The Brazilian Restructuring and Bankruptcy Law (Law Nr. 11.101 of 2005) is expected to be amended within the year. Supporters of the amendments hope to accelerate the insolvency process and equalize the bargaining power between equity and debt holders. The idea is to create a bankruptcy regime that will lead to a more efficient credit market and promote enterprise rehabilitation. The proposed amendments are likely to create sharp differences of opinion between debtor and creditor interests and for now they are just that – proposals.

These are some of the potential amendments currently under discussion:

Wider Scope of the Bankruptcy Law


Judicial recovery would be extended to cover any “economic agent”. This would include any state-owned company (sociedade de economia mista) such as Petrobras or Eletrobras.

Included Credits

Credits secured by alienação fiduciária (a type of in rem financing widely used in real estate and automobile finance) and currency exchange contract advances (adiantamento de contrato de câmbio(ACC) – an important source of financing for exporters) would be subject to judicial restructuring, whereas they are exempt under present law. In the event of  liquidation, credits secured by alienação fiduciária would, like other secured debt, enjoy second rank right of payment (after essential bankruptcy administration expenses) and ACC´s would be considered unsecured debt.

Tax credits would become the only credits not subject to judicial restructuring.

Labor liabilities (i.e., credit rights arising from labor laws or indemnities owed due to labor accidents) could also be negotiated in extrajudicial restructurings. Under present law they may only be addressed in in-court proceedings.

DIP Financing

DIP financing could be used to finance debtor operations, restructuring costs or to preserve the value of debtor assets.  Credits arising from DIP financing would gain elevated repayment priority (after secured debt), though there are no provisions for cross-collateralization or roll-ups and DIP loan priming would only be available with the express consent of secured creditors.

Once a public notice of a DIP financing proposal has been issued, the proposal would be presented to a Creditors’ Meeting for approval only if, within five days after such public notice, at least five percent of creditors call for such a Creditors’ Meeting, failing which the proposal would be deemed automatically approved.   A DIP lender would also be allowed to advance up to ten percent of the proposed financing prior to the Creditors’ Meeting.  DIP loan advances would have repayment preference in the event of liquidation.


The debtor would now have 90 (instead of 60) days to present a Judicial Recovery Plan (“JRP”), counted from the date the court allows the judicial restructuring to proceed.  This time extension would allow the debtor the opportunity to design a more commercially viable reorganization that would be more likely to obtain approval at the Creditors’ Meeting.   On the other hand, the Creditors’ Meeting would need to be held 120 (rather than 150) days after such date.  Furthermore, the judicial restructuring would be deemed closed once the judge ratifies the duly approved JRP. The two year judicial monitoring period following ratification would be abolished and debtors that fail to comply with the JRP will face liquidation.

Successor Liability

There would be no successor liability for any goods or rights of any kind sold by the debtor pursuant to a duly approved JRP, including branches and isolated productive units.  This would extend to any debtor liabilities for taxes, labor claims or criminal fines and sanctions.  Such sales could also be made by capitalizing new entities with debtor assets and selling the newly-created entities.

Substantive and Procedural Consolidation


Subject to new cram-down provisions, substantive consolidation of separate debtors could be granted if approved at the Creditors’ Meetings of each separate debtor. As a result, the assets and liabilities of the entire economic group would be consolidated into a single proceeding. Judges could also order substantive consolidation in instances of fraud or where assets and liabilities have been co-mingled.


One Judicial Administrator could be appointed to manage separate but related proceedings even where each debtor has its own JRP and there is no consolidation of assets and liabilities.

Creditor Classes

The debtor would be free to establish the makeup of each creditor class in the JRP, though labor claims would need to remain in a separate class.  The current Restructuring and Bankruptcy Law mandates that creditors vote in four, specifically defined classes: (1) labor claims, (2) secured creditors, (3) unsecured creditors and (4) micro-business creditors.

Subject to new cram-down provisions, each of the creditor classes would need to approve the JRP.  Approval would require the favorable vote of creditors representing more than half of the value of the credit of the class and a simple majority of the creditors present at the meeting.


Judicial Restructuring Plan

Even if the JRP is not approved by all of the creditor classes, it could be ratified by the presiding judge if it were approved by at least one class and the JRP would not subject the creditors of the dissenting classes to a greater loss than what they would suffer in the event of liquidation and the JRP provides for “reasonable economic treatment” of the dissenting classes.

Substantive Consolidation

A judge could also order substantive consolidation even when it is not approved at the Creditors’ Meeting of each separate debtor if it is approved by at least one of the Creditors’ Meetings by creditors representing at least two thirds of the total credits present at the meeting and substantive consolidation was approved by creditors representing at least one fifth of the credits present at each of the Creditors’ Meetings that rejected substantive consolidation.

Creditors’ Meetings and Voting Procedures

Call notices for Creditors’ Meetings could be published electronically by the presiding judge and on the website of the judicial administrator.

A number of new creditor voting procedures could be implemented, including (1) voting by written resolution, (2) electronic voting, and (3) the possibility of individual bondholders voting directly and not via indenture trustee (a codification of a practice that has already been permitted in some cases).

Cross-Border Insolvency

With certain modifications, Brazil would adopt the UNCITRAL Model Law on Cross-Border Insolvency and non-Brazilian creditors would be treated equally with Brazilian creditors.


