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Business Reorganization Committee Meeting Minutes

2006 Winter Leadership Conference

The Young and New Members Committee met jointly with the Business Reorganization Committee on Friday, December 1, 2006. The program, entitled "You Can Run, But Can You Hide? - Are Third Party Releases Permissible in Plans of Reorganization?" discussed the propriety of such releases for professionals, officers and directors and third party co-defendants. The panel, comprised of the Honorable Judith Fitzgerald, from the United States Bankruptcy Court for the Western District of Pennsylvania, Ronald Barliant from Goldberg Kohn Bell Black Rosenbloom & Moritz Ltd and Bill Kosturos from Alvarez & Marsal, was moderated by Brian Shaw of Shaw Gussis Fishman Glantz Wolfson & Towbin LLC. The panel addressed the reasons for third party releases, the typical requirements for obtaining such releases (if permitted) and the practical methods by which to obtain and implement them through the confirmation process. Noting that such releases are not universally accepted, the panel also keyed the audience into the different positions taken by the circuits with respect to third party releases. Given the diverse perspectives on the panel -- debtors' and creditors' counsel, a jurist and a business advisor -- the discussion provided an interesting and insightful presentation to all who attended.

2006 Annual Spring Meeting

On Friday, April 21, during the ABI’s 24^th Annual Spring Meeting in Washington, DC, a joint meeting was held by the Business Reorganization, Public Companies & Claims Trading, and Financial Advisors Committees.

The meeting began with an introduction of the committee co-chairs:

Public Companies & Claims Trading:   

Glenn Siegel
Dechert
New York, NY

Geoffrey Groshong
Miller Nash LLP
Seattle, WA

Financial Advisors:       

David M. Powlen
Mesirow Financial Consulting, LLC
New York, NY

Rebecca A. Roof
AlixPartners LLC
New York, NY

Business Reorganization:

Jo Ann J. Brighton (New Co- Chair)
Kennedy Covington Lobdell & Hickman
Charlotte, NC

Bradley Sharp
Development Specialists, Inc.
Los Angeles, CA

It was announced that Bob Keach of Bernstein, Shur, Sawyer & Nelson, PA in Portland, Maine, co-chair of the Business Reorganization committee is moving on within the ABI.    Jo Ann Brighton of Kennedy Covington Lobdell & Hickman L.L.P in Charlotte, NC, will become the new co-chair of the Business Reorganization committee.

After the introductions, the committees attended a panel presentation titled The Power of Information:  Who Gets What and How Can They Use It?  The paneldiscussion focused on dissemination and control of information during a chapter 11 case. The panelists were William Weintraub of Pachulski, Stang, Ziehl, Young, Jones & Weintraub P.C. in New York, and Daniel Golden of Akin Gump Strauss Hauer & Feld LLP also from New York.  The panel was moderated by Bradley Sharp of Development Specialists, Inc. in Los Angeles, one of the co-chairs of the Business Reorganization committee.

The panel discussed a wide range of issues but focused on the intent of the new code section 1102(b)(3) and its practical implications.  The panel essentially agreed that most new cases are looking to establish communication protocols to limit the sharing of sensitive information. 

The panel also discussed, but did not reach agreement, on the efficacy of trading walls and the appropriateness of committee members trading in securities of the debtor.

The committees would like to thank the panelists and all in attendance for an interesting and informative presentation.

2004 Winter Leadership Conference

The committee teamed up with Young and New Members to participate jointly in an education session titled “Valuations in Chapter 11 Cases: What You Want Depends on Where You Sit (and When You Sit There).” In addition, the meeting included (1) information on what’s new at ABI, (2) a brief introduction to describe the joint educational session with the Business Reorganization Committee and (3) YNMC subcommittee reports (programming, publications/web site and networking).

2003 Annual Spring Meeting

The meeting was called to order at 8:30am and Robert Keach advised the attendees that the educational program was a joint presentation by the Business Reorganization Committee and the Investment Banking Committee.  He then introduced Anthony Schnelling, co-chair of the Business Reorganization committee and welcomed Peter Kaufman, co-chair of the Investment Banking Committee.

