FINANCIAL RESTRUCTURING &
CREDITORS' RIGHTS NEWS

The Business Advisor

 

Message from the Chair:

As an advisory board member of Bankruptcy 2015: Views from the Bench, I invite you to attend this year's event in Washington, DC on October 9, 2015. One of the most highly rated CLE conferences hosted by the American Bankruptcy Institute (ABI) and Georgetown University, Bankruptcy 2015: Views from the Bench provides a unique opportunity for bankruptcy practitioners to convene with bankruptcy judges for a full day of outstanding CLE and networking opportunities.

This year's feature presentation on the 2015 Supreme Court term will be given by Professor Kenneth N. Klee, author of Bankruptcy and the Supreme Court 1801-2014, published in 2015. Another panel, featuring Judges Isicoff, Teel, and Gambardella, will discuss the implications of Baker Botts v. Asarco, while several panels will review the recommendations of the Commission to Study the Reform of Chapter 11. Additional small group breakout sessions will address a variety of topics in a more intimate learning environment.

For more information, please see www.abi.org/events/bankruptcy-2015-views-from-the-bench. I hope you are able to attend this signature ABI event.

Additional Highlights:

This edition of The Business Advisor also includes several new articles and a critical update to an article published in the prior issue. And finally, we share some news about our attorneys' recent and upcoming professional activities and honors. We hope you find this issue informative, and we welcome any feedback you may have.

Karen A. Giannelli, Esq.
Chair, FRCR Department


ARTICLES & CLIENT ALERTS

Limited Liability Company Interests as Property of a Debtor's Estate
The First Inquiry – Is the Operating Agreement Executory?

By:
Lawrence A. Goldman

Debtor, Inc. ("Debtor") commences a case under chapter 11 of the U.S. Bankruptcy Code (the "Code"), and among Debtor assets is a membership interest in ABA, LLC ("Company"). The operating agreement of Company identifies various events that would cause a "dissociation" of a member. One event is the commencement of a bankruptcy proceeding involving a member. Another event, in the case of Debtor, is Joe Smith ceasing to have day-to-day control over the business affairs of Debtor. Debtor continues to operate as a debtor in possession, and Smith continues to run the day-to-day affairs of Debtor.

Companion article follows

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Limited Liability Company Interests as Property of a Debtor's Estate
Executory Agreements and the Conundrum of Section 365

By:
Joshua R. Elias

A companion article sets a scenario in which Debtor Inc. ("Debtor") commences a case under chapter 11 of the U.S. Bankruptcy Code (the "Code"), and among Debtor's assets is a membership interest in ABA, LLC ("Company"). The operating agreement of Company identifies various events as causing a "dissociation" of a member. One event is the commencement of a bankruptcy proceeding involving a member. Another event, in the case of Debtor, is Joe Smith ceasing to have day-to-day control over the business affairs of Debtor. The companion article addresses §541 of the Code, which applies when Debtor's membership interest is reflected by a limited liability company ("LLC") agreement that is non-executory, and surveys cases analyzing whether an LLC agreement is executory or non-executory.

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The Continuing Bayou Shores Saga – An Appeal and, Perhaps, a Circuit Split
By:
David N. Crapo

In the March 2015 edition of The Business Advisor – Healthcare Focused Newsletter, I wrote about the success of Bayou Shores SNF, LLC in using a bankruptcy filing with the U.S. Bankruptcy Court for the Middle District of Florida to preserve its Medicare and Medicaid provider agreements notwithstanding the pre-petition issuance by the U.S. Department of Health and Human Services (HHS) of a notice of termination of Bayou Shores' Medicare provider agreement. Following up, I wrote in the July 2015 The Business Advisor – Healthcare Focused Special Alert, about the reversal by the U.S. District Court for the Middle District of Florida ("District Court") of Bayou Shores' success before the Bankruptcy Court. On June 26, 2015, the District Court entered an order ("Reversal Order") reversing: (i) the bankruptcy court's order ("Injunction") enjoining the HHS and the Florida Agency for Health Care Administration (AHCA), respectively, from terminating Bayou Shores' Medicare and Medicaid provider agreements; and (ii) those provisions of the Bankruptcy Court's order ("Confirmation Order") confirming Bayou Shore's plan of reorganization that approved Bayou Shores' assumption of its provider agreements. [U.S.D.C. MD Fla. Docket No. 8:14-cv-02816-JSM ECF Docket No. 72] The Bayou Shores saga continues, with the parties now before the U.S. Court of Appeals for the Eleventh Circuit, and the prospect of a circuit split looming.

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Maximizing Bankruptcy Protection in Software and SaaS Agreements
By:
Luis J. Diaz, Charles H. Chevalier, and David N. Crapo
Gibbons IP Law Alert, September 28, 2015

In today's digital age, cloud computing has lowered the barrier of entry into many marketplaces by providing network access to a shared pool of configurable computing resources. Cloud services allow business to forego upfront capital costs on servers, network infrastructure, and software allowing companies to focus on establishing and differentiating its business instead of worrying about its IT resources. Additionally, it is typically a "pay as you go" service meaning that businesses can scale up or down as needed in real time. However, entrusting a third-party as the sole source of the company's network, software, and data storage functionality puts the company at risk of losing these services should the provider enter bankruptcy.

