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11 U.S.C. § 363(m): Special Protection for a Good Faith Purchaser

January 13, 2015

Section 363 of the Bankruptcy Code authorizes a trustee to use, sell, or lease property of the bankruptcy estate outside of the ordinary course of business upon bankruptcy court approval.   The key benefit of a sale under Section 363 is that the sale is “free and clear” and divests the property of all liens, claims, and encumbrances.  Issues that commonly arise in a Section 363 sale include: 1) whether the property to be sold is part of the bankruptcy estate; 2) whether the parties with interests in the property are adequately protected; 3) whether the property to be sold is subject to a bona fide dispute; and 4) whether the buyer is acting in good faith.  If these issues are resolved and the bankruptcy court approves the sale, Section 363 may provide a good faith purchaser with invaluable security by limiting the effect of a successful appeal of the order approving the Section 363 sale.

Section 363(m) provides, “The reversal or modification on appeal of an authorization under [Section 363(b) or (c)] of the sale or lease of property does not affect the validity of a sale or lease under such authorization to an entity that purchased or leased such property in good faith, whether or not such entity knew of the pendency of the appeal, unless such authorization and such sale or lease were stayed pending appeal.”  The practical implication is, if the court concludes that the buyer acted in good faith, and if a reviewing court does not stay the sale of property prior to closing, then a reversal or modification of the order authorizing the sale does not unwind the transaction.  Once a good faith purchaser closes the sale, absent a stay of the closing, the sale will stand.

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5 Minute Legal Master Series: The Chapter 11 Process

January 6, 2015

Does a debtor remain in control of its assets while undergoing the Chapter 11 bankruptcy process? Can a debtor continue to run its business after filing for Chapter 11? Bernstein-Burkley, P.C., Co-Managing Partner, Kirk B. Burkley, answers these questions and more in this week’s 5 Minute Legal Master Series episode: THE CHAPTER 11 PROCESS.

If you have any topics that you’d like to hear about, don’t hesitate to email info@bernsteinlaw.com, and don’t forget to subscribe to the 5 Minute Legal Master Channel!

Transcription

The Chapter 11 Process (5:38)

Welcome to the 5 Minute Legal Master series where expert legal attorneys help you master important legal topics. Today, board-certified business rights and business bankruptcy attorney Kirk B. Burkley discusses the Chapter 11 process.

Today, we are going to talk about the Chapter 11 process that specifically refers to Chapter 11 of the United States Bankruptcy Code. Chapter 11 historically was thought of as the reorganization chapter, that means a company goes into bankruptcy under Chapter 11 and that company would then reorganize its business affairs, restructure its debt and emerge from Chapter 11. Today, that is not always the case; in fact, we are starting to see more and more Chapter 11 liquidation, as well as more and more individuals filing for bankruptcy protection under Chapter 11. But Chapter 11 still differs from the other bankruptcy chapters in a few and important ways.

Number 1, the debtor remains in possession of its assets. So unlike in Chapter 7, where the assets are handed over to a Chapter 7 trustee, in Chapter 11, the debtor remains in possession if that debtor is reorganizing, until a plan is confirmed, it remains a debtor in possession of its assets. Or even if the debtor is liquidating its assets, it remains in possession until that liquidation process is over and the case is either converted to a Xhapter 7, dismissed or some plan of liquidation is approved. Of course, the same thing would go for an individual; that individual remains in possession of its assets until the conclusion of the case. That is important because even though there are more Chapter 11 debtors that are choosing to liquidate their assets, Chapter 11 provides for the debtor to stay in control of that liquidation process rather than just handing over the assets to a Chapter 7 trustee. Sometimes that is because the debtor and its principles want to remain in control so that they can continue to draw salary throughout the process or they do not want some other party like a Chapter 7 trustee sticking their nose into the debtor’s business.