Committee Business:

1. Robert Keach discussed the success of the News at 11 column in the ABI Journal and solicited authors with an interest in producing work for that column.  He indicated that, at least at present, the editorial slots were filled but indicated that the editors were responsible for providing, not necessarily writing, the column for the months they had been assigned.  Interested authors were asked to contact Robert Keach at 207-228-7334or rkeach@mainelaw.com or Anthony Schnelling at 212-207-4710 or aschnelling@bridgellc.com.  Any topic related to the business aspect of the reorganization practice will be welcome and the editors will be encouraged to find a slot for publishing it.
2. Next Robert Keach discussed the need for both authors and editors for the E-Newsletter the committee produces each month.  Interested participants were encouraged to contact Robert or Anthony as the committee is trying to build on its early success with this vehicle and get a panel of editors in place.  Content for this publication is much more informal than for a Journal piece.  A case note on an interesting and cutting edge decision, a topic of relevant interest involving problems related to DIP financing, case management, plan creation and confirmation are all sources of material which would be of interest to members of the Committee.  These need only be a few informal paragraphs as the formatting and production is handled by Caroline Milani and the rest of the able staff at the ABI.

Educational Program – Emergence of the Chapter 363 Case

Robert Keach outlined the premise that more and more cases are apparently being filed with the specific purpose of organizing and consummating a sale or sales of all or substantially all of a debtors’ assets through a Section 363 sale under the auspices of the Bankruptcy Court.  He pointed out that this has been fairly common in the hi-tech, dot com and telecom industries in recent years.  He also pointed out that, notwithstanding Lionel, most courts have routinely approved these sales even though they commonly leave little for a debtor to accomplish through its plan but the liquidation of the proceeds left behind after the sale and the litigation remaining to the debtors and the unsecured creditors’ committees.

This trend has raised the level of importance of the Investment Banking function in the reorganization practice.  He asked Peter Kaufman to talk to the nuts and bolts issues and concerns of investment bankers pre- and post – petition and to discuss how he prepares a debtor for a sale and manages the process.  Peter Kaufman then discussed the investment banking process, without making specific distinction between pre – and post – petition engagements.

1. Creation of an engagement letter with the tasks, responsibilities and compensation clearly spelled out and agreed;
2. Definition of goal with the client – usually achieve highest and best price for the assets.  The factors involved in this definition are:
   1. How to maximize certainty?
   2. What kind of consideration is wanted (stock/cash/other)?
   3. Encouraging the client to realize that cookie cutter solutions do not exist in reorganization.
3. Define the time line.
   1. 30 days too little to do a good job
   2. 90 days is an excellent amount of time
   3. 60 days is probably the optimum time frame

                                                     i.     Factors involved here are:

                                                      ii.     How much liquidity does the client have?

                                                        iii.     What kind of relationship does client have with its lenders?

4. Building Blocks for sale process are:
   1. Define the buyer population
   2. Assemble due diligence and marketing materials.
   3. Organize an effective due diligence process.
   4. Keep competitive dynamic effective through closing.
   5. Prepare draft contract.
   6. Identify key problems – key contracts to put out for potential buyers to review.
5. Prepare and circulate confidentiality agreements:

                                                     i.     How valuable are these?

                                                      ii.     How much time does one have to accomplish the sale?

                                                        iii.     How hard to get agreed.

                                                        iv.     How to resolve the internal questions which will get asked regarding “sharing information with competitors bidding in the 363 process” and how to clarify their motivation – competitive research or genuine interest in the assets or both?

                                                      v.     Be aware of the collateral issues that potential buyers may also be trading claims and consider asking all 363 participants for a standstill on claims trading.

                                                        vi.     How tight Confidentiality needs to be depends on the context

1.     is a sale the only option?

2.     could the company emerge as a stand alone entity from bankruptcy?

3.     How valuable is raw data to potential competitors?

6. Issues to be aware of:
   1. Ist week decisions are critical

                                                     i.     Info flow internally may affect quality of Confidential Offering Memorandum (“COM”)

                                                      ii.     Building consensus with management or with crisis manager, if any, is key to getting good data together quickly for COM.

                                                     i.     Short time frame drives process to strategic buyers because they know the industry and the deal (especially the warts).

                                                      ii.     How critical is it to attract financial buyers to get maximum value and how can this be accomplished?

                                                     i.     Who will run the business (no value will remain if everyone focuses on the sale and the business collapses)?