Allen Moreland, Brazil based U.S. attorney specializing in cross-border financing transactions. Graduate of Columbia University School of Law


From IndustryWeek

Anyone who has been in private business long enough has likely observed a key vendor or customer suffer some form of financial distress or, even worse, file for bankruptcy.

Upon learning that a key customer is on shaky financial ground, while perhaps sympathetic to their customer’s situation, many businesses respond by taking ad hoc actions that are intended to limit the short-term damage to their own enterprises. For instance, a business might force the customer to remit payments via wire transfers or begin implementing collection practices to which other customers are not subject or that significantly deviate from standard industry practices.

But when businesses do this, they are unwittingly putting themselves in the way of potential financial liabilities should the customer ultimately declare bankruptcy, not to mention a burdensome amount of work detangling your company from theirs. We’d like to think the extent of our exposure to a bankrupt customer is a handful of unpaid invoices.  But in reality it could be worse – and often is.

For instance, once the sting of getting stuck with a few unpaid invoices begins to fade, you will probably receive, 12 or even 18 months later, a letter demanding that you disgorge all payments received from your former customer in the 90 days before its bankruptcy petition date — return to the company the payments received for products or services provided. These so-called preferential transfer claims are rooted in Chapter 5 of the U.S. Bankruptcy Code, which sets forth how courts are to consider prepetition transfers of a debtor’s assets, such as when they pay an unsecured supplier’s bill.

The intent of the law is to take back monies that were paid to the “preferred” vendor and equally redistribute those monies to all creditors.  While the fairness of this is debatable, the harsh reality is that the Code creates significant liability for enterprises that are engaged in commerce with distressed companies — something manufacturers and suppliers need to be especially mindful of given the number of recent and anticipated bankruptcies in the retail industry.

Once a creditor receives the demand letter — or becomes party to a lawsuit — the die is cast, and there is very little that can be done. The set of facts brought before the judge will be comprised of processes and actions undertaken well before the debtor filed for bankruptcy, and a creditor’s eventual liability hangs on those facts. That’s why it is so important to plan ahead and put into place sound business practices that can minimize exposure to bankruptcy preference claims well before a key customer declares itself bankrupt.  So what should be done?

Keep a Close Eye on Your Customers’ Health

Ideally, it should never be a surprise when a key customer or supplier declares bankruptcy.

The reality, of course, is that surprises do occur. For instance, last year, the entire North American production line for one automotive manufacturer was threatened with a potential shutdown when the automaker’s only supplier of acoustic damping materials went bankrupt and halted its operations in a move that took the automaker by surprise.

It is no less damaging when a manufacturer’s key retailing customer enters bankruptcy. When a large shoe retailer declared bankruptcy in April, it owed its trade creditors some $240 million. These creditors no doubt learned the importance of monitoring their customers’ financial health, although for some the opportunity to learn the lesson came too late.

Keeping a close eye on the financial health of the customer is always a manufacturer’s first line of defense. Publicly reported information and news outlets can be helpful in this regard.  If you have the luxury of a supply contract you can include terms that require the customer to provide you with periodic financial information.  But even without this detail sometimes the reddest of red flags can be found within the data that suppliers have right at their fingertips.

For example, each existing customer relationship will have an established baseline of days-sales-outstanding (DSO).  Manufacturers and suppliers should invest in resources that automate the analysis of DSO information so they can have real-time comparisons of every customer’s 12-month moving DSO average versus that of current payments. If there is a substantial deviation away from the 12-month moving average — especially when the deviation is coupled with other indications of financial distress — then this should be a big red flag for potential preference exposure once the customer files for bankruptcy.

Be Consistent in Dealing with Customers

Ascertaining the true financial health of customers, however, is only half of the solution to limiting exposure to bankruptcy preference claims.

In these instances, one of the most powerful ideas at a creditor’s disposal is the so-called “ordinary course of business” defense which, ideally, shields a creditor from much of the preference analysis that courts undertake and that could potentially increase an individual creditor’s liability. In order to credibly assert this defense, however, there has to be an underlying pattern of commercial behavior that defines what is “ordinary.” Establishing consistency in one’s dealings with customers is of paramount importance in the bankruptcy setting.  For example, one can demonstrate consistency by showing that the DSO for the invoices paid during the 90-day period before bankruptcy was very close to the 12-month DSO average.

Consistency doesn’t just apply to specific dealings with a troubled customer.  There also needs to be an enterprisewide effort to establish and apply uniform procedures for dealing with past due invoices and credit limits. This across-the-board consistency is critical because, when any particular customer shows signs of weakness, the methods used for addressing the situation will then come to be seen as standard operating procedure rather than the desperate one-off attempt to “opt out” of a relationship with a financially distressed customer.

It is also important that each customer’s payment terms are consistent with the industry at large.  If payment terms are relatively extreme — i.e., very low or very high for your industry — they can jeopardize a manufacturer’s ability to assert the “ordinary course of business” defense against clawback actions. Of course, excellent, consistently applied credit practices cannot solve every issue, but they can significantly reduce a manufacturer’s or supplier’s exposure to bankruptcy avoidance actions.


