Bankruptcy Issues: Due Diligence Considerations

When a debtor files for bankruptcy protection, there is some useful information that should be reviewed in due diligence. First, you should review the bankruptcy petition and all public documents related to the filing that are posted on the court docket and available at the websites of each of the U.S. Bankruptcy Courts. (Note that there is a charge by the Administrative Office of the U.S. Courts for retrieving data electronically.) Second, you should review the debtor’s financial statements. If the bankrupt company is a public firm, then you can get the financial statements at wwww.freeedgar.com. Finally, you should consider reviewing media accounts of the bankruptcy, such as are available at standard daily and weekly print and electronic sources including, of course, this company’s online daily and weekly publications.

Whether to File that Proof of Claim

A creditor ought to be provided with a formal notice of a Chapter 11 case before the debt owed to it can be discharged. Therefore, there may be situations where an unlisted creditor, that has actual notice of the filing, may wish to refrain from filing a proof of claim. Before doing this, however, the creditor should carefully examine the plan to determine the ability to collect the debt. For example, if the debtor will dispose of its assets as part of a reorganization plan, there may be no source from which the creditor can recover its undischarged claim. If that is the case, the creditor may want to consider filing that proof of claim.

Accuride Corp. has filed its First Amended Plan of Reorganization with the U.S. Bankruptcy Corp.  Under the plan, the company will initiate a $140 million rights offering and enter into a $306 million credit facility while also providing for $290 million in subordinated notes claims to be converted into 98 million shares of common stock of the reorganized firm.

Jones Stephens Corp., Moody, Al., filed Chapter 11 in the U.S. Bankruptcy Court in Delaware. The firm listed assets of between $50 million and $100 million and liabilities of between $100 million and $500 million. The filing was under case number 09-14414. For more information contact the court at 302-252-2560.

Lyondell Chemical Co., the bankrupt Houston, Tx. unit of LyondellBasell of the Netherlands which expects to repay its $8 billion bankruptcy loan and which is being sought by Reliance Industries Ltd., has now filed a reorganization plan with the U.S. Bankruptcy Court in Manhattan. For more information call the court at 866-232-1268 and refer to case number 09-10023.

Trump Entertainment Resorts Inc.’s bankruptcy took another turn when Carl Icahn announced he had purchased $486 million first-mortgage liens on hotels that are owned by the Atlantic City, N.J. firm. Terms weren’t announced, but it’s thought that Mr. Icahn bought up a 51% interest in the debt at 93 cents on the dollar or more, and the deal also reportedly gives him a call that could allow him to increase that stake. Mr. Icahn says he will back up a bankruptcy reorganization plan supported by Dallas, Tx.-based Beal Bank. Donald Trump had earlier lined up with Beal Bank but he recently realigned with noteholders who object to the plan by Beal, which has no experience in operating casinos.

Vero Fashion Outlets, an outdoor mall in Vero Beach, Fl., hopes to file a reorganization plan in January. The company filed for protection from creditors in October in order to stay a foreclosure lawsuit that was filed by LNV Corp. against its owner, investor Irwin Tauber and the Tauber Family Trust. LNV, based in Nevada, says that the mall defaulted on a $30 million loan.