assets and 1,115 employees at the time of the bankruptcy filing. According to the company, its future owners intend to provide a $125 million credit facility as exit financing upon completion of its restructuring.

CFO Christian Mezger stated that the company “had been adversely impacted by the COVID-19 pandemic” as its airline and cruise line partners had ceased or severely reduced their operations. The bankruptcy filing added that demand for Golden Eagle services had “drastically” shrunk, impacting the company’s operations and cash flows.

Global Eagle plans to obtain $80 million in debtor-in-possession financing and expects the financing to provide liquidity to support its operations during the sale process.

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.

The United States District Court for the District of Delaware recently issued a Revised Standing Order Concerning the Use of Face Mask and Coverings in Public Areas of the District and Bankruptcy Court.  Per the Revised Standing Order, court staff are required to wear a face mask when interacting with the public.  Likewise, visitors of the courthouse, including attorneys, litigants, vendors, etc. must wear a mask when interacting with court staff and in common or public areas of the court facilities. Judges will determine if or when face masks may be removed in a courtroom.

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.

Muji USA Ltd., the U.S. division of the iconic Japanese home and goods fashion retailer, filed for Chapter 11 bankruptcy on July 10, 2020 in the United States Bankruptcy Court for the District of Delaware, with plans to reposition the brand’s e-commerce division.

Chapter 11 bankruptcy filings permit a struggling businesses to continue its operations and improve their financial health through reorganization. Various first day motions were filed by the debtors, including a motion authorizing MUJI USA to continue to pay dues to suppliers, shippers, warehousemen and customs brokers.  Muji plans to close unprofitable stores and renegotiate rents in the United States.

This news comes amidst a series of high profile bankruptcy cases – JC Penny, Neiman Marcus, J Crew,  Brooks Brothers, etc., as well as other, lesser known companies, more than 100, that have had to file for bankruptcy in 2020 alone.

By filing for Chapter 11, the company attempts to survive what is hopefully a temporary situation both for the business and for the world economy. With assets between $50m and $100m and the support of their Parent company, the outlook for Muji USA could be a positive one.

Muji USA may consider a change in fashion trends and the overall transition from in-store shopping to online shopping. Apart from financial restructuring, additional business innovation to keep up with the times would contribute to the final development in this high profile bankruptcy case.

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.

When a defendant in a personal injury lawsuit files for bankruptcy, the “drill” is familiar: a suggestion of bankruptcy is filed, the case is stayed, and no further action can be taken to liquidate the personal injury plaintiff’s claims until the automatic stay is lifted.

So how does a personal injury claimant go about lifting the automatic stay in order to liquidate his or her claim against the debtor?  Answer: the claimant will need to file a motion with the applicable bankruptcy court to seek relief from the automatic stay.

The Automatic Stay

First, the basics. The automatic stay is a very powerful protection provided to a debtor in a bankruptcy proceeding.  The stay prohibits creditors (including personal injury claimants) from commencing or continuing any proceeding against the debtor which could have been commenced prior to the bankruptcy.  Applied to personal injury claimants, the automatic stay prohibits efforts to commence or continue an existing lawsuit against a defendant debtor once it has filed for bankruptcy protection.

Specifically, Section 362(a)(1) of the Bankruptcy Code stays “the commencement or continuation … of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement” of a bankruptcy proceeding.  In other words, the automatic stay provides a debtor a “breathing spell” from its creditors.

Relief from the Automatic Stay

In order to liquidate a claim, a personal injury claimant must file a motion to seek relief from the automatic stay.  Under Section 362(d)(1) of the Bankruptcy Code, the Bankruptcy Court shall lift the automatic stay for “cause.”  If a creditor seeking relief from the automatic stay makes a prima facie case of “cause” for lifting the stay, the burden going forward shifts to the debtor pursuant to Bankruptcy Code Section 362(g).  See In re 234-6 West 22nd St. Corp., 214 B.R. 751, 756 (Bankr. S.D.N.Y. 1997).

The term “cause” is not defined by the Bankruptcy Code.  Therefore, whether cause exists to lift the automatic stay is determined by bankruptcy courts on a case by case basis.  See Izarelli v. Rexene Prod. Co. (In re Rexene Prod. Co.), 141 B.R. 574, 576 (Bankr. D. Del. 1992). Courts determine what constitutes “cause” based on the totality of the circumstances in each particular case.  Baldino v. Wilson (In re Wilson), 116 F. 3d 87, 90 (3d Cir. 1997).

