Archive for the ‘Bankruptcy News and Events’ Category

A Florida based flea market has filed for Chapter 11 bankruptcy due to a three-year lawsuit with Coach over alleged sales of counterfeit items.

Visitors Flea Market filed for bankruptcy protection in part to protect an awaiting sale of the entire business for $5.1 million to Treasure Island Real Estate Partners. After the death of founder and owner Delroy Josephs in November 2013, family members have disagreed over the sale of the business.

Federal agents raided the flea market in December of 2011, as per documents filed in the Coach lawsuit. Coach claimed over 500 counterfeit purses and other items were being sold at stands throughout the market.

Coach is seeking maximum damages for alleged willful violation of trademark laws: each violation could potentially cost up to $2 million a piece.

Investigators for the leather goods company toured the Visitors Flea Market months before the raid; they handed out letters ordering vendors to stop selling the alleged counterfeit merchandise.

Coach accused Josephs of knowing about the knockoffs being sold, but he denied the allegations. According to bankruptcy documents, a settlement agreement was signed by an attorney for Josephs’ estate six months after his passing. The settlement amount was not revealed.

Julio Batista, one of the market’s vendors, signed an affidavit in 2011 that he witnessed a salesman distributing counterfeit Coach purses; the man was identified as the “Chinese Man.” Batista claimed he did not know the items were knockoffs.

“The items displayed at my booth were sold to me through a Chinese Man that comes weekly to the flea market and sells these items in cash,” according to Batista’s affidavit. “This is a very common type of business for a small flea market business.”

Two companies related with the market specifically filed for bankruptcy: the owner and operator, Visitors Flea Market Inc., and a separate leasing company that rented out over 250 vendor booths.

Visitors Flea Market provided a general range of its debt in filing documents—between $1 million and $10 million.

Teen clothing retailer Delia’s Inc has filed for bankruptcy and plans to liquidate its assets.

In its Sunday Chapter 11 filing with the U.S. Bankruptcy court, the company recorded total assets of $74 million and liabilities of $32.2 million. Additionally, Delia’s Chief Executive Tracy Gardner and Chief Operating Officer Brian Lex Austin-Gemas have resigned on Friday.

The New-York based company announced Friday that Hilco Merchant Resources and Gordon Brothers Retail Partners will assist in settling company assets, including equipment, furnishings and fixtures.

Salus Capital Partners has given Delia’s $20 million debtor-in-possession credit so the chain may continue operations and conduct final store closings and sales.

“The company does not anticipate any value will remain from the bankruptcy estate for the holders of the company’s common and preferred equity although this will be determined in the anticipated bankruptcy proceedings,” Delia’s said in its Friday statement.

Delia’s is the latest clothing retailer to close up shop in the past year. Philadelphia-based company DEB filed for bankruptcy protection on December 4, attributing a shortage of capital to its demise.

Coldwater Creek, Loehmann’s, Ashley Stewart and Dots have also filed for bankruptcy in 2014.

Retailers have struggled in the wake of the recession and most have reported dreary sales. According to AP, Black Friday sales decreased by 7 percent in 2014. Americans have been turning to online retailers such as Amazon.com, who can provide a better discount on apparel than a brick and mortar store.

Major teen apparel competitors Abercrombie & Fitch Co. and Aeropostale Inc have registered a decrease in shares by 22 percent and 73 percent respectively, over the past 12 months.

In February, Delia’s had 499 full-time and 1,190 part-time employees in its 95 nationwide stores, according to filings with the Securities and Exchange Commision.

Delia’s shares were listed at 1.8 cents, down 7.4 percent, in pre-market trading Monday morning.

The House of Representatives have passed a bill that will permit banks to file for bankruptcy.

The bill, passed on Monday, is known as The Financial Institutional Bankruptcy Act of 2014. It will allow financial institutions to willingly begin the process of bankruptcy, or in some instances, allow the Federal Reserve to start the process.

This bill was a rewrite to current bankruptcy law and was supported by Wall Street banks. The law will not only apply to financial organizations but also to other large commercial firms, such as insurance companies.

“This process will allow a failing financial institution to transfer its assets to a newly formed bridge company over a single weekend, which will promote confidence in the financial marketplace,” Ranking Member John Conyers (D-Mi) said in a floor speech, urging colleagues to pass the bill.

The bill employs a “single point of entry” method, which will permit a holding company to enter bankruptcy and allow subsidiaries to remain outside the process.