There are often a lot of valid business reasons for a debtor to stay in control, file a Chapter 11 and liquidate the business. Some of those business reasons might be to increase the value of the estate in the liquidation. A Chapter 7 trustee is not permitted without approval of the court, which is not an easy thing to obtain for the Chapter 7 trustee to actually run the business. For example, if a debtor wants to file bankruptcy, operate its business for some finite period of time while it runs a liquidation process, the only place the debtor can do that is in Chapter 11, so Chapter 11 serves a very valuable function is conducting an orderly liquidation of assets.

Chapter 11 also provides for the appointment of a creditor’s committee, that can be the trade off. Instead of a trustee looking around at the debtors financial affairs and seeing if there were transfers that should be avoided, or making sure that the secured creditor is in fact secure, in a Chapter 11 scenario, there will be a creditors’ committee appointed where creditors show sufficient interest. Those unsecured creditors, through the creditors’ committee, will then look at all those same things a Chapter 7 trustee would look at. Often times it is more beneficial because they are the creditors that sold the goods to the debtor and provided services; they might be the creditors that made loans on an unsecured basis to the debtor and they have a better feel for how that liquidation should run. They are more interested in the outcome, so it does allow for that watchdog role, while at the same time allowing a debtor to liquidate its assets and hopefully maximize value for creditors.

At the end of the process, it still has to happen to end the case; the case could be converted after the assets are sold and then have a Chapter 7 trustee finish the case. It could potentially be dismissed upon the consent of the creditors and approval of the court. But a lot of times you will see a liquidating plan approved where a state litigation plan such as transactions, fraudulent transfers and some minimal amount of money that might be left after creditors are paid, are put into a liquidating trust and then some trustee, plan administrator, or the creditors’ committee itself will pursue those actions to hopefully generate assets for creditors. But the Chapter 11 process would have worked its way through.

This has been another installment of the 5 Minute Legal Master series, where expert attorneys help you master important legal topics. For more information on this and other topics, please visit 5minutelegalmaster.com.

5 Minute Legal Master Series: Reviewing a New Commercial Collections Claim

December 18, 2014

Bernstein-Burkley, P.C. Managing Partner, Robert S. Bernstein, discusses the different steps that attorneys take when reviewing a new commercial collections claim. Have they worked with or against the involved parties in the past? What will be the details of the fee agreement? What are the estimated chances of collecting on the claim? All these questions and more are answered when reviewing a new claim.

If you have any topics that you’d like to hear about, don’t hesitate to email info@bernsteinlaw.com, and don’t forget to subscribe to the 5 Minute Legal Master Channel!

 

Transcription

Review of a New Commercial Collections Claim (5:15)

Welcome to the 5 Minute Legal Master series where expert legal attorneys help you master important legal topics. Today, board certified business rights and business bankruptcy attorney Robert S. Bernstein discusses review of the new claim.

When a collection commercial claim is offered to a lawyer, assuming it is on a contingent fee basis, there are a number of consideration that the lawyer goes through. First should be a conflicts check to see if the parties involved in the claim, the client and the adverse party have an prior relationship with the lawyer that would create a conflict of interest and has to be dealt with under the ethics rules. Assume for our purposes that there is no prior relationship that causes a conflict of interest. What would that prior relationship be? If the lawyer previously represented as a client the company that is now the debtor, that would be a potential conflict of interest. Of course, if the lawyer currently represents the debtor in any matter even if it is not related to this collection it would be a conflict of interest.

So let us assume there is no conflict of interest, the next question is does the lawyer have any prior experience with the debtor or the client that is relevant. Generally experience with the debtor is what is relevant, have there been other claims, collections, dos the lawyer know anything about the debtor that would help in the analysis of the potential collection of claim. Once pass that, I think the lawyer would then probably look at the fee arrangement on which the case is offered. That presents a number of issues, there are typical fee arrangements in the industry that are a maybe a sliding scale percentage of contingent collection commissions in the event the claim is collected after the lawyer begins his or her efforts, that is a percentage of the collection that is net to the lawyer. There is also the question of the suit fee that is treated in a separate addition of this series. However, that is a fee that is paid, often contingent on collection after a suit is filed, that is in addition to the collection commission.

