Many companies attempt to grow too fast by pursuing ambitions in the marketplace. Growth almost certainly involves taking on debt as companies add equipment, leases, employees and other infrastructure in order to accommodate the anticipated increase in revenues. Many times the growth does lead to new business but the additional debt burden consumes the benefits of that growth and the debtor begins to drown in the sea of growing payables. Even worse, the debtor may have taken on a secured line of credit that threatens to sink the good assets belonging to the company’s previously profitable main business operation.

By focusing on the core business operations of a struggling company the Chapter 11 bankruptcy process can frequently allow that company to shed its extraneous operations, reduce overhead, and trim debt-service payments to a sustainable level.

This is why when new distressed companies come to see me I ask if there is a core sustainable business within its struggling condition. If the answer is “yes” we explore how taking advantage of the automatic stay in bankruptcy and many of the restructure provisions of Chapter 11 will help that company return to profitability.

A great example of this strategy is the case of Chadwicks of Boston a company that has recently emerged from its own Chapter 11 case.

Chadwicks is a woman’s clothier that had experienced long success in targeting the 45- to 60‑year-old demographic. Recently the company flirted with attempting to sell to a younger customer but that strategy backfired. The company found itself burdened with a 700,000‑square-foot headquarters and too many employees. Cash flow was hemorrhaging and the company became viewed as “bad guys” that were not financially stable. By returning to its roots as a clothier for women over 45, reducing its space to a 16,000-square-foot office suite and maintaining a solid workforce of approximately 52 employees Chadwicks has focused on its core business and is poised to enjoy double-digit sales growth in 2013.

The post Save Your Core Business In Chapter 11 Bankruptcy appeared first on Baltimore Bankruptcy Lawyer.

Unfortunately for the doctor, getting out of Chapter 11 is not nearly so easy as getting in. Oddly similar to getting a divorce in many states, a bankruptcy judge needs to find that “cause” exists to dismiss a Chapter 11 case. Such cause may include a debtor’s failure to file necessary operating reports, inability to confirm a plan of reorganization or most commonly, continued loss from operations to the detriment of creditors.

From a casual view, it may seem easy for debtors who want to get out of Chapter 11 to create the environment that would justify the finding of such “cause”, but there is a severe penalty for guessing wrong. If it appears that dismissal is not in the best interest of creditors a bankruptcy judge may, instead of dismissing, choose to convert the case to Chapter 7. Under the Bankruptcy Code, a judge has the power to make that choice even if no one has filed a motion asking for the case to be converted. Once conversion to Chapter 7 happens a trustee is appointed to analyze assets for liquidation and investigate litigation opportunities. The dire result: instead of escaping the confines of bankruptcy the debtor loses control of everything.

A debtor’s motion to dismiss is more likely to succeed if a primary goal for filing the case has occurred and there doesn’t seem to be much point in the bankruptcy court maintaining jurisdiction. This could happen if a significant asset has been sold, or a lease default cured, or if the reorganization has failed and a secured creditor has forced the debtor to terminate operations. In these scenarios, a bankruptcy court will dismiss a case if she decides that to do so is in the best interest of creditors.

For Dr. Brown, the prospect of a dismissal is highly doubtful. His case is still in the early stages and there appear to be significant assets that should be analyzed for the benefit of his substantial body of creditors. He should expect that the bankruptcy judge will want to take a very close look at his second thoughts about bankruptcy before letting him loose with millions of dollars in unpaid creditors.

What do you think? Should Dr. Brown be allowed to dismiss his case? Tell us your thoughts in the comments section.

The post Bankruptcy Buyer’s Remorse: When Debtors Want To Dismiss Their Own Chapter 11 Case appeared first on Baltimore Bankruptcy Lawyer.

The key to taking the anxiety out of this meeting is preparation. Knowing where you’re going and confirming the date, time and place with your attorney may seem like common sense, but many debtors would be surprised that they need to go through metal detectors and airport-style security if the meeting is held in a federal courthouse. And few debtors would know intuitively that they need to bring both a photo ID and their social security card.

Of course, reviewing the bankruptcy papers a day or two beforehand will help the debtors identify any changes they need to make to the official record, which may become important if there are significant errors or omissions in the papers they signed and that were filed with the Court. Testifying under penalty of perjury can be a stressful ordeal, but following the 7 steps in this article can help the meeting go much smoother.