This law builds upon previous efforts to avoid taxpayer bailouts of financial institutions. Under the Dodd-Frank financial reform law, known as the Orderly Liquidation Authority, there is a stipulation to allow an administratively-led resolution procedure.

In his speech, Conyers argues that bankruptcy is a better option; he also stated he supported the bill because it did not reduce any particular conditions of the law.

Critics feel the bill favors large banks at the expense of their trading associates and has no direct promise to prevent future taxpayer bailouts.

The Financial Institutional Bankruptcy Act of 2014 was passed with bipartisan support. It was co-sponsored by Rep. Spencer Bachus (R-Al.), House Judiciary Committee Chairman Bob Goodlatte (R-Va), John Conyers. It is part of an ongoing response to the fallout of the 2008 collapse of Lehman Brothers.

Columbus Blue Jackets defenseman Jack Johnson has filed for bankruptcy, according to the Columbus Dispatch.

Johnson, 27, is in his ninth NHL season. He is slated to earn $5 million this season. However, due to his parents' mismanagement, he won’t see a dime.

After splitting from his agent Pat Brisson in 2008, Johnson gave power of attorney to his parents. With his fortune in their control, his parents took out a series of high interest loans in his name after Johnson signed a seven-year $35 million contract with the Los Angeles Kings in 2011.

The first loan Johnson’s parents took out was for $1.56 million, used to purchase a home in Manhattan Beach, California. The loan included a 12 percent interest rate and a down payment of $1 million.

Just one day after signing the home loan, the Johnsons took out a $2 million personal loan from U.S. Congressman Rodney L. Blum, also with a 12 percent interest rate.

Hardly one month later, the Johnson took out a $3 million personal loan—this one at 24 percent interest. The loan was funded by Pro Player Funding.

Not even a month later, Johnson was sued by both Pro Player Funding and Congressman Blum; he reached a settlement with both parties that included garnishing his wages.

However, Johnson’s parents continued to take out more loans in his name—up to 18, according to the Columbus Dispatch. Additionally, both parents purchased new cars and made roughly $800,000 in home improvements to the Manhattan Beach home.

On October 7, Johnson filed for bankruptcy, listing assets "of 'less than $50,000' and debt of 'more than $10 millon,'" according to court papers; the Dispatch alleges his debt might be closer to $15 million. Due to the high level of debt, Johnson is filing Chapter 11 bankruptcy, which is usually reserved for businesses.

Johnson has cut off communication with his parents but no legal action has been taken at this time; he has sued mortgage lender Steve Miller, who was involved in the home loan, in an attempt to prevent a foreclosure.

“I’d say I picked the wrong people who led me down the wrong path,” Johnson told The Dispatch. “I’ve got people in place who are going to fix everything now. It’s something I should have done a long time ago.”

Johnson’s bankruptcy hearing is scheduled for January 23, 2015 in Los Angeles.

Dendreon Corp, the maker of the world’s first cancer vaccine, filed for bankruptcy protection this Monday.

The Chapter 11 bankruptcy has been filed as Dendreon faces an outstanding $620 million in convertible debt that is due in 2016. The Seattle-based company listed over $664 million in total debts and $364.6 million in assets.

The arrangement requires a recapitalization of Dendreon, or a sale of the company and all its assets, according to a statement released today. The company also indicated it had agreed on financial restructuring terms with several bond holders.

Provenge was approved in 2010 as the first immunotherapy and was intended to treat patients with advanced-stage prostate cancer. Drug sales never met its expectations as Provenge is difficult to administer and cost $93,000.

The treatment requires a patient’s extraction of white blood cells to be mixed with vaccine components. The combination is then provided as an infusion.

The high cost of manufacturing Provenge specifically hurt Dendreon and allowed several competitors to surpass the company.

Dendreon reported only $283.7 million in revenue in 2013, significantly smaller than 2012’s $325.3 million.

"The business is fundamentally unprofitable so, without a change to efficiencies in the manufacturing process, it's really difficult to see them coming back as a standalone company," according to Wedbush Securities analyst David Nierengarten.

Dendreon dispensed several staff and cost-cutting actions over the past years after the company realized revenue growth would take much longer than expected.

By summer 2014, it was clear that cost cutting alone would not make Dendreon "independently viable with its existing capital structure," according to general counsel Robert Crotty.

Shares of Dendreon plummeted Monday, dropping 70 cents to 24 cents in one afternoon of trading. The stock posted below $1 earlier this quarter, as compared to $2.99 at the close of 2013.

Dendreon said it plans to resume operations during the restructuring and will continue to provide Provenge to patients.