Courts conduct a “fact intensive, case-by-case balancing test, examining the totality of the circumstances to determine whether sufficient cause exists to lift the stay.” In re The SCO Group, Inc., 395 B.R. 852, 857-58 (Bankr. D. Del. 2007).  The Delaware Bankruptcy Court has considered three factors when balancing the competing interests of debtor and movant: (a) the prejudice to either the bankruptcy estate or the debtor that would result should the stay be lifted; (b) any hardships facing the movant and debtor should the stay be maintained; and (c) the movant’s probability of success if the stay is lifted.  Santa Fe Minerals v. BEPCO. L.P. (In re 15375 Memorial Corp.), 382 B.R. 652, 686 (Bankr. D. Del. 2008).

Conclusion

Provided that the above-mentioned factors are met to establish sufficient cause, often times a debtor will stipulate to lifting the automatic stay provided that the claimant agrees not to seek recovery against property of the debtor’s estate, but rather agrees to limit recovery to applicable insurance proceeds.  This often involves some level of negotiation with debtor’s counsel, depending on the circumstances of the case and the scope of coverage.  A recent example of such a negotiated order entered by the Delaware Bankruptcy Court in the Celadon Group, Inc. bankruptcy proceeding can be found here.

Stay tuned for further posts regarding seeking relief from the automatic stay under Section 362 of the Bankruptcy Code.

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.

Background on the Debtors

The iconic retail brand, Brooks Brothers, filed for Chapter 11 bankruptcy protection on Wednesday, July 8, 2020 in the Delaware Bankruptcy Court.

Founded in 1818, Brooks Brothers is one of the country’s oldest retailers.  In light of the coronavirus, rent had become a significant burden for the retailer.  To date, Brooks Brothers has closed or is in the process of closing 51 of its retail locations.  More store closures could be on the way following the bankruptcy filing.

Objectives in Bankruptcy

According to the first day declaration of Stephen Marotta (“Declaration”), the Chief Restructuring Officer of the Debtors, filed in support of the debtors’ first day motions, Brooks Brothers seeks to sell its assets through a court-approved sale.  The company had been exploring a sale as early as 2019 but was unable to do so.  As a result of COVID-19, Brooks Brothers was required to temporarily close nearly all of its stores worldwide.

According to the Declaration, Brooks Brothers has secured $75 million in debtor-in-possession loans to finance its operations during the bankruptcy and sale process. The company plans to complete a sale within the next few months, pending approval by the court.

Bankruptcy Case Information

The “first day” hearing was held on July 10th, and the “second day” hearing is scheduled for August 3rd, at which time the Debtors will seek final approval of various first day motions that were filed contemporaneously with the bankruptcy petition.

The cases are pending before the Honorable Christopher S. Sontchi and are jointly administered under Case No. 20-11785, under lead debtor Brooks Brothers Group, Inc. The law firm of Richards, Layton & Finger represents the debtors.

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.

Lucky Brand became the latest retailer to seek bankruptcy protection when it filed for chapter 11 protection in the United States Bankruptcy Court for the District of Delaware on Friday, July 3rd.  Lucky Brand joins J.Crew, Neiman Marcus and J.C. Penney, all of which filed for bankruptcy during the pandemic.

Matthew A. Kaness, Lucky Brand interim CEO and executive chairman of the company, said in a press statement:

The COVID-19 pandemic has severely impacted sales across all channels,” Kaness said. “While we are optimistic about the reopening of stores and our customers’ return, the business has yet to recover fully. We have made many difficult decisions to preserve the company’s viability during these unprecedented times.

The first of the Lucky Brand locations to be closed are located in the following states: Arkansas, California, Connecticut, Florida, Illinois, Michigan, Mississippi, Nevada, and the commonwealth of Puerto Rico.

Through the bankruptcy, the company will seek to sell its assets to SPARC Group, operator of Aéropostale and Nautica.  The debtors’ chapter 11 cases are jointly administered under lead debtor Lucky Brand Dungarees, LLC, case number 20-11768, before the Honorable Christopher S. Sontchi.  The law firms of Latham & Watkins LLP and Young Conaway Stargatt & Taylor, LLP represent the Lucky Brand debtors.

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.

Judge Karen B. Owens recently released Phase 1 Reopening Hearing Procedures and General Reminders dated July 1, 2020 (the “Hearing Procedures”), which set forth: (i) the manner of hearings, (ii) certain procedures for in-person hearings, and (iii) general reminders.

According to the Hearing Procedures, hearings will be held telephonically via CourtCall.  However, in certain circumstances (i.e. for first day hearings, if live testimony may be presented, or at the discretion of the Court), the hearing will be held both telephonically and via Zoom, unless counsel is directed that the hearing will be held at the courthouse.

The Hearing Procedures also provide direction to parties who seek to present documentary evidence, and sets forth the information required of parties seeking to present live witness testimony at a non in-person hearing.

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.