FINANCIAL RESTRUCTURING &
CREDITORS' RIGHTS NEWS

The Business Advisor - Spring 2017



Karen A. Giannelli

(973) 596-4505
kgiannelli@gibbonslaw.com

 

Message from the Chair:

Dear Colleagues and Friends:

Welcome to our Spring 2017 edition of The Business Advisor. This edition of our newsletter includes four articles on substantive developments in our practice. In the first article, published in the New Jersey Law Journal on February 20, 2017, our authors tackle the intersection between bankruptcy and corporate law in addressing whether limited liability company (LLC) operating agreements are executory contracts and the consequences that flow from a bankruptcy that includes a membership interest in an LLC. Our second article discusses the anxiously awaited decision of the United States Supreme Court in Jevic, confirming the application of the absolute priority rule to final chapter 11 distributions in the context of a "structured dismissal." Although a seemingly narrow ruling, the Court’s decision leaves a number of distribution schemes untouched. Our third article discusses the recent decision of the U.S. District Court for the District of Delaware remanding to the bankruptcy court below the unanswered question of whether the Supreme Court's decision in Stern v. Marshall had any impact on the bankruptcy court's constitutional authority to confirm a chapter 11 plan that contained nonconsensual third party releases. Our last article provides a detailed look at four recent healthcare provider bankruptcies made more complicated by significant regulatory challenges and the roles played by the federal and state regulators in those cases.

We hope you find this issue informative and welcome any feedback you may have. We look forward to seeing you in our future professional activities and appreciate your friendship and camaraderie.

With warm regards, 

Karen A. Giannelli, Esq.
Chair, FR&CR Department


ARTICLES & CLIENT ALERTS

LLC Operating Agreements in Bankruptcy: Are They Executory?
By:
Mark B. Conlan and Lawrence A. Goldman
New Jersey Law Journal, February 20, 2017

Imagine your client is considering a strategic bankruptcy filing in order to restructure indebtedness, and one of the debtor's key assets is its membership interest in a limited liability company (LLC) entitling the debtor to designate management. The LLC operating agreement identifies various events as causing a member's "dissociation," including the commencement of a bankruptcy case involving a member.

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The Supreme Court Rejects Use of Non-Consensual Structured Dismissals that Violate the Code's Priority Rules in Jevic
By:
Karen A. Giannelli

On March 22, 2017, the Supreme Court issued its decision in Czyzewski v. Jevic Holding Corp., 580 U.S.____ (2017), reversing and remanding the decision of the U.S. Court of Appeals for the Third Circuit that approved a chapter 11 dismissal that violated the Code's statutory priority scheme. As previously reported in our December 2016 edition of The Business Advisor, the Court granted certiorari to review the Third Circuit's approval of a $3.7 million settlement of the chapter 11 estate's fraudulent conveyance litigation against its secured lenders in a "structured dismissal," which included priority-skipping final distributions to general unsecured creditors over the objection of Jevic's terminated truck drivers, who received nothing on account of their uncontested Section 507 priority WARN Act claim of $8.3 million.

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Non-Consensual Third Party Releases and the Bankruptcy Court's Constitutional Adjudicatory Authority in Light of Stern v. Marshall
By:
Natasha Songonuga

On March 20, 2017, Chief Judge Leonard P. Stark of the U.S. District Court for the District of Delaware ("the District Court") issued an opinion remanding for further proceedings an order of the Delaware Bankruptcy Court ("the Bankruptcy Court") that confirmed a joint chapter 11 plan of reorganization containing a non-debtor third party release over the objection of affected creditors.

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It's Complicated: Regulatory Challenges to Healthcare Provider Bankruptcies
By:
David N. Crapo

Industry-specific regulatory challenges complicate many debtors' attempts to reorganize in bankruptcy. Indeed, those challenges may effectively preclude a debtor from reorganizing in bankruptcy. For example, colleges and universities are not expressly precluded from seeking relief under the Bankruptcy Code. Nevertheless, because students attending colleges or universities in bankruptcy are no longer eligible for federal financial aid, a bankruptcy filing is the death knell for most colleges and universities, dependent as they are on their students' federal financial aid eligibility for revenues. Recent developments in healthcare provider bankruptcies demonstrate and underscore the significant regulatory challenges complicating the reorganization of healthcare providers, even to the point of effectively precluding reorganization in bankruptcy. This article will briefly address four of those cases.


DEPARTMENT HONORS & AWARDS

New Jersey Super Lawyers and Rising Stars Highlight Six Gibbons Financial Restructuring & Creditors' Rights Attorneys


The Gibbons FR&CR Directors and Counsel listed in the 2017 issue of New Jersey Super Lawyers are:

In addition, associates Laura Saborio Dunn and Brett S. Theisen were listed in this year's edition of Rising Stars for New Jersey.


PROFESSIONAL ACTIVITIES

Upcoming Events

Brett S. Theisen, an associate in the Gibbons FR&CR Department, will be serving as a legal mentor in the Networking and Speed Mentoring event on April 18, 2017, jointly sponsored by Turnaround Management Association-New York City and Business Mentor New York. The event features attorneys, lenders, financial advisors, and other professionals, who volunteer their services and insights for the evening to local entrepreneurs and start-up companies.

David N. Crapo will present a webinar on June 5, 2017 for Lawline, an online continuing legal education provider, on developing and maintaining a HIPAA compliance plan.

Natasha Songonuga is a member of the Advisory Board for the American Bankruptcy Institute's ABI Mid-Atlantic Workshop, which will be held from August 3-5, 2017, at Hotel Hershey in Hershey, PA.

Karen A. Giannelli, Chair of the FR&CR Department, serves as a member of the Advisory Board for Bankruptcy 2017: Views from the Bench, co-sponsored by the American Bankruptcy Institute and Georgetown University Continuing Legal Education Division and taking place at Georgetown University Law Center in Washington, DC on October 17, 2017.

Howard A. Cohen, a Director in the Gibbons FR&CR Department, will serve on the Advisory Panel for the U.S. Bankruptcy Court for the District of Delaware and the Delaware Chapter of the Federal Bar Association’s Federal Trial Practice Seminar. The seminar is a multi-week instructional trial practice program to be held in October and November 2017.

Recent Events

David N. Crapo was appointed the Patient Care Ombudsman in the chapter 11 bankruptcy case of North Philadelphia Health System, which is currently pending before the U.S. Bankruptcy Court for the Eastern District of Pennsylvania. North Philadelphia Health System owns and operates a mental and behavioral health facility providing both inpatient and outpatient care.

Natasha Songonuga moderated a panel entitled "Joint Admin/Substantive Consolidation" at the 19th Annual William H. Gindin Bankruptcy Bench Bar Conference, held on March 10, 2017 at the Hilton East Brunswick in East Brunswick, NJ.


FIRM NEWS

New Jersey Super Lawyers and Rising Stars Ranks 66 Gibbons Attorneys (March 15, 2017) 

Gibbons Congratulates 2017 Class of Directors and Counsel (February 1, 2017)

   Gibbons is headquartered at One Gateway Center, Newark, NJ 07102; (973) 596-4500