Friday, November 7th, 2014

Judge Approves Detroit Bankruptcy Plan

A federal judge ruled in favor of the Detroit bankruptcy plan, finalizing a 16 month process in which the city petitioned to file a Chapter 9 bankruptcy.

U.S. Bankruptcy Judge Steven Rhodes ruled that the Motor City’s complete restructuring plan is rational and achievable. Detroit now has legal authority to cut more than $7 billion in unsecured liabilities and put back $1.4 billion into public services over the next 10 years.

The decision allows Detroit to trim roughly 74 percent of its unsecured debt. Additionally, the plan expects probable cost savings via more effective government operations that might increase the city’s reinvestment plan to $1.7 billion.

Rhodes said that Detroit’s settlement with pensioners was a “miraculous” conclusion; he also overruled every objection to the city’s plan.

"This city is insolvent and desperately needs to fix its future," Rhodes said.

Rhodes also stated that Detroit made the correct decision to preserve the Detroit Institute of Arts instead of attempting to sell artwork to settle debts.

Today’s ruling ends the largest municipal bankruptcy in U.S. history; the city of Detroit is expected to officially emerge from bankruptcy within the next few weeks.

Detroit emergency manager Kevyn Orr made a statement regarding Rhodes’ decision:

"With Judge Rhodes's historic decision, Detroit moves further along the path toward financial stability and success as a viable and attractive place to live, work and invest. My team and I are pleased that Judge Rhodes agrees that the Plan is the best way for the City to resolve its financial difficulties and remain on solid financial footing.”

Detroit’s two major financial creditors, Syncora and Financial Guaranty Insurance Co. initially fought the city’s petition, arguing that the filing illegally favored pensioners over other creditors. However, both institutions dropped their objections after reaching settlements with the city.

The remaining creditors supported the plan and pensioners voted to accept the deal over a 60-day balloting process this summer.

Orr’s tenure in Detroit will now end with the conclusion of the city’s bankruptcy filing. General control over the city will return to Mayor Mike Duggan and the City Council.

A Financial Review Commission, staffed by gubernatorial appointees, will oversee the city’s finances over the next decade.

Tuesday, October 28th, 2014

Closing Arguments in Detroit Bankruptcy Trial

The historic Detroit bankruptcy trial came to a close on Monday when city attorneys gave closing arguments as to why U.S. Bankruptcy Judge Steven Rhodes should approve the city’s bankruptcy plan.

Judge Rhodes is expected to announce his ruling on November 7.

Closing arguments highlighted the necessity to pass the debt-cutting plan, which would free Detroit from $7 billion in debt and open up money to improve city services.

The City of Detroit filed for bankruptcy in June 2003, claiming to owe over $18 billion in debt. The bankruptcy plan was revealed earlier this year: it aims to restructure and settle debts through several different severe measures, including reducing city employee pensions.

Funding of roughly $200 million will come from Michigan taxpayers and due to an agreement to not sell off art pieces from the Detroit Institute of Arts, the city will received nearly $500 million from private and corporate donors.

City lawyer Bruce Bennett identified the greatest risks that would stop Detroit from executing the debt-cutting strategy. He stated the plan could collapse if city leaders strayed from the plan to invest $1.7 billion.

"The worst thing that could happen is if the $1.7 billion is misused or perceived to be misused," Bennett said. "Either would be an enormous problem."

Detroit filed a Chapter 9 bankruptcy case, which is similar to the proceedings of a Chapter 11 business bankruptcy case. However, a main difference is the inability to liquidate assets if Judge Rhodes does not approve the plan.

"In Chapter 9 you have to have consensus because there's really no viable alternative," said John Pottow, professor of law at the University of Michigan. "If this plan gets shot down, you can't liquidate Detroit -- so it's literally just back to the drawing board.”

If Judge Rhodes approves Detroit’s bankruptcy, Bennett believes the city can start executing the plan before Thanksgiving.

Tuesday, October 21st, 2014

Wyly Bankruptcy: Tycoon Owes $400 Million

Texas entrepreneur Samuel Wyly has filed for bankruptcy on Sunday, stating he does not own the assets to pay roughly $400 million in penalties for an overseas fraud scheme.

According to the Chapter 11 petition, Wyly stated he had assets and debt between $100 million and $500 million. He attributed his debt to the “massive costs of investigations and then litigation” by the Securities and Exchange Commission.

“While the debtor has substantial assets, he does not have the ability to pay the full amount of all asserted claims at the present time,” according to the filing.