                                                      ii.     Who will assist the investment banker with the sale process – due diligence, negotiation, sourcing potential buyers?

                                                     i.     Identify best potential buyers

                                                      ii.     Identify price levels

                                                        iii.     Negotiate contracts simultaneously.  Keep an eye on the need for apples to apples contract provisions.

The discussion then shifted to the role of Fairness Opinions as part of a sales transaction in or out of bankruptcy proceedings.

7. Fairness Opinions – Peter Kaufman explained that outside of bankruptcy “fairness opinions” are routine and it is easy to understand that, in a litigious marketplace, boards of directors and officers of both buyers and sellers want the comfort that assets they are buying or selling are being traded at a price which is fair to their constituents.  Some obvious reasons are:

                                                     i.     To avoid fraudulent transfer challenges in a future bankruptcy or under state law.

                                                      ii.     To validate value so as to ensure the full protection of the “prudent man rule” and protect indemnification rights.

                                                        iii.     To gain a level of comfort that the price is indeed fair in and of itself.

In a bankruptcy proceeding it is more difficult to understand the need for this form of assurance and protection for boards of directors and officers of selling debtors.  There was an extensive discussion, with much audience participation, regarding the purpose of a 363 sale – cleansing the assets of unwanted liabilities and getting court approval for the process.  The whole concept of requiring a Judge to validate the debtor’s decision as to the highest and best bid appears to immunize directors and officers from liability and obviate the need for a “fairness opinion”.

Robert Keach offered for consideration the fact that investment bankers in cases he is in have been asked recently for “fairness opinions” in a 363 context notwithstanding the immunizing value of a bankruptcy court order.  Anthony Schnelling offered the thought that in this context a “fairness opinion” might act to validate the process engaged in by the officers and directors of the debtor and assure them that their actions could not be attacked in that context.  There was a general sense of the meeting that this might be a valid reason to use and request a “fairness opinion” in the context of a 363 sale but that such opinions were of little use to anyone for a validation of the value of a transaction once a court had ruled on the fairness of value.  Keach indicated and Kaufman agreed that the context in which they have seen or considered such opinions did relate to the process aspects of the sale and offered the thought that these opinions were and should be heavily qualified to be entirely fact specific:

i.               under existing circumstances

ii.              considering existing liquidity

The thought was offered from the floor that if such opinions were to be requested they should be bargained for in the engagement letter process with the investment banker because no banker would give this sort of opinion in this context without very specific parameters agreed in advance.  To request such opinion during the process was likely to meet with a refusal or an exorbitant fee.

8. Conducting the Auction Process
   1. It is important to have auction procedures in place and blessed by the Bankruptcy Court well in advance of the auction.  The bid procedures are routinely blessed by the court but often the actual procedures for running the auction (timing of bids, interaction between bidders, closed or open process) are left to the debtor’s discretion and the buyers don’t have enough time to set their strategies accordingly.  Also, some courts have definite views on auction issues and it is best not to be in court on an emergency basis fighting over the procedures for running the auction on the day of the auction.
   2. On the Auction Day it is critical to provide

                                                     i.     Maximum flexibility to the buyer

                                                      ii.     Maximum flexibility to the seller

                                                     i.     Open outcry auction?

                                                      ii.     Sealed bid auction?

                                                        iii.     All participants meet together at all times or can there be provate interactions?

                                                        iv.     How to deal with the instantaneous valuation issue particularly when there bids which differ as to price, payment terms, contract terms, etc.

                                                      v.     How to value non cash component of bids?

1.     Get opening bids from all potential buyers in advance to assist the debtor to understand any non-cash component prior to the auction taking place.

                                                        vi.     How does one recognize and deal with collusive bidding or side deals

                                                         vii.     Make certain creditors’ committee representatives are part of the process, especially if they are out of the money

The participation from the floor was lively throughout.  Questions were not held till the end, but were entertained and answered during the flow of the discussion

There being no more business, Robert Keach offered thanks to Peter Kaufman for his excellent presentation and thanked the attendees and the panel for their participation.  The meeting was adjourned at 9:30 am.

