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Lump-Sum Benefits May Be Removed in Bankruptcy

Dealing with the possibility of lump-sum pension benefits while going through bankruptcy is a strain on any company.

That's a substantial concern for American Airlines as it tries to find a way to emerge from bankruptcy. The company asked a federal court last month for permission to amend its pension policy and prohibit retirees from taking a lump-sum option, according to Workforce Management.

That filing came shortly after the IRS issued a new ruling on worker benefits after bankruptcy. Looks like the IRS recognized the problem pension plans can create for a company trying to re-establish itself in the market.

Bank lenders can't be put first by companies headed towards Chapter 11 bankruptcy. The 11th Circuit Court of Appeals ruling has set an important new precedent bound to send ripples through the lending industry.

The decision came following a long legal battle between homebuilding company TOUSA, its hedge fund debt holders, and Citigroup. The case had been heard by a bankruptcy judge and a district court. There was $421 million hanging in the balance. In the end, the appeals court ruled the Citigroup loans incurred by TOUSA to fight off bankruptcy were avoidable as fraudulent transfers.

It was a complicated fight, to say the least, but what does it mean for companies facing Chapter 11 and creditors?

Will Mad Cow Disease in California Lead to Bankruptcies?

As reports continue to stream in regarding the California dairy cow infected with mad cow disease, American consumers are second-guessing their meat choices. The news has even caused two major South Korean stores to pull U.S. beef from their shelves. Could bankruptcy announcements follow?

While the USDA investigates the circumstances surrounding the tainted cow, the only thing certain is that the beef industry will likely suffer from the press.

But how much damage could the negative coverage do to beef producers and could it be enough to force bankruptcies?

Meat processing giant AFA Foods has filed for bankruptcy-court protection due to controversy stemming from "pink slime," a ground beef filler. The company says the pink slime bankruptcy was brought on by slumping sales.

Pink slime is ammonia-treated boneless lean beef trimmings that is often added to ground beef. It has been approved for use for years by the USDA, the Los Angeles Times reports.

However, any in-house counsel worth their salt knows that even if something is deemed okay by the government, that alone isn't reason enough to do nothing.

Kodak Files Chapter 11, Claims Tech Companies Owes Royalties

Iconic photography company Eastman Kodak has filed for Chapter 11 bankruptcy protection.

Kodak has been in business for 131 years. The company pioneered innovations in print film. It was widely considered the "Google" of its day. Kodak film accounted for 90% of the market in 1976. Kodak cameras accounted for 85% of the camera market.

Up through the 1990s the company was heralded as one of the top 5 most valuable brands, according to The Economist. Ironically, its downfall can partially be attributed to its own innovation: the digital camera, invented by Kodak in 1975.

$600M Missing at MF Global as Jon Corzine Resigns

MF Global is bankrupt. And for whatever reason, the trading firm is missing more than $600 million. The Securities and Exchange Commission is now said to be probing into the situation, and is looking into whether or not Jon Corzine misled investors.

Corzine headed the now-defunct brokerage firm. He is the former governor of New Jersey and ex-CEO of Goldman Sachs. The firm filed for bankruptcy on Monday.

The bankruptcy is recent news, but the firm faced increasing scrutiny from regulators the past few months.

Borders Bankruptcy: Meet the Lawyers Handling the Case

The year didn't start out on a high note for Borders executives and shareholders. At the beginning of January, the bookseller was in discussions with publishers about deferring payments, as well as talking to lenders about refinancing its debt. Not only that, Borders began bleeding executives--vice presidents, the chief information officer, and even the general counsel. It was thus expected when the company filed for bankruptcy last week in a Manhattan court.

Borders blames the economic downturn and online competition for its predicament, and plans to close 200 of its 642 stores in the next few weeks. It's hoping that it can run the remaining locations more efficiently and competitively.

Before Filing for Bankruptcy, Pay Your In House $100K

Word to the wise: before filing for bankruptcy, pay your In House Counsel $100,000 for a job well done. Although financial services company Ambac cited a whopping $1.7 billion in debt in their recently-filed Chapter 11 bankruptcy, the company managed to settle up with their In House Counsel Kevin Doyle shortly before filing the petition.

Kevin Doyle was paid $100,000 in "recognition of his efforts to maximize the company's cash position, thereby assisting the company in its efforts to emerge successfully from Chapter 11 bankruptcy proceedings." Generous? Yes.

The right thing to do? Questionable.

Chapter 11 Company Mechanics

With Chapter 11 becoming a popular option for companies big and small, an In House associate may be ready to brush up on what is involved before offering advice on the process or calling up outside counsel.

Here is an rundown of what to expect as a company makes its way through a Chapter 11 filing:

1. Continuing Operations.  Filing for Chapter 11 makes the company a "debtor in possession" with a right to retain property of the estate and continue operating the business.

2. 341 Meeting.  About 20-40 days after filing, be ready for the "341" meeting where the trustee will ask about the company's assets and liabilities, income and expenses, and other financial queries.

3. Creditor's Committee.  The U.S. Trustee's office may go ahead and appoint a "creditor's committee" made up of the company's seven largest unsecured creditors.  The committee can participate in drafting the company's reorganization plan.

4. Reorganization Plan.  The company will be tasked with coming up with a plan on addressing its creditors, typically by prioritizing them.  The company will need a nod of approval from each class of creditors.

5. Debt Discharge.  On approval, the plan vests all property of the estate in the debtor and discharges all debts and liens incurred before the plan or as agreed to.

 

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Southwest's New Frontier?

And now looking to the friendly skies, Southwest Airlines last week confirmed its plan to submit a bid for the bankrupt Frontier Airlines.  By getting the nonbinding proposal off the ground, in line with the bankruptcy court's requirement, Southwest can now officially check-in with Frontier to request information and documents as part of its due diligence efforts to research the company.

Southwest may be number one in daily domestic flight operations, but it came in second in making a move for Frontier.  Indiana's Republic Airways submitted its $108.8 million bid earlier last month.  The bid was provisionally agreed to by the judge, so long as no better offer came along before August 10th 2009. 

And then Southwest flashed its boarding pass to the bankruptcy show.