From Linkedin

By Michael L. Moskowitz and Melissa A. Guseynov

In an opinion dated February 6, 2017, the Bankruptcy Court for the Northern District of Ohio disallowed a mortgage servicer’s untimely proof of claim in a Chapter 13 case, holding that secured creditors are subject to the same 90-day deadline for filing proofs of claim as unsecured creditors. In re Dumbuya, 2017 WL 486917 (Bankr. N.D. Ohio Feb. 6, 2017). Read the full opinion here.

Francis and Patricia Dumbuya (“Debtors”) filed a petition for relief under chapter 13 of the Bankruptcy Code in September, 2015. Debtors listed a secured claim held by Ocwen Loan Servicing (“Ocwen”) in their petition. Ocwen was provided with notice of Debtors’ bankruptcy filing, but filed a proof of claim approximately nine months after the 90-day claims deadline expired. Debtors objected to Ocwen’s claim as time-barred.

Rule 3002(a) of the Federal Rules of Bankruptcy Procedure (“Bankruptcy Rules”) specifically requires unsecured creditors to file a proof of claim if they want to share in any distribution of estate assets. However, Rule 3002(a) does not mention secured creditors, only unsecured creditors and equity security holders. It is important to note that in a chapter 13 case, a secured creditor does not have to file a proof of claim. Failure to file a claim results only in a waiver of any unsecured deficiency claim. A secured creditor’s lien rights, however, pass through the bankruptcy unaffected, permitting them to enforce their lien against a debtor’s property post-bankruptcy. If a secured creditor wants to receive a distribution in a chapter 13 case, however, it must file a proof of claim.

Bankruptcy Judge Mary Ann Whipple noted in her opinion that courts disagree on whether the Rule 3002(a) deadline applies to secured creditors. Judge Whipple ultimately relied on the Seventh Circuit case, In re Pajian, 785 F.3d 1161 (7th Cir. 2015), which held that Rule 3002(a) applies to all creditors. The Court noted the “administrative complications and delays” that would occur if a residential mortgage holder failed to timely file a proof of claim in a chapter 13 case. Id. at 3. “Requiring all creditors to file claims by the same date allows the debtor to finalize a Chapter 13 plan without the concern that other creditors might swoop in at the last minute and upend a carefully constructed repayment schedule.” Id. (internal citation omitted).

In view of the above, it is essential for secured creditors to act promptly when a borrower files for bankruptcy protection. The filing of a bankruptcy petition under chapters 7, 11, and 13, triggers certain limitation periods which can significantly affect a creditor’s rights and claims. Thus, creditors should immediately consult with experienced bankruptcy counsel to ensure they comply with the requirements of the Bankruptcy Rules, as well as the Local Rules of the Bankruptcy Court where their case is venued.

Please feel free to call Weltman & Moskowitz with any bankruptcy questions or challenges you, your colleagues, or clients may have.


From Linkedin

By Michael L. Moskowitz and Melissa A. Guseynov

On March 22, 2017, the United States Supreme Court held that bankruptcy courts lack the power to dismiss chapter 11 cases by structured dismissal if they provide for distributions that do not adhere to the Bankruptcy Code’s priority rules without the consent of the affected creditors. Czyzewski et al. v. Jevic Holding Corp. et al. (Case No. 15-649) (Sup. Ct.).

The facts are straightforward. Jevic Holding Corp. (“Jevic”) filed a chapter 11 bankruptcy petition in May 2008 in the United States Bankruptcy Court for the District of Delaware after being purchased in a leveraged buyout. Jevic’s bankruptcy prompted two lawsuits. A group of former truck-drivers (“Claimants”) obtained a judgment against Jevic for its failure to provide proper termination notices in violation of state and federal laws. Part of their judgment counted as a priority wage claim under section 507(a)(4) of the Bankruptcy Code, entitling Claimants to payment before Jevic’s general unsecured creditors.

In the second lawsuit, a committee representing Jevic’s unsecured creditors sued certain secured creditors for fraudulent conveyances in connection with the leveraged buyout. The parties ultimately reached a settlement whereby the secured creditors would set aside some money for distribution to unsecured creditors following a structured dismissal. Structured dismissals, typically agreed to after a Bankruptcy Code Section 363 sale is completed, occur when said sale fails to generate enough cash to pay priority claims in full and/or permit confirmation of a plan. In this case, the distribution under the structured dismissal did not include payment to Claimants, who were entitled to be paid before general unsecured creditors. Over Claimants’ objection, the Bankruptcy Court’s approval of the settlement was upheld in the District Court and Third Circuit Court of Appeals. The Supreme Court granted certiorari to decide the issue which has become of paramount importance to debtors and creditors alike since the bankruptcy landscape changed in October 2005. Since the implementation of the Bankruptcy Abuse Prevention and Consumer Protection Act became law in 2005, traditional reorganizations have become rare, with most chapter 11 cases ending with an asset sale under section 363, followed by a structured dismissal.

Justice Breyer, writing for the six-Justice majority, held that a bankruptcy court does not have the power to diverge from the basic priority rules set forth in the Bankruptcy Code. After reviewing the definition of structured dismissals, Justice Breyer observed they have become an “increasingly common” practice. Justice Breyer went on to further explain how the Bankruptcy Code’s priority system has “long been considered fundamental” to the successful operation of the bankruptcy system. He further noted the Bankruptcy Code doesn’t set forth specific priority rules for chapter 11 dismissals, stating the dismissal sections of the Bankruptcy Code seek to reinstate the status quo rather than distribute estate assets.