2002 Winter Leadership Conference

The ABI Business Reorganization Committee met on December 6, 2002 at 8:00 a.m. in connection with the ABI Winter Leadership Conference (“WLC”) in Tucson, Arizona. Presiding at the meeting were co-chairs Robert J. Keach and Anthony H.N. Schnelling. Over 50 conference attendees were present at the Committee meeting and educational program.

The Committee first discussed the launch of its new column in the ABI Journal entitled “News at 11.” The first installment of the column appeared in copies of the ABI Journal distributed at the WLC. The current editorial board for the column—Robert J. Keach, Daniel Carragher, David Stratton, Jo Ann Brighton, and Deborah Crabbe—was acknowledged and thanked at the meeting for their support of the column.

The Committee also discussed the commencement, just before the WLC, of its e-newsletter. The first “issue” of the newsletter was on-line prior to the commencement of the WLC, and is being used as a prototype for other ABI committees. The chairs asked for volunteers to serve on the editorial staff of the e-newsletter and a number of committee members have volunteered to help. The chairs will announce the panel of authors for the e-newsletter within the next month.

The chairs also solicited topic ideas for upcoming committee programs, as well as for plenary sessions at the WLC and the annual spring meeting.

Following the end of the business session, the committee presented its CLE session entitled “Emerging Issues in Hospitality, Entertainment Venue and Gaming Bankruptcies.” Panelists Rudy J. Cerone, Douglas Draper, and Linda F. Cantor discussed, among other topics, first-day orders unique to such cases and special cash collateral concerns which arise in such reorganizations. The chairs wish to acknowledge the panelists for an exceptional and informative program.

The next meeting of the Business Reorganization Committee will be held in conjunction with the Annual Spring Meeting in Washington, DC.

Respectfully submitted by the chairs as of December 6, 2002.

2001 Winter Leadership Conference

Robert J. Keach and Patricia Staiano, Co-Chairs, and Dillon Jackson of the ABI Board of Directors, as well as the following members of the committee: Deborah Crabbe, Kip Jones, Matt Hohman, Rudy J. Cerone, Peter McGlynn, Ralph E. McDowell, Weldon Moore, Donald F. King, Henry Efroymson, Richard J. Mizak, Evan R. Sorem, Les Raikow, Mark P. Williams, Jack Cullen, Phil Giacinti, Stan Leir, George Frasier, Scott Jablonow, Howard S. Cohen, Jon Cohen, Edward A. Phillips, David Peress, Daren Brinkman, John McLaughlin, C. Daniel Motsinger, Timothy A. Davidson II, Christian Onsager and Dennis H. Long.

1. Dillion Jackson of the ABI's Publications Committee reported to the Committee on the ABI's project on "first-day orders" and the anticipated publication of the results of that project.
2. The committee next discussed possible topics for future seminars both at the committee level and for plenary sessions at the Washington, D.C. and Winter Leadership meetings. Possible seminar topics discussed included:
   • A. First-day Orders, including an emphasis on retention bonus programs and critical vendor motions.
   • B. Small Business—difficulties in obtaining DIP financing.
     1. How do you finance the small to mid-size cases?
     2. Draft loan documents, motions for approval—more hands-on manual.
     3. How-to's on non-traditional financing.
     4. Financing the $1,000,000 to $10,000,000 case.
     5. Link on website listing lenders?
     6. Lenders vs. investors—2 different panels?

   • C. Program on Due Diligence on Debtor's side.
     1. How acquainted are the bankruptcy lawyers with what is common with the transactional people?
   • D. Insurance coverage issues, D&O litigation.
3. Subcommittees
   • A. The Co-chairs announced that the subcommittee chairs would be asked to send Bob Keach a one page summary of what's going on in each subcommittee, pending projects, etc.
   • B. The reports would be used to assist in determining whether some of the subcommittees should be discontinued or have a change in mission. This topic to be further discussed at the Washington, D.C. meeting.
4. IV. Publications
   • A. Noting that the committee had not had a consistent publication vehicle, the following issues were discussed:
     1. Do we try to establish a regular column in the ABI Journal?
     2. Should we have a regular publication vehicle (such as a newsletter)?
     3. Noted that David Stratton had done a previous newsletter.
     4. With respect to a possible column in ABI Journal, Deb Crabbe volunteered to discuss the prospect with the Publications Committee.
5. V. The committee then conducted its CLE program: "Pay to Stay, Retention and Severance Pay Motions: When are they justified and under what conditions?"

