Small Businesses and Chapter 11 Bankruptcy

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Commonly referred to as a “reorganization” bankruptcy, chapter 11 cases require debtors to submit a comprehensive plan and pay creditors over time. As a result, corporations and partnerships typically retain control over their businesses. Although many chapter 11 cases involve large corporations operating in the United States, many small business debtors qualify for chapter 11, although under slightly different terms.

After determining that a debtor qualifies as a “small business case,” the U.S. trustee will ask the debtor to submit documents such as balance sheets, tax returns, cash flow statements, and statements of operations. Unlike larger chapter 11 debtors, however, small businesses must attend an initial interview with a U.S. trustee. During the interview, debtors must explain their business plans and learn about their filing and reporting responsibilities. In general, small business cases conclude much more quickly than other chapter 11 cases, due in large part to the difficulty of obtaining filing deadline extensions.

Puerto Rico Continues to Seek Debt Solution

Alejandro_Garcia_PadillaIn July 2014, the government of Puerto Rico enlisted the help of U.S. bankruptcy experts in an effort to resolve its staggering $72 billion in debt following a significant decline in the island’s economic activity and employment over the past decade. Governor Alejandro García Padilla has attempted to assuage his commonwealth’s financial crisis since entering office in January 2013, implementing tax increases, spending cuts, and pension reform.

During the first half of 2014, he bolstered his efforts by implementing the Public Corporations Debt Enforcement and Recovery Act, which sought to restructure a number of Puerto Rico’s utility agencies in order to facilitate the repayment of approximately $52 billion in municipal bonds. The legislation threatened losses for bondholders who had invested over $20 million in Puerto Rico’s infrastructural agencies, including PREPA, the island’s electric utility. However, it protected the distressed debt investments of bondholders possessing more than $3 billion in general obligation and governmental development bank bonds.

Despite these efforts, Governor Padilla and his senior staff members reported in June 2015 that Puerto Rico’s debts are “not payable” and stated their intention to seek debt payment deferrals and repayment extensions from creditors. Since Puerto Rico is a commonwealth, it lacks the Chapter 9 protection that allow debt restructuring for municipal governments. However, a bill sponsored by the island’s nonvoting congressional representative, Pedro Pierluisi, may offer bankruptcy protections to certain parts of Puerto Rico’s government. Under the proposed bill, Puerto Rico’s large public companies could declare bankruptcy and reduce the island’s debt by as much as $25 billion. The legislation has received broad support from Democrats, while Republicans remain hesitant, noting that the proposed law could retroactively affect investors’ rights.

MGM Chapter 11 Filing Shocked Industry, Elevated Spyglass

Spyglass_EntertainmentIn 2010, a judge in the United States Bankruptcy Court for the Southern District of New York granted a lien request filed by attorney Suzzanne Uhland on behalf of her client, Spyglass Entertainment Holdings, LLC, as a component of the complex Metro-Goldwyn-Mayer Studios, Inc., Chapter 11 case.

Ms. Uhland, a partner with O’Melveny & Myers, LLP, and the head of the firm’s U.S. Restructuring Practice, is based in San Francisco and Newport Beach, California. Her extensive experience in corporate restructurings, insolvency, and Chapter 11 bankruptcy filings has given her the ability to assist a wide range of companies and other stakeholders over the course of her 20-year career.

In the MGM case, the judge granted Spyglass the sum of $4 million as a break-up payment in the event MGM did not honor an agreement to allow Spyglass to assume a controlling interest in its operations. In response to Ms. Uhland’s request, the judge allowed Spyglass to place a lien on MGM’s funds held in escrow for that purpose.

MGM’s Chapter 11 filing, which surprised the entertainment industry, developed out of the company’s desire to avoid selling its assets to the highest bidder. Studio brands such as Time Warner and Lions Gate had been among the contenders for purchasing the legendary MGM properties. By early 2011, Spyglass executives were leading MGM and preparing a film distribution deal with Sony Pictures, and by the end of that year, the company had transformed its business model to focus on handling global television rights.

O’Melveny and Myers Offers Continuing Legal Education Training Online

A legal professional experienced in real estate, municipal, and international corporate finance, Suzanne Uhland is a partner in the law practice of O’Melveny and Myers. Suzanne Uhland’s firm offers an online continuing legal education training program through its website at no cost to alumni, clients, and friends of the firm.

CLE Training ProgramO’Melveny developed the continuing legal education (CLE) training program in conjunction with New Media Legal Publishing as an extension of its in-house CLE and video training program. The online program consists of a variety of CLE presentations created by O’Melveny attorneys and guest speakers. The presentations cover a range of topics, such as legal ethics and the prevention of substance abuse. Courses and presentations may be taken for CLE credit. Users of the online CLE program may search for classes by jurisdiction, or they may seek multistate courses offered in part by the Practicing Law Institute (PLI). Jurisdiction-specific classes include California and New York.

Additional features of the CLE online program include access to the PLI’s Free Friday classes, which offer users free use of a single web segment or hour-long audio briefing from its catalogue. The offer gives users access for one week, and all courses count for a full hour of CLE credit.

To learn more about O’Melveny’s CLE training program and available classes, visit O’Melveny and Myers’ website at omm.com/aboutus/cletogo.