The Court clarified that the distributions at issue were similar to transactions that lower courts have rejected because they attempt to thwart the Bankruptcy Code’s “procedural safeguards.” Furthermore, distributions in a structured dismissal that violate the priority rules do not preserve the debtor as a going concern or enhance the chances for a successful reorganization. As a result, the Court held structured dismissals that violate the priority rules cannot be approved without the consent of the affected parties.

The Court also explored and rebuffed the Third Circuit’s finding that structured settlements are permissible in “rare cases” in which courts can find “sufficient reasons” to disregard established priority rules. Justice Breyer reasoned that allowing the “rare case” exception could have potentially serious consequences, including shifts in bargaining power of the various classes of creditors, risks of collusion among certain creditors as well as rendering settlements more difficult to achieve. Accordingly, the Court rejected this “departure from the protections Congress granted particular classes of creditors.”

Notably, Justice Breyer was cautious in narrowing the opinion so as not to prohibit certain common “first day” orders in chapter 11 cases, such as payment of pre-petition wages, payment of critical vendors and “roll ups,” which permit lenders who continue financing a debtor to be paid first on their pre-petition claims, clarifying that such practices have significant offsetting bankruptcy-related justifications.

Justices Thomas and Alito dissented, blaming the Claimants for reframing their arguments after the court decided to hear the case. More specifically, Justice Thomas explained that the Supreme Court granted certiorari to determine whether a bankruptcy court has the power to approve a distribution of settlement proceeds in a way that violates the Bankruptcy Code’s statutory priority rules. However, after certiorari was granted, Claimants changed the issue presented to whether a chapter 11 case may be terminated by structured dismissal if it distributes assets in violation of the Bankruptcy Code’s priority rules. As a result of this alteration, Justice Thomas concluded he would “dismiss the writ of certiorari as improvidently granted.”

The Jevic decision makes clear that priority-violating structured dismissals are no longer permitted. However, Jevic may have a far-reaching impact on certain related issues, including the feasibility of “gifting” chapter 11 plans, where creditors give part of their distribution to junior creditors while skipping over a class of creditors. Weltman & Moskowitz, LLP will monitor Jevic-related decisions and continue to keep our clients and colleagues informed of the impact to both debtors and creditors. If you, a colleague, or client have specific questions on this or any other bankruptcy related topic, please call Weltman & Moskowitz, LLP.

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About Weltman & Moskowitz, LLP, A New York and New Jersey Business, Bankruptcy, and Creditors’ Rights Law Firm:


From HG.org

This year, Chapter 11 bankruptcy is getting an overhaul. These changes are designed to make filing for Chapter 11 bankruptcy easier for businesses.

What is Chapter 11 Bankruptcy?

Chapter 11 bankruptcy is a type of bankruptcy that is reserved for business entities. With this type of bankruptcy, a business owner must reorganize his or her company to pay back the company’s creditors.

Businesses may file for one of the following three types of bankruptcy: Chapter 7, Chapter 11, and Chapter 13. Each is designed for filers with different circumstances. Chapter 13 bankruptcy is generally meant for individuals who can get into a repayment plan to reduce their personal debt levels, but sole proprietorship companies may also take advantage of this option.

If a business has no hope of recovering from its financial woes, its owner may opt to file for Chapter 7 bankruptcy. Chapter 7 bankruptcy is available to individuals and businesses whose debt is insurmountable. By filing for Chapter 7, these businesses and individuals eliminate their debts by liquidating their assets under the supervision of a court-appointed trustee.

Owners who want to continue to operate their businesses but need to reorganize their operation in order to do so may file for Chapter 11 bankruptcy. Chapter 11 bankruptcies can be complex, but for many business owners, they are the saving grace their company needs.

How Does Chapter 11 Bankruptcy Work?

When a company files for Chapter 11 bankruptcy, it must submit its plan for reorganization to the court. The company’s creditors then vote on the plan. If the court and creditors approve of the company’s bankruptcy plan, the court assigns a trustee to guide it through the reorganization process. This process can take 20 years or even longer in some cases. If the court does not approve of a company’s bankruptcy plan, the company must write a new plan and resubmit it to the court for consideration. For many companies, getting a plan submitted and approved by the court can take a year or longer.

Big Changes Ahead for Chapter 11

After two years of research, the American Bankruptcy Institute submitted its proposal for ways to make the Chapter 11 bankruptcy process less stressful for companies. The proposal can be summarized in four points:

  1. Narrowing Applicability to Leveraged Buyouts.

These changes include the narrowing of Section 546(e)’s applicability to leveraged buyouts. Section 456(e) provides a safe harbor for certain securities-related transfers. A safe harbor is a statute that deems certain actions are not in violation of a given rule. With the changes to Chapter 11, the protection of settlement payments written into Section 456(e) has a more narrow scope than it did under the old rules. Talk to your attorney about how the recently-narrowed scope will affect your company’s bankruptcy settlement.

  1. Narrowing of the Repo Safe Harbors, Especially with Regard to Mortgage Financing.

Another newly-narrowed safe harbor is the one that regulates repos, or the state of securities with the promise to purchase them back at a slightly higher price.
3. Conforming the Bankruptcy Code to the Federal Deposit Insurance Act and the Dodd-Frank Act’s Orderly Liquidation Authority Standards.