2001 Annual Spring Meeting

Deborah Crabbe (Betts, Patterson & Mines; Seattle), chair of the Subcommittee on Small Business, led a discussion of small business provisions and a proposal to present key changes at the Winter Leadership Conference (Nov. 29-Dec. 1; Carlsbad, Calif.). In addition, two new subcommittees were proposed: Labor and Employment, which was passed unanimously, and Financial Advisors, also passed unanimously—its first meeting was held at the conclusion of the Business Reorganization Committee meeting. Howard Cohen and Scott Victor gave a presentation entitled "Financing the Small- and Medium-size Businesses," which discussed contacting financiers, types of financing, financing terms and confidentiality issues.

2000 Winter Leadership Conference

2000 Annual Spring Meeting

The meeting of the Business Reorganization Committee was held during the Annual Meeting in Washington on April 29, 2000. The meeting began shortly after 8 a.m.

The first order of business was to approve the minutes of the committee meeting held during the Winter Leadership Conference at La Quinta, Calif., in December 1999.

Following approval of the minutes, Chairman Christian Onsager asked for reports from subcommittee chairpersons. Larry Ahern reported on behalf of the Insurance subcommittee that proposals to deal with bankruptcies filed by health maintenance organizations are being considered. Mr. Onsager suggested ins and outs of various types of insurance coverage as a potential topic for a committee presentation. Robert Keach presented a report on behalf of the Partnership and Limited Liability Company subcommittee. He reported that he is working on developing a project regarding how limited liability companies and limited liability partnerships should be dealt with under the Bankruptcy Code.

Next, Deborah Crabbe of Betts, Patterson & Mines in Seattle, Wash., chairperson of the Small Business Subcommittee, reported that her subcommittee is awaiting congressional action on the bankruptcy reform legislation. If that legislation, in its present form, is approved by Congress, it may be the subject matter of a presentation at the Winter Leadership Conference. Deborah asked that members of the committee provide her with cases in which they been involved (or reported decisions) applying the small business procedures of the Bankruptcy Code. It was suggested that a possible project would be to poll members who have been involved in small business bankruptcies on the decision to elect application of the small business bankruptcy procedures to their cases as well as the results when the election was made. Finally, Gregg Miller of Pepper Hamilton LLP announced the joint meeting of his Construction and Surety Law Subcommittee with the Insurance Law Subcommittee to discuss construction and surety law. At that joint meeting, the subcommittees presented programs on a surety's rights to contract funds, given by George J. Bachrach of Whiteford, Taylor & Preston, and on insurance company issues in chapter 11 cases, given by David M. Neff of Jenner & Block. Mr. Miller also announced that his subcommittee is planning a survey on the treatment of trust funds and surety law issues under state law.

No reports were submitted by the Gambling, Secured Creditors or Agriculture subcommittees of the Business Reorganization committee.

Following subcommittee reports, Bob Keach of Bernstein, Shur, Sawyer & Nelson in Portland, Maine, presented a discussion on the difficulty faced by individuals filing chapter 11 proceedings. Bob Keach distributed his paper discussing the difficulties faced by individuals in chapter 11 proceedings, as well as the effect of the proposed bankruptcy reform legislation on the availability of chapter 11 relief for individuals. He then led a detailed and very interesting discussion, focused on the difficulties faced by individuals in confirming a plan of reorganization under which they retain property. The relevant case law makes it clear that it is nearly impossible to cram down a plan over the opposition of creditors. Mr. Keach reported that the principal problem here is courts' interpretation of the absolute priority rule. He also reported that the proposed reform legislation would make individual chapter 11 cases just like chapter 13 by requiring that 100 percent of a debtor's disposable income be committed to payment of creditors under a plan. The proposed legislation would allow a creditor to move to extend the period under which payments are made under the plan and to increase the amount of income committed to the payment of creditors under a chapter 11 plan.

