Business Bankruptcy News Bulletin Summary for Week of October 25

The items below are excerpted from the Business Bankruptcy News Bulletin. A full issue contains information on dozens of troubled companies, as well as informational and analysis highlights and an examination of business bankruptcy matters. Please visit the insideARM bookstore for information on subscribing to the Bulletin.

A Brief Look at Carve-Out Agreements

Carve-out agreements are made between secured creditors and an unsecured creditors’ committee, as a result of companies filing Chapter 11 petitions in order to sell their businesses as going concerns. In such cases, debtors often file motions to authorize sales immediately upon filing, often with secured creditors’ blessings, and often with those same creditors holding a lien on a debtor’s assets.  In order to resolve any objections to a quick sale of the debtor’s assets, carve-out agreements are often sought with unsecured creditors.  Under such agreements, secured creditors carve-out a portion of the sale proceeds for general unsecured creditors, proceeds which would generally go to secured creditors.  Once the asset sale is completed, the debtor then converts its Chapter 11 case to a Chapter 7.  Such carve-out agreements, however, have been challenged. Some consider them as violations of distribution rights established under sections 507 and 726(a) of the U.S. Bankruptcy Code.  However, in the SPM Manufacturing Corp. case, the courts upheld the validity of carve-out agreements. The U.S. Bankruptcy Court in Delaware, in the World Health Alternatives Inc. bankruptcy, also upheld carve-out agreements under similar situations referenced in the SPM Manufacturing decision. Questions remain however with respect to carve-out agreements in future cases, such as the question as to whether these agreements contravene the cases that prohibit section 363 sale orders.

BANKRUPT COMPANIES

Ames Department Stores Inc. asked the U.S. Bankruptcy Court for permission to extend, until 4/29, of next year the deadline to solicit acceptances of its Chapter 11 reorganization plan.

Blockbuster Inc., which recently entered bankruptcy proceedings, said that it lost $152 million on a net basis in this year’s first eight months on revenue of $2.2 billion.

Emivest Aerospace Corp., San Antonio, Tx., filed Chapter 11 in the U.S. Bankruptcy Court for the District of Delaware. The firm listed assets and liabilities of between $50 million and $100 million each. The filing was under case number 10-13391. For more information contact the court at 302-252-2560.

Movie Gallery Inc. and its affiliates asked the U.S. Bankruptcy Court for approval to auction off their remaining intellectual property.

Swiss Re International SE, UK Branch, New York, N.Y., filed Chapter 15 in the U.S. Bankruptcy Court for the Southern District of New York. The firm listed assets of between $1 million and $10 million and liabilities of between $10 million and $50 million.  The filing was under case number 10-15370. Also filing were City International Insurance Co. Ltd. under case number 10-15360, Fuji International Insurance Co. Ltd. under case number 10-15363, Hiscox Insurance Co. Ltd. under case number 10-15364 and Metropolitan Reinsurance Co. (U.K.) Ltd. under case number 10-15366 among other filings. For more information contact the court at 866-232-1268.

Ultimate Escapes Holdings LLC has seen a 10/20 sale hearing scheduled in its Chapter 11 bankruptcy. For further information contact the U.S. Bankruptcy Court in Wilmington, De. at 302-252-2560 and refer to case number 10-12915.