The Federal Deposit Insurance Act bolstered the Federal Deposit Insurance Corporation (FDIC) to insure deposits by banks and other savings associations. This act also determines the activities that insured state banks may participate in and the penalties for individuals who unlawfully engage in related activities.

The Dodd-Frank Act is a recent act that was created in response to the 2008 recession.

  1. Making it Clear That the Safe Harbors Should Not Apply to Ordinary Supply Contracts That Don’t Involve Financial Institutions.

How Can These Changes to Chapter 11 Bankruptcy Affect New York Small Businesses?

These changes protect junior creditors from losing money through haphazard restructurings based on low valuations. These changes also give bankrupt companies extra time after filing their bankruptcy petitions to work out their financing and sales. This makes it easier to obtain financing during the bankruptcy process. Additionally, these proposed changes create an alternate path for small and medium-sized businesses to reorganize their operations.

Contact A Nyack Bankruptcy Lawyer Today

If you are a New York business owner facing bankruptcy, contact an experienced Nyack bankruptcy attorney at the Law Offices of Robert S. Lewis, P.C. at (845) 358-7100 today for your free legal consultation. As one of Rockland County’s premier bankruptcy attorneys, Robert S. Lewis can guide you through the Chapter 11 bankruptcy process and toward a better financial future for you and your company. Don’t wait to make the call – contact our firm today to discuss your case with us and learn more about the options available to you.

The Law Offices of Robert S. Lewis, P.C. uses modern technology in performing research and in the preparation for bankruptcy petitions. The firm assists client with bankruptcy and loan modification, divorce, estate planning and real estate and foreclosure litigation.


Bankruptcy is in most countries, the legal status of a person that cannot repay their debts they owe. In some countries this can also apply to the status of a company. Bankruptcy is usually imposed by a court order by the presentation of a Petition to File for Bankruptcy.

From NyTimes – 

The Supreme Court is scheduled to hear arguments in Czyzewski v. Jevic Holding Corp. on Wednesday. At issue is whether a bankruptcy court can approve a settlement that distributes the debtor’s remaining assets in a way that could not be done under a Chapter 11 plan, at least not without the agreement of all creditors. In this case, some of the parties agreed to settle the case and to pay out the debtor’s cash to some of the creditors, but they intentionally skipped a class of creditors who were entitled to priority payment under the bankruptcy code.

This order of payment in bankruptcy is often referred to as the absolute priority rule, though the term does not appear in the bankruptcy code itself. The basic idea is that secured creditors get paid before the unsecured, who in turn get paid before the shareholders. The application of the rule to bankruptcy liquidations has a long history.

But its use in a corporate reorganization is a bit more confused. The notion that the rule might even apply in this context is something that Justice William O. Douglas essentially pulled out of thin air in Case v. Los Angeles Lumber Products Company. That 1939 case is partly reflected in the current bankruptcy code and Chapter 11, which says that if a class of creditors objects, a reorganization plan has to comply with the absolute priority rule.

But the code says nothing about distributions of the debtor’s assets before there is a reorganization plan. A strict constructionist might say that is the end of the story: Absolute priority applies only when there is a settlement plan in place.

So far none of the parties to the case have taken that approach to heart. One group of law professors — lead by Professors Melissa Jacoby and Jonathan Lipson — argues that settlements should comply with absolute priority. They harken back to Justice Douglas’s probable reason: A hard and fast rule prevents the big players from squeezing out the little players.

But another, smaller group of law professors argues that Chapter 11 thrives on flexibility, and that courts should retain discretion to approve settlements and distributions that they view as fundamentally fair. They also argue that the absolute priority rule is poorly named, in that it is not an actual rule and has never played a central role in American corporate restructuring. For the latter point, they cite an article I wrote last year, among others.

And while the last point endears me to the second group of professors, I admit to being conflicted over what the right result is here. There is a real risk that dissenters are getting squeezed out by modern Chapter 11 practice — which is becoming even more transactional and deal-driven. But a poorly written Supreme Court decision on this point could simply flip the switch and create a tyranny of the minority. Many of the virtues of Chapter 11 would be lost.

I think I ultimately come down on the side of affirming the appellate court decision. That court said that the bankruptcy court could approve a settlement like the one at issue in the Jevic case, but such approvals should be rare. If the Supreme Court simply underlined that last point in a short opinion, the bankruptcy community would be well served.

I should note that there is also some risk that the Supreme Court will never provide a clear answer on these issues. While the case was originally taken to decide the absolute priority rule issue, the dissenting creditors have tried to recast the case as focusing on whether a bankruptcy court can dictate terms when a case is dismissed before there is a plan. The fight over whether that change of direction is proper could well divert the court from the issue originally at stake.


From: NYTimes

Is Chapter 11 doomed? There are reasons to think that the famous financial reorganization law won’t work much longer in its current form.

It has already been widely remarked that the tendency for distressed firms to grant first, second and even third liens on their assets makes reorganization all the more difficult. The bankruptcy code was really not intended for a world where everyone is a secured creditor.

For many years, my research has shown that the growth of credit default swaps has made restructuring more complex by making creditors’ true incentives more opaque. Chapter 11, as written in 1978, is based on the assumption that economic interests and legal interests come as a package, but that is no longer true.

Then there are the safe harbors that remove derivatives, repurchase agreements and securities trades from the crucial protections of the bankruptcy code. It was only a matter of time before smart lawyers figured out that lots of ordinary supply contracts look a lot like swaps or other derivatives if viewed from the right angle.