Larry Ahern of Gullett, Sanford, Robinson & Martin in Nashville, Tenn., then made a presentation on the Third Circuit's decision in the First Merchant's case, pursuant to which the Third Circuit held that §503(b)(4) permits individual members of a creditors' committee an administrative expense claim for attorneys' fees incurred in assisting the member in discharging its duties as a committee member. Larry reported on the background of the amendments to §§503(b)(3) and 503(f) that explicitly provide for reimbursement of expenses incurred by a committee member. He then described the Third Circuit's decision holding that reasonable expenses demonstrably incurred in connection with the committee member's services on the committee are recoverable under §503(b)(4).

The meeting concluded with a discussion of new business. Christian Onsager asked for suggestions for educational programs to be presented at the Winter Leadership meeting in December 2000. Suggestions included a discussion of insurance coverage, the application of 203 N. LaSalle by bankruptcy courts, and a survey of significant case law developments in the prior year. Mr. Onsager also reminded those present to submit suggestions for articles for the Cracking the Code on the ABI web site.

Prepared by: David B. Stratton
Pepper Hamilton LLP
Wilmington, Del.

1999 Winter Leadership Conference

Mr. Onsager welcomed the attendees and reintroduced Deborah Crabbe (Betts Patterson & Mines P.S., Seattle), the newly appointed chair of the Small Business Subcommittee. Mr. Onsager also announced that the Ethics Subcommittee had been dissolved in favor of a new general ABI committee that encompassed the same subject (see summary of Ethics committee meeting). He explained that ABI had adopted a policy to provide additional CLE through presentations at committee meetings, and a presentation titled "A Multitude of Mysteries About Business Reorganizations Under the New Amendments or the Same Old Code" was then introduced. Lawrence Ahern (Gullett, Sanford, Robinson & Martin, Nashville, Tenn.), chair of the Insurance Subcommittee, reported on the status of insurance company insolvencies. He noted that the pending bankruptcy legislation did not address any insurance insolvency issues directly, but that the issue of state vs. federal regulation was not yet dead. Robert Keach (Bernstein Shur Sawyer, Portland, Maine), chair of the Partnership and Limited Liability Company Subcommittee, gave a presentation regarding the new legislative proposals on individual chapter 11 cases. Mr. Keach noted the difficulties that these changes would present for individual chapter 11 reorganizations in contrast to the current status of the law. Ms. Crabbe hit the numerous high points of the proposed legislation regarding small business reorganizations.

Henry DeWerth-Jaffe (Pepper, Hamilton & Sheetz LLP, Philadelphia), made a presentation on behalf of the Construction & Surety Law Subcommittee. Mark Collins (Richards, Layton & Finger, Wilmington, Del.), chair of the Secured Creditor Subcommittee, discussed the potential impact on secured creditors of S. 625, pointing out proposed changes to relief from stay provisions and §1110. Mr. Onsager then briefly discussed the issues of notice under the Bankruptcy Code and the proposed amendments concerning notice to governmental entities, the suggested change to §365 and a few other legislative points. He also noted that Reggie Jackson (Vorys, Sater, Seymour & Pease, Columbus, Ohio), chair of the Environmental Subcommittee, and Jim Shea (Shea & Carlyon Ltd., Las Vegas), chair of the Gaming Insolvency Subcommittee, were prepared to address the new legislation as it related to their fields, but in the interests of time, had graciously ceded the floor to the other Subcommittee Chairs. Mr. Onsager then discussed developing committee projects. Greg Miller (Pepper, Hamilton & Sheetz LLP, Philadelphia), Construction Subcommittee chair, noted that his subcommittee was continuing its project to gather the mechanics' lien laws in all 50 states with a view toward publishing the results. The other subcommittees were urged to develop their own ideas.

Mr. Onsager also discussed how committee members could develop or volunteer to assist with projects, which could be either a subcommittee project or an independent committee project (since the subcommittees do not cover all of the subjects that fall within the committee's purview). He then discussed redoing an analysis of the business provisions of S. 625 for both ABI World and other public dissemination, at ABI's discretion. Volunteers for aspects of this project were requested. Ideas were then solicited for a committee educational program for the Annual Spring Meeting. The various suggestions included a program on individual chapter 11's, the effect of the suggested chapter 12 modifications and a program on intellectual property issues. A program regarding the interrelationship of insurance companies and health care insolvencies was also discussed. Suggestions were also made that subcommittees be formed on intellectual property issues and the reorganization of e-commerce companies, which the committee will pursue.