Recent Bankruptcies

The following are recent commercial bankruptcies. Creditors who do business with any of these debtors, or other entities which may have filed for bankruptcy protection, are entitled to certain protections under the Bankruptcy Code. 

1. Wolverine Tube Inc. and several affiliates filed prearranged Chapter 11 petitions after reaching a deal with noteholders.  According to the Declaration of Wolverine's President in Support of Debtors' Petitions, Wolverine suffered a cash decline due to volatility in commodity prices and debt obligations. Wolverine is represented by Cozen O'Connor P.C., a law firm.

2.  Ambac Financial Group, Inc., headquartered in New York City, is a holding company whose affiliates provided financial guarantees and financial services to clients in both the public and private sectors.  Ambac Financial Group Inc. filed for bankruptcy for Chapter 11 bankruptcy relief with United States Bankruptcy Court for the Southern District of New York. Following its bankruptcy filing, Ambac sued the United States to block the Internal Revenue Service from placing a lien on its assets in an attempt to recover about $700 million in tax refunds, claiming tax refunds as essential to its reorganization efforts.  As a result of the lawsuit, Ambac and the IRS agreed, and the bankruptcy court approved, for the IRS to not take enforcement action against Ambac without giving fives days’ notice.

3.  American Media, Inc., the National Enquirer publisher, plans to file a prepackaged Chapter 11 plan.  American Media Inc. owns and operates the leading celebrity and health and fitness media brands.

What Does Filing Bankruptcy Offer?

As a result of a bankruptcy filing, an automatic stay prohibits creditors from collections activities outside bankruptcy proceedings. If a creditor does not follow the Bankruptcy Code in obtaining payments, it may run into problems with preference claims.  Once a trustee obtains a judgment from a preference transfer against a creditor, the judgment is good within the boundaries of the state that it was issued so the attorney for the trustee will likely register the judgment in the state where the judgment debtor resides.  In California, a judgment from another state would be registered under the Sister State Money-Judgment Act.  Then the bankruptcy trustee can use state law to go after any assets the judgment debtor owns in the state.

A creditor may be entitled to take certain legal action. For example, a supplier who has shipped goods which were received by the debtor within forty-five days before the bankruptcy filing, can submit a reclamation demand to recover possession of the creditor’s products, or if the debtor decides instead, receive a higher priority administrative claim as to the goods when compared to an unsecured creditor, increasing the likelihood of receiving payment. The reclamation demand needs to be in writing.

The filing of a bankruptcy petition by the debtor may relieve a creditor from the agreements if the agreement is not assumed by the debtor.