And there is the trend of putting companies’ real estate assets into REITs, or real estate investment trusts. Caesars Entertainment is proposing to put its real estate into a REIT as part of its Chapter 11 plan. But a host of other companies have already made this move or are considering it. REITs benefit from a tax subsidy, provided that they pass on all of their real estate income to shareholders. Separating a firm’s real estate into a distinct corporate entity allows the company to enjoy this subsidy.

From a bankruptcy perspective, this means that if any of these companies ends up in bankruptcy – or in Caesars’ case, if it ends up in bankruptcy again – the operating company will no longer have direct control over the company’s real estate.

This continues the trend of slicing and dicing the company, giving priority claims to select creditors before the company ever thinks about filing for bankruptcy, and sometimes even when bankruptcy is already looming. In either case, the results in bankruptcy are significant, leaving the bankruptcy estate with increasingly narrow options if the company is to survive.

In the 1980s, law professors would talk about corporations as nothing more than a bundle of contracts, but modern corporate finance is making that a reality. The question is whether Chapter 11 works with such a company, especially if some portion of those contracts are “safe harbored” from the operation of the bankruptcy code.


From HBR.org – Rebecca Knight

Surviving a corporate reorg can be tough. There is often a lot of confusion and uncertainty, and if colleagues were laid off, people might also be sad or angry. How can you make the situation easier for yourself and your colleagues? What steps should you take to protect your job? How do you stay positive? And how do you know when it’s time to move on?

What the Experts Say
Restructurings may be an inevitable part of organizational life but living through them—even when you’re one of the lucky ones still standing—is challenging and stressful. On a personal level, “you have genuinely lost some friends” from the organization, says Kevin Coyne, the co-founder and managing director of strategy consulting firm Coyne Partners and a professor at Emory’s Goizueta Business School. And on a professional level, you’re likely to feel unsettled because it’s “unclear what life will be like under the new regime.” Reactions are typically varied, says Gretchen Spreitzer, a professor at Michigan’s Ross School of Business and coauthor of How to be a Positive Leader. “Some people are cynical—there’s this sense of ‘You fired my friends’ and ‘This reorganization is never going to work.’” Then there are: “the walking wounded who are fearful about the future and worried for those who were let go.” Even stars may have trouble staying positive. “If you’re a high performer, you may feel a loss of control and start to question your options.” But Spreitzer says it’s important to approach the changes with an “optimistic” mindset. “You want to be one of the active advocates who take initiative to make the reorganization work,” she says. Here are some pointers on how to do that.

Before you react to the news, Spreitzer suggests you “listen carefully to what senior leadership is saying about what’s happening, why it’s happening, and what’s the hoped-for outcome.” Management probably had good intentions for the restructuring—it believes the changes will cut costs, increase revenues, or improve efficiency. That said,  “don’t just take the party line and run. Ask lots of questions.” Do your best to ignore the office rumor mill. Don’t listen to the chatter and certainly don’t contribute to it. “The information in the gossip network is probably inaccurate; it will be highly emotional; and there will be lots of venting,” she says.

…And assess
Once you’ve absorbed the planned changes, you need to think about what they mean for your day-to-day responsibilities and your potential job satisfaction, according to Coyne. “After learning what the new game is, you must try to picture what your new job will look like in six to 12 months,” he says. “Then ask yourself some hard questions, such as, ‘Once I get beyond the temporary pain of this, will I still be proud of what this company stands for? Is my new role something I am equally happy and satisfied with?’” Even if you conclude that things have fundamentally changed, Coyne advises resisting the urge to quit immediately. “Don’t pull the trigger just yet,” he says. “You need more information,” and you can use the next several months to evaluate the situation.

Reach out
In circumstances like these, it’s important to show concern and empathy for the people  directly impacted by the reorg.  “Reach out,” Spreitzer says. “Express sorrow that you’ll no longer be working together.” Whether you call, email, or drop by their house with a bottle of wine depends on how close you are to them, she adds. “Put yourself in their shoes and think about how you would want someone to react if it happened to you.” When it comes to the right sentiment, less is more. “Say, ‘I’m sorry. This caught me off guard too. What can I do to help?’” Showing compassion is not only kind it’s also a smart career move, according to Coyne. You should stay in touch with departed colleagues “because those people are your advance warning” on what the job market is like and how you’ll fare should you decide it’s time to leave.

Help out
If you support the new direction your company is taking, it’s worth  letting your boss know, says Coyne. “To the degree that it’s true, tell your manager that you’re on board and that you want to see this reorganization succeed,” he says. That way, he “knows he can count on you—and that you’re not just being a good soldier.” Then follow up with actions that demonstrate your support. Spreitzer recommends seeking ways to “help the organization become more resilient” during the transition. Think about your skills and expertise in addition to your professional passions. Is there perhaps a new position you could grow into? Are there new responsibilities you’d like to add to your current role?

Align priorities
Reorgs are an opportunity for you to “take control of your career” says Spreitzer, but you must also make sure you and your manager agree on where you should be focusing. Priorities have no doubt shifted and if the restructuring means that you’re supposed to take on tasks previously done by others, Coyne recommends you “quickly get on the same page” with your boss about “which parts of your combined workload can be reduced” or gotten rid of altogether. “You need to figure out the most important and least important parts of your new job.” Remember your boss is likely to be stretched thin too so you should “go to her with a proposal” about how you ought to allocate your attention and time. “Be constructive,” he says.

