Bankruptcy Bits

New court decision establishes company's liability for debt to corporate successor

The recently decided case of Renaissance Worldwide, Inc. v. Converged Access, Inc., et al has lessons for everyone.

The facts of the case are that the plaintiff, Renaissance Worldwide, had leased space in a Waltham building to one Sitara Networks, a voice-over internet company. Sitara arranged for a secured creditor to foreclose on its assets and then subsequently bought them back, reopening as a new entity, Converged Access. Renaissance, claiming to be owed $1.2 million in unpaid rent, brought suit seeking to hold the defendant, Converged Access, liable for the tenant's non-payment as corporate successor to the tenant.

The Court found that "(T)he transaction at issue was designed and engineered from the beginning to ensure that there would be a seamless transaction...with minimum disruption to the business." In essence, Converged "purchased" Sitara's assets by assuming Sitara's debt to Lighthouse (Capital Partners,) its secured creditor. In a well documented 19-page decision, the Court concluded that "(f)or these reasons, the credible facts as established at trial demonstrate that Renaissance has established Converged's liability for Sitara's debt to Renaissance as Sitara's corporate successor."

The decision in the case represents the first time that a lower Court has applied the key successor liability doctrine established by the Supreme Judicial Court in the case of Milliken& Co. v Duro Textiles, in which the SJC held that "New Duro" was responsible for the debts of "Old Duro" and had to pay its supplier, Milliken, the sum of $8.8 million.

The concept of successor liability smacks of fraudulent conveyance law and just plain old fraud. It has particular significance in environmental law as well as in creditor-debtor relationships, and it is a hot topic these days.

The lessons to be learned from Renaissance and other developing cases is that debtors can no longer avoid liability by the device of a friendly foreclosure of assets - real and/or personal property, that creditors have a viable basis for attacking devises calculated to avoid liability, and that attorneys must be diligent in their investigations of transactions involving the transfer of assets in cases in which the claims of creditors are sought to be avoided.

The successor liability cases are fact dependent and therefore require thorough investigation and careful analysis of the facts leading up to the transfer, the nature of the transfer, and the conduct of the new entity after it receives the assets. It may well be anticipated that these cases are the forerunners of a new series of cases more clearly defining this developing area of creditor/debtor law.

By: Eugene B. Berman, Esq.

Consumer bankruptcy filings continue at a record pace

Data released by the National Bankruptcy Research Center and the American Bankruptcy Institute conclude that consumers in the U.S. continue to face hard economic times, resulting in 126,434 new consumer bankruptcy cases having been filed in July 2009, which is over a 34% increase from the same period of time in 2008. Even comparing July’s numbers to June shows almost a 9% jump in the number of filings. The number of cases filed in July 2009 represents the largest number of cases filed in a single month since the new bankruptcy amendments became effective in October 2005.

While some “experts” say that the our country’s financial crisis has bottomed out and is now improving, the numbers disprove that for conclusion most consumers, who continue to battle the effects of high unemployment or underemployment, while trying to maintain servicing of their existing debts. It appears that the tidal wave of consumer bankruptcy filings will continue for longer than many people expected.


by: Michael B. Katz, Esq.

Can I lose my job as a result of my filing for bankruptcy?

The answer is clearly set forth in Section 525 of the Bankruptcy Code titled, "Protection against discriminatory treatment. Paragraph (b) of the Section is specific in its prohibitions:

 

No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt, solely because such debtor or bankrupt –

1. is or has been a debtor under this title or a debtor or bankrupt under the Bankruptcy Act;
   
2. has been insolvent before the commencement of a case under this title or during the case but before the grant or denial of a discharge; or
   
3. has not paid a debt that is dischargeable in a case under this title or that was discharged under the Bankruptcy Act

 

The "no" answer to the individual contemplating bankruptcy is important to that individual but is equally important to employers who may not realize the statutory prohibition against a bankrupt person by terminating the individual or refusing to employ an individual who has been bankrupt.

 

While the "no" answer is comforting to the would-be-bankrupt, it is an answer to a question that should be posed by employers, or would-be employers, before they take action that would be in violation of Sec.525.

 

Alas, the law is not always without exceptions. Debts incurred as a result of defalcation of a fiduciary duty, larceny, fraud, deceit and other acts of dishonesty, malfeasance and criminal intent, while generally non-dischargeable, may well be justification for either terminating or not employing an individual where such conduct is related to the position of employment. Although "no" is the general, statutory answer, a prospective debtor and present and past employers are best advised to consult with counsel concerning specific facts and situations.

by: Eugene B. Berman, Esq.

 

 

2009 bankruptcy filings expected to set new records

Bankruptcy filings during calendar year 2009 are surging ahead of 2008. They are up 22% over the same period last year, with 950,000 filings this year, compared to 700,000 during the same period in 2008. If the trend continues, the total filings for 2009 are predicted to reach 1,500,000 cases.

The combination of unemployment and the depressed home market are likely to fuel increased filings for a long time, as homes continue to be foreclosed on, and people continue to either lose their jobs, or become forced to take jobs that pay less and have fewer benefits.

By: Michael B. Katz, Esq.

NYC restaurants filing bankruptcy include Tavern on the Green

In another sign of times, even the wealthy and famous are feeling the effects of the declining economy. In New York City, the owners of a well-known eating institution have sought the protection of the US Bankruptcy Court in the Southern District of New York. The 75 year old Tavern on the Green filed Chapter 11 after its lease was terminated by its present landlord, the City of New York, who has granted a new 20 year at that location to another restaurant, the owners of Central Park Boathouse, commencing January 1, 2010.

Tavern on the Green continues to operate while in Chapter 11, but has said that it may auction off the restaurant’s name, which it claims has a value of $19,000,000. Even with an auction sale, it may not realize enough to pay its creditors in full.

In the misery-loves-company category, another well-known eatery has also filed bankruptcy in NYC. Opened in 1917, the Cage de Artistes closed its doors and filed Chapter 7, not even attempting to reorganize. It was reported by NDP Group, a market research company, that over 500 restaurants had closed this year in NYC.

By: Michael B. Katz, Esq.