The post Ready For Your Closeup? Steps To Prepare For Meeting The Trustee appeared first on Baltimore Bankruptcy Lawyer.

Kraken Investments consigned the classic “Madonna and Child” painting by Botticelli to crooked NY gallery owner Lawrence Salander in 2006. The painting is valued at $9.5 million. Kraken, an Israeli company, probably thought it had dotted its “i’s” and crossed its “t’s” when it had Salander sign a consignment agreement agreeing that any disputes would be resolved by arbitration in the Channel Islands, where Kraken does business.

Consignment is a form of commercial transaction where the consignor places goods in the hands of a dealer for sale. Once the goods are sold, the consignor takes back  an agreed price and the dealer keeps the rest. If the sale doesn’t happen, the consignor receives back his goods and the dealer walks away.

The problem is that the outside world may not understand that the goods are part of a consignment transaction. To an uninformed viewer, it may just look as if the consignor is a seller and the dealer is a buyer, required to repay the sale price on normal credit terms. In unraveling modern commercial transactions, courts look more to the substance of a transaction than the description used by the parties. That’s why complex transactions like financing leases and consignments may be recast as sales with the goods earmarked to secure the unpaid purchase price.

To protect themselves from this reinterpretation of their transactions, lenders, sellers and consignors put on a belt and suspenders and file a financing statement with an office established for that purpose. This is a one page document that must identify the debtor and reasonably describe the goods. Financing statements enable lenders and consignors to perfect their rights by giving notice of their interest to the world. In modern commerce, the financing statement doesn’t even have to be signed.

Kraken made two enormous mistakes in this deal: (1) it allowed the consignment agreement to lapse and (2) it never filed a financing statement. Add a third: it got into bed with Salander, who stole $120 million from investors and is now serving an 18 year prison term.  Because of these mistakes, Kraken’s Botticelli was trapped in NY when Salander was forced into bankruptcy by his creditors. Last year the Bankruptcy Court ruled that due to the failure to file a financing statement Kraken needed to prove this transaction is a true consignment.  This is a daunting task, because Kraken will have to prove that a substantial portion of Salander’s creditors knew that the transaction was a consignment, a burden that appears to be nearly impossible.

To make matters worse, because the consignment agreement lapsed the arbitration clause is no longer valid, so Kraken needs to litigate in New York City and cannot flee to the Channel Islands. Last week the US District Court for the Southern District of NY agreed. So it turns out that the headline was somewhat misleading because there’s really only one reason why the Botticelli has to stay in New York: Kraken didn’t file a financing statement. As a result Salander’s creditors will likely split the $9.5 million and Kraken will leave the city empty handed.

The post Bankruptcy: 9.5 Million Reasons Why The Botticelli Will Stay In New York appeared first on Baltimore Bankruptcy Lawyer.

Chapter 11 is an extremely powerful and flexible procedure that allows a debtor to remain in control of his assets while he attempts to reorganize. One of the critical philosophies behind Chapter 11 is the idea that assets retain their highest value in the hands of the person or company who bought or developed them. Maintaining this “going concern” value is thought to be in the best interest of the debtor and its creditors.

Like most  of the other powerful tools available under the bankruptcy laws, Chapter 11 is a privilege and not a right. Debtors operating under Chapter 11 have a fiduciary duty to protect their creditors. While debtors are permitted to operate normally with minimal court supervision, transactions outside of the ordinary course of business must be approved by the bankruptcy judge.

Schacter then must’ve known then that he was going to  self-destruct when, according to Blastr.com, he tried to sell the Metropolis poster on an auction site without permission from the bankruptcy court. His asking price? $850,000 (he had apparently listed the value of the poster at $250,000 on his bankruptcy schedules).  We can only guess what would have happened to this money had Schacter succeeded in this scheme.

As Blastr.com reports, the consequences for Schacter’s veiled subterfuge were predictable: he was swiftly removed from his Chapter 11 power and the case was converted to a liquidation under Chapter 7 of the bankruptcy code. Now, a trustee will attempt to sell the Metropolis poster which is expected to fetch over $1 million. The creditors will win, but Schacter may find himself scrambling to hang onto his discharge after his Chapter 11 meltdown.

The post Owner of World’s Most Valuable Poster Suffers Bankruptcy Meltdown appeared first on Baltimore Bankruptcy Lawyer.