Manage your stress
In the midst of change and uncertainty, “you need to look for things that help you manage your stress,” says Spreitzer. “Be sure to make time for the things you love.” Spend time with family and friends; keep at hobbies and volunteer activities; and of course make sure you’re eating well, exercising, and getting plenty of sleep. You might also try to “inject some levity” at the office to  “raise people’s spirits and getting them out of the moroseness they may be feeling,” she adds. Introduce a daily music break, bring in some fresh flowers, or start a cookie-baking contest every other Friday. “The goal is to create fun and reduce the seriousness of the situation.”

Look for purpose
In addition to offering momentary mood-lifters, you can also work to boost long-term morale among your co-workers by focusing on your shared mission. ”Remind people why they are there in the first place,” Coyne says. If you’re a manager, this is even more critical. Have one-on-one conversations with your people to communicate that “what they do matters,” he says. “Help them see the nobility and purpose of their jobs of their jobs” and convey to them that “they are part of something they can be proud of.” Whenever you feel yourself struggling, Spreitzer suggests “looking for the little rays of light in your workday that give you meaning,” whether they are helping a colleague or interacting with a customer.

Give it time, but don’t hang on too long
It’s fair to “give management the benefit of the doubt” in the weeks and months after the reorg is announced, but if you remain skeptical of the changes after some time has passed, treat it as a sign. “Keep the periscope up,” says Spreitzer. “It you’ve tried to see the light at the end of the tunnel and it’s been 60 to 90 days, it’s time to ask yourself,  ‘Is this an organization I want to stay in?’ If not, you might need to start looking at your options,” she says. “You don’t want to be hanging on if you feel the company is moving in the wrong direction.” Coyne concurs: Once you’ve lived through “the short-term misery” of the restructuring and “gained perspective” about where the company is headed, you are in a better position to make a decision. “If the company is not doing something you feel proud of, you need to go to your contingency plan,” he says.

Principles to Remember


  • Listen to and absorb what senior leadership says about why the reorg is happening
  • Show compassion for colleagues directly affected
  • Seek opportunities to use your skills and expertise to help your organization through the transition


  • Give in to the doom and gloom—remind yourself (and others) of the nobility and purpose of your work
  • Neglect your wellbeing—make sure you’re eating well, exercising, and getting enough rest
  • Hang on too long—if you don’t believe your organization is moving in the right direction, look elsewhere

Case Study #1: Reframe your new responsibilities as an opportunity for growth
Karin Hurt had been working as an HR director at Verizon in Baltimore for more than a decade when a confluence of circumstances—including the company’s imminent merger with Bell Atlantic, her coworker getting fired, and her boss retiring—led to an enormous leap in the scope and scale of her job. The solution, according to management, was to reorganize the $6 billion business unit and give her HR responsibility for it.

The catch: She would not get an official promotion because she was unable to relocate to corporate headquarters in New York. “At first I was mad,” she says.  “I thought, ‘Wait, I’m not going to get the job, but I’m going to do the job?’”

But it didn’t take her long to rethink that initial assessment. “This was a really good opportunity to sit at the strategic table and get exposure to senior leadership, and I decided I should embrace it,” she says. “I needed to trust the process.”

In her new role, Karin reported to the president of the business unit so one of her first moves was to ask him where he wanted her to focus. “A lot of priorities were changing and so we would talk on a regular basis about which ones were most important,” she says. “We often spoke on the phone at 7AM when it was quiet for both of us.”

The office environment was stressful both for Karin and for her team. She buffered her direct reports from the “politics and commotion” related to the merger by reminding them that their work had meaning. “I told them we were a part of something big, something historic,” she says. “With this merger we had the opportunity to put the right policies in place” to make sure the company was on solid footing.

Her good work caught the eye of the senior vice president of customer service. “He took me aside and said, ‘You’re young in your career to focus on only HR. Are you interested in doing other things?’ As a result, I took on a series of field assignments and that led to promotions. It catapulted my career.”

It also gave her the confidence and contacts to start her own firm. She left Verizon in 2014, and today she is the CEO of Let’s Grow Leaders, a consulting company. “When I look back on my time there, I feel grateful,” she says.

Case Study #2: Understand your organization’s new goals and align your priorities
Sid Savara was six months into his job as a lead engineer at a Department of Defense contractor in Hawaii when he started hearing rumors that funding for his project would soon be cut. “I tried not to take part in [the gossip] and just do the best job I could,” he says.

The uncertainty continued for another six months until a VP from the company’s Virginia headquarters showed up unexpectedly at his office one day to announce strategic changes. “He said, ‘Finish what you’re doing. This project is ending. We’re going to restructure and move people around,’” Sid recalls.

Sid’s fate was unclear at that point, so he asked the VP a lot of questions: What is the timeline of the restructuring? What is the new direction of the company? What is the business model for other projects?

He was unnerved by the answers he received. “I wasn’t sure I would enjoy the new projects. Some customers are nicer to deal with than others, some projects are more interesting than others,” he says. “I started to look for a new job and even had some telephone interviews.”

A week later Sid found out he was being reassigned as a team leader for a new project. Half of his prior team was let go. “I decided I was going to give it a chance. I didn’t want make a rash decision to leave,” he says.