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Trade Creditors Beware – Debtor's Setoff Rights Apply to Administrative Expense Claims (Including Claims asserted under 11 U.S.C. § 503(b)(9))
By:
Mark Conlan and Natasha Songonuga
Geneva Group International (GGI) Forum, July 2015

In a May 5, 2015 decision, Judge Kevin J. Carey of the U.S. Bankruptcy Court for the District of Delaware rejected certain trade creditors' objections to the joint motion filed by the debtors and the official committee of unsecured creditors in the ADI Liquidation, Inc. (f/k/a AWI Delaware Inc.) chapter 11 cases, jointly administered under Case No. 14-12092 (KJC), seeking authorization to offset trade credits, vendor overpayments and other amounts owed to the debtors against the creditors' administrative and secured claims (the "Joint Motion"). In granting the Joint Motion, Judge Carey concluded that the Bankruptcy Code (including its underlying policies) and case law provide ample support for allowing the debtors to exercise their discretion in determining to first offset funds owed to the debtors against a creditor's administrative and/or secured claim (including Bankruptcy Code section 503(b)(9) claims) before applying such setoff rights against the creditor's general unsecured claims. See Docket No. 2052. The decision highlights the risks trade creditors face in having their administrative priority claims under section 503(b)(9) diluted by a debtor's setoff rights.


DEPARTMENT HONORS & AWARDS

The Network Journal Honors Natasha Songonuga with "40 Under Forty" Achievement Award

Natasha Songonuga, a Director in the Financial Restructuring & Creditors' Rights Department of Gibbons P.C., has been named among The Network Journal's "40 Under Forty" for 2015. She was profiled in the June edition of the publication, and received the award at the organization's Annual "40 Under Forty" Achievement Awards Dinner on June 18, 2015, in New York City.

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Natasha Songonuga Named Among Profiles In Diversity Journal's "Women Worth Watching"

Natasha Songonuga has been named one of Profiles in Diversity Journal's "Women Worth Watching" for 2015. Ms. Songonuga was chosen for "Women Worth Watching" on the basis of her sophisticated bankruptcy and restructuring practice at Gibbons and her critical role in the firm's robust Delaware practice.

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Attorneys Individually Ranked in 2016 Best Lawyers

The FR&CR Department earned regional practice rankings for New Jersey in the areas of Bankruptcy and Creditor Debtor Rights/Insolvency and Reorganization, as well as Litigation – Bankruptcy. In addition, the four Gibbons attorneys who were individually highlighted in the 2016 edition of Best Lawyers are:

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Attorneys Individually Ranked in 2015 Chambers

The 2015 edition of the Chambers USA Guide to America's Leading Lawyers for Business features the Gibbons FR&CR Department and six of its attorneys. The six FR&CR Directors and Counsel listed are: In the 2015 edition of Chambers, sources were quoted as saying of the firm's bankruptcy practice: "A very diligent team that is focused on doing the right thing for the client," and "We were pleased with the service and would definitely call upon them again if the need arises."
 

PROFESSIONAL ACTIVITIES

Upcoming Events

David N. Crapo will moderate and speak at two upcoming panels for the New Jersey Institute of Continuing Legal Education. "HIPAA: Ignorance Is Not Bliss. What You Don't Know Can Hurt You – and Your Client!" will be presented on November 20, 2015 in New Brunswick, NJ and December 18, 2015 in Fairfield, NJ. Mr. Crapo has already participated in one presentation of this panel discussion, held on September 29, 2015, in Mt. Laurel, NJ.

Recent Events

The Gibbons Women's Initiative and the New Jersey Chapter of the Turnaround Management Association Network of Women (TMA NOW) joined together on August 5, 2015 to host a breakfast and networking program entitled "An Inside Look at the Restructuring Industry: A Discussion Among Professional Women" at the Gibbons headquarters in Newark. Panelists included FR&CR Director Natasha Songonuga and the panel was moderated by FR&CR Chair, Karen A. Giannelli.

On July 15, 2015, David N. Crapo gave a presentation on health privacy at an NJICLE panel entitled "The Right to Privacy."
 
 

PRO BONO SPOTLIGHT

Laura Saborio Dunn, an associate in the Gibbons Financial Restructuring & Creditors' Rights Department, participated in the Gibbons/AT&T Partners for Women & Justice Domestic Violence Clinic, which was held at the firm headquarters in Newark, NJ on September 30, 2015. Through this new program, Gibbons and AT&T attorneys assist victims of domestic violence with child support, visitation, and/or custody matters. The structure of the program is part clinic and part traditional representation. In addition, Ms. Dunn participated in the Gibbons Expungement Clinic on September 15, 2015, also held at firm headquarters. The Expungement Clinic, a partnership with Volunteers Lawyers for Justice, assists individuals in need of expungements. Ms. Dunn did initial client intake for a single mother seeking an expungement to obtain full-time employment.


FIRM NEWS

The American Lawyer Ranks Gibbons Among Top Nationwide Firms on 2015 Midlevel Associates Survey (September 17, 2015) 

Gibbons Named a Top Law Firm for Pro Bono and Diversity on Vault's Annual Survey (July 30, 2015)

Gibbons Named One of Working Mother and Flex-Time Lawyers "50 Best Law Firms For Women" (July 30, 2015)

The American Lawyer Ranks Gibbons 44th Nationwide in Pro Bono Survey (July 13, 2015)

Gibbons Earns a Place on Law360's List of New Jersey's Powerhouse Law Firms (June 17, 2015)

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

This communication provides general information and is not intended to provide legal advice.
Should you require legal advice, you should seek the assistance of counsel.

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