A New York judge ruled last month that Wyly, 80, and the estate of his late brother, Charles, must forfeit up $187.7 million plus interest. In May, a civil jury found they were involved in a 13-year fraud scheme in which they used offshore trusts and subsidiaries to conceal stock sales.

It is believed the Wylys accrued upwards of $550 million in untaxed earnings through their system, which lasted over a decade.

The SEC is listed as Wyly’s second greatest creditor, with a claim of $198.1 million, according to court documents. Wyly listed the Internal Revenue Service as his biggest creditor, with disputed debts “unknown.”

Depending on how interest is calculated, the total payment owed by Wyly and his late brother’s estate will fall between $300 million and $400 million.

The Wylys created, grew and sold numerous companies since the 1960s. Their most noted companies include Sterling Software and Michael’s craft stores, which were both sold for $4 billion and $6 billion, respectively.

The SEC stated the Wylys used profits from secret stock sales in several of their companies to purchase real estate in Aspen, Colorado, a horse farm in Texas, jewelry and art. The brothers were also major donors to many Republican candidates and politicians.

In 2010, Wyly appeared on Forbes’ list of the 400 richest Americans, with an estimated new worth of $1 billion.

Outside of the filing papers, there is no official statement on the Wyly bankruptcy at this time.

A U.S. bankruptcy judge has dismissed the case of a Colorado marijuana business owner, stating that while he is in compliance with state law, he is breeching the federal Controlled Substances Act.

Frank Arenas, wholesale distributor and producer of marijuana, was seeking Chapter 7 bankruptcy protection. According to his petition, he owes $556,000 to unsecured creditors.

He testified he owns roughly 25 marijuana plants, each valued at $250, which Arenas would have liquidated into payments in his Chapter 7 case. However, the trustee could not take control of the plants without breaking federal law.

Additionally, Arenas’ case could not be converted to a Chapter 13, which would permit him to pay off his debts gradually, because, as Judge Howard Tallman writes, the agreement would be financed “from profits of an ongoing criminal activity under federal law.”

"Violations of federal law create significant impediments to the debtors' ability to seek relief from their debts under federal bankruptcy laws in a federal bankruptcy court," Judge Tallman added.

Arenas’ case the second marijuana business bankruptcy dismissed in Colorado including a marijuana business; a least two other cases have been discharged in California.

The inability to file for bankruptcy is one of many issues marijuana business owners currently face.

Forbes reported last week how many banks are leery to deal with marijuana businesses because of potential legal problems they could face. Bank personnel could be prosecuted for a number of crimes, such as money laundering or marijuana conspiracy, and face up to 10 year mandatory minimum sentences, depending on the amount of pot in question.

At this time, marijuana business owners will be caught between state and federal law, according to Sam Kamin, a law professor at University of Denver.

"As long as it is illegal under federal law, we are going to have weird anomalies like that," Kamin said.

Arenas is appealing Judge Tallman’s decision.

Detroit reaches a settlement with its greatest opponent, bond insurer Syncora Guarantee Inc., this Monday, according to a lawyer for the city.

Under the deal, Syncora will recover roughly 14 percent of money owed, which they've long claimed totals more than $333 million. Syncora will receive two sets of notes from Detroit, a lease to control a tunnel to Canada, land near the tunnel, and the possibility of leasing and controlling a parking structure.

With this settlement, Syncora is fully exiting the Chapter 9 bankruptcy case, including any future appeals.

David Heiman of Jones Day, a lawyer for Detroit, said to U.S. Bankruptcy Judge Steven Rhodes in Monday’s hearing that both parties have “laid down their swords.”

While the agreement with Syncora is an important cleared hurdle for Detroit’s bankruptcy emergence, the city still faces creditor Financial Guaranty Insurance Co., who is seeking roughly $1.1 billion from the pension debt it insured.

On Monday, FGIC asked Judge Rhodes to suspend the trial until September 22 so the company can modify its approach in the wake of Syncora’s settlement. The trial is currently on hold since last week so Detroit and Syncora could finalize their deal.

Detroit’s Grand Bargain is centered around an estimated $816 in pension debt. FGIC may be held responsible for payment if investors end up taking losses.

The Grand Bargain aims to relieve $7 billion in liabilities while supporting state retirement arrangements from state and private contributors. Detroit has guaranteed it will not sell off any pieces from its art collection to pay back any debts.

Syncora apologized in a court filing Monday. The company has been a longtime adversary in the case and recently accused court appointed mediators of inappropriate conduct and conflict of interest.

Because of the apology, Rhodes has stated he will no longer sanction Syncora in its attorneys.