On the first day of his new job, Sid had a “proper sit-down” with his new boss to learn about his role in relation to the business. “He explained to me what was going on, how the division works, how we make money, and that helped me align our team’s efforts with those goals.”

This helped him to understand his boss’s most important goals and think about new business opportunities and potential partnerships. “I changed our priorities as I learned more about the business. I understood the roadmap better, and I developed a stronger sense of where developers should be spending their time.”

Sid ended up staying at the company for another four years. Today he is a technical manager at the University of Hawaii.


From Entrepreneur

Every so often, the best businesses will get stuck in a rut. Maybe it doesn’t attract consumers the way it used to, or maybe its consumers have abandoned it entirely, leaving the business to the sound of crickets and the sight of tumbleweeds.

When this happens, businesses are confronted with a stark choice: Change or die. Given that choice, most will choose “change,” but it’s not always that simple. A company has to be able to leave behind its well-established identity and its credibility as a brand, and it’s not always successful.

For those businesses that have managed to meet the demands of a changing marketplace, there can be a new and sometimes greater degree of success. But it’s a tricky balance to strike, and some businesses that have transformed have been met with a collective shrug at best and a Category 5 consumer revolt at worst.

Serial entrepreneur Marcus Lemonis of CNBC Prime’s new reality series “The Profit” has made his fortune in part by turning companies around, so he’s seen his share of businesses that successfully transformed, and those that couldn’t. He said in an interview that “pride of authorship” is one of the most frequent pitfalls he’s observed when a businesses has failed to reinvent itself successfully.

“Businesses come up with a specific format, or a specific product or process,” he said. “They fall so in love with themselves that they don’t listen to what the consumer wants, and they become obsolete. … They don’t anticipate tomorrow.” But what about the successful ones?

“What I see is an acknowledgement of best practices,” he said. “If it’s a peer, you recognize what they do well and you recognize what they don’t do well. When I go to a service-oriented company, I pay a lot of attention to what they’re doing that creates a good experience, and I ask how I can correlate that to my life. I study, listen, learn and replicate.”

Which companies have had notable transformations, for better or for worse? Read ahead to find out.


From Entrepreneur – Donald Todrin

When there was still a frontier, Americans were pioneers. In the 21st century, they need to be “visioneers” — especially when it comes to growing and maintaining successful businesses.

What do I mean by “visioneering?” It is nothing less than the embrace of constant change.

The change needs to be accepted and capitalized on because it is happening.

The recession made it painfully apparent that the Internet, smartphones and other new technologies are causing huge disruptions. The economy has changed, the world has changed and with these changes business has also changed dramatically.

The only question is whether you are going to change too in order to capitalize on it, or be left behind.

You may be a natural when it comes to adapting to chaos and change. But even those who are not can still thrive by consciously changing their daily thinking and planning to stay one step ahead.

Here are some strategies to get you started:

1. If you need to, consider a debt workout. It can be a game-changer. To be sure, defaulting and the likely ensuing foreclosure, concluding in total loss, is a recipe for chaos. But chaos is the name of the game. Sometimes you need to clear out the old vegetation before you can grow anew. Removing the debt from the business and reducing the personal guaranties to affordable losses can allow you to operate the business at given revenue, giving you the freedom to make necessary changes to succeed.

2. Track, monitor, control. How can you change if you don’t know what’s going on with your business? You must diligently track, monitor and control how your business performs and with this information make rapid and appropriate adjustments to enhance profitability. Key indicators to follow include profitability by the job or product, costs, overhead ratio and payroll ratios. Follow these measurements and then manage by the numbers.

3. Make change part of your business model. Constant reinvention is the way to win, because stability and predictability are no longer a reality. You should honor your core mission and be who you are. But you also have to adjust with the times. This comes from frequently reconsidering and questioning your business strategy, experimenting and stepping outside what you “normally” do. Specialize, find your niche, provide amazing service, be the best, the most, the go-to business. It is no longer gross revenue; it is net profit that we pursue.

Related: From Major Crisis to Comeback, What One Startup Learned

4. March to the beat of a different drummer. There are all kinds of routes to consider: importing instead of manufacturing, adding services, focusing on a niche, emphasizing a competitive advantage, expanding horizontally or vertically, allowing employees to telecommute from home. The possibilities are infinite. The idea is to determine what works and does not on a daily basis and then make the adjustments required to stay profitable. Lead or get out of the way.

5. Get your marketing online. If you haven’t done it already, Internet marketing is a big change to consider as you reinvent your business. The Internet has already changed the world, so it’s time for it to change your business too. Options to consider include: a beefed-up website and online sales operation, search-engine optimization, blogging, deal-of-the-day services such as Groupon and LivingSocial, Facebook and Twitter. The Internet can help a small micro-business compete with the largest international business. Budget no longer controls the outcome, but neither does price alone. But perceived value and niche marketing will win, developed and enhanced with the community support that social networking provides. This can best be accomplished via the Internet.

Adapting to change is not a new challenge. American entrepreneurs in the past found ways to reinvent their businesses amid mind-boggling changes: the settling of the frontier, railroads, steel, antibiotics, electricity, automobiles, telephones and airplanes.

We must learn to do so again. Embrace change. Do not avoid it. It is happening anyway. So make it part of your business plan.