Archive for the ‘Chapter 11’ Category

Dodgers File Chapter 11 Bankruptcy

Monday, June 27th, 2011

The Los Angeles Dodgers, one of the most storied franchises in baseball, had to file Chapter 11 bankruptcy today. It will be interesting to see what happens now. Most of the time, these types of bankruptcies are to quickly structure a sale of the franchise, but it doesn’t look like the McCourts want to sell the Dodgers. But, it seems, everyone else does want them to sell the Dodgers.

McCourt tried to put together a sale of television rights that was worth $3 billion over 17 years, with a cash advance of $385 million, that would have resolved his family court problems and the team’s liquidity issues. But Major Leage Baseball shot it down, saying that McCourt would essentially be using a substantial portion of the $385 million for his personal reasons, thus sucking more value out of the franchise, and that the broadcast rights are worth much more than the contract provided. One theory is that McCourt was use the bankruptcy court to force MLB to accept the TV deal. However, Fox (the company offering the TV deal) now says that they do not want the deal forced on MLB, so where does that leave McCourt?

The franchise agreement that all owners have to sign with MLB is incredibly restrictive. Owners essentially give MLB the right to come in and do whatever they want “if it is in the best interests” of MLB. And relying on that clause, MLB stepped in and essentially placed the Dodgers into something akin to a receivership. So, it will be interesting to see if the bankruptcy court gives McCourt any leverage in the discussion as to how much of that franchise agreement is enforceable by MLB.

Thinking about starting a restaurant . . . be careful about running up too much debt

Tuesday, March 1st, 2011

The restaurant business is tough as it is, but when restaurants acquire a lot of debt, it is sometimes impossible to make it work. One of the biggest reasons that start-ups fail is inadequate capital and it is important to remember that debt does not equal capital.

Another local restaurant, Campagnia, has filed for Chapter 11 reorganization. Hopefully, this will allow the restaurant to get its financial house in order and keep its doors open. With $4 million in debt, it is unlikely the restaurant could have had adequate cash flow to survive without a reorganization.

Financial Reform = No More Derivative Special Treatment in Bankruptcy?

Monday, April 26th, 2010

Thomas Jackson and David Skeel have written an interesting piece in the Wall Street Journal proposing that true financial reform might be as simple as getting rid of the special treatment that derivatives are given in Bankruptcy. Derivatives are truly given special treatment in the bankruptcy code. In fact, in a recent article in the California Bankruptcy Journal, Michael Weiss suggested a way to make bankruptcy proof loans using derivatives.

This is an interesting concept and should be investigated. Unfortunately, I doubt Congress will be have the foresight, or should I say, the lack of political motivation, to examine this issue closely.

Senate Considers Allowing Small Businesses to File Chapter 12

Wednesday, April 14th, 2010

The Senate Judiciary Committee held a hearing entitled Could Bankruptcy Reform Help Preserve Small Business Jobs on March 17, 2010. The ideas presented at the hearing included a proposal to add a new category of entity that could file Chapter 12 (formerly reserved for family farmers and fisherman)–”small business enterprises.”

A small business enterprise would be defined as a small business with $10 million or less of debt where at least 50% of the debt had been incurred for business purposes. An exhaustive analysis of the proposal and proposed bill langauge can be found at http://judiciary.senate.gov/pdf/3-17-10%20Small%20Report.pdf.

This kind of proposal makes a great deal of sense for many reasons. First, it is rare indeed to find a Chapter 11 case that can be completed for less than $30,000 in attorney fees. A Chapter 12 case, on the other hand, might be able to be done for half of that on a fairly regular basis. Second, Chapter 13 would also be an inexpensive route, but the debt limits for Chapter 13 are so low that many small businesses do not qualify and Chapter 13 only applies to individuals, not LLC’s or corporations. Consequently, many small businesses that are incorporated (even those under the debt limits) do not qualify to file Chapter 13.

Opening up Chapter 12 like this makes a great deal of sense and the Senate should be encouraged to take up such a bill and to pass it.