The rate of the commission is certainly a concern for the lawyer making sure it is in the realm of his reasonable view of what a claim like that should pay. It is also then begins to dove tail with how much work is going to be involved in the case. Is it unusual in any way, does it involve a clear dispute which is known? Are there parties that will have to be sued in different jurisdictions in different states, where are the assets, are there assets? This is a consideration that the lawyer would go through and perhaps it is the next consideration but it dove tails closely with the fee issues and that is, what is the likelihood of recovery? If this is on a holy contingent basis then the lawyer is only going to get paid if he collects so he has to make some judgment as to whether or not he is likely to collect and how much work that will take.

Clearly, you cannot make those prediction totally accurately at the frontend unless you have had some real experience with this debtor and you can see what the result is going to be. But you make a judgment, that is what the lawyer does, makes a judgment as to whether or not he want to risk his time on this case. There are considerations that are covered in other editions of this series, the suit fee as I said, the fee arrangement in the event there is a contest of a trail, what expenses are going to be reimbursed, what sort of investment has to be made by the lawyer?

Finally there is the relationship with the client or the forwarder. Is this a good client, is this someone who the lawyer has received profitable business from in the past? Is this a 1 shot deal? Those are considerations the lawyer has to reveal in order to decide whether to accept the offered claim on the fee arrangement.

This has been another installment of the 5 minute Legal Master series where expert attorneys help you master important legal topics. For more information on this and other topics please visit 5minutelegalmaster.com

5 Minute Legal Master Series: Depositions

December 2, 2014

Fantasy Football and the Practice of Law

November 25, 2014

By: Raymond P. Wendolowski, Esq.

One of my favorite hobbies is playing fantasy football. For those of you not familiar with fantasy football, it is a game in which participants essentially act as NFL general managers. They draft players from the pool of current NFL players to create a team, and then each team competes against each other based on how well the players they drafted perform in any given week of the NFL season. Fantasy football can be a lot of fun to play, but I bet you did not realize that it shares some characteristics that overlap with practicing law as an attorney.

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Bernstein-Burkley, P.C. Team Protects Private Property Rights of Local Farmers and Landowners

October 30, 2014

Bernstein-Burkley, P.C. Partners, Kirk B. Burkley and Kit F. Pettit, recently helped rural Pennsylvanian’s maintain their private property rights to develop oil and gas. Kirk and Kit attended a public hearing held by the Zoning Hearing Board of New Sewickley Township to address an appeal challenging the substantive validity of the Township’s amended Oil and Gas Ordinance. The challenger claimed that the ordinance was contrary to law and unconstitutional. Kirk and Kit intervened on behalf of numerous local farmers and property owners who previously leased their lands for oil and gas  development and production.

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5 Minute Legal Master Series: Making Demands

October 28, 2014

Bernstein-Burkley, P.C.’s Co-Managing Partner, Kirk B. Burkley, discusses how to draft results-oriented demand letters in this week’s 5 Minute Legal Master Series episode: MAKING DEMANDS.

If you have any topics that you’d like to hear about, don’t hesitate to email info@bernsteinlaw.com, and don’t forget to subscribe to the 5 Minute Legal Master Channel!

Transcription

Making Demands (5:33)

Welcome to the 5 Minute Legal Master series where expert attorneys help you master important legal topics. Today, board certified creditor’s rights and business bankruptcy attorney, Kirk B. Burkley, discusses making demands.

Today we are going to talking about making demands. We get a lot of calls from clients where the debtor has failed to pay on an invoice, a client has probably made a couple collection calls, sent a couple letters, then they come to the attorneys and they want to elevate the situation a little bit. One of the first things we always hear is if you can just send a quick letter from you the attorney I know they will pay, they just need to hear that we have an attorney involved. While that might be the case sometimes, most often that is not all that is takes. Usually if you have had a customer that has ignored your collection calls there is something else going on, maybe there is a dispute, maybe they simply do not have the money and certainly the new added element of a letter coming from an attorney is helpful and shows that the case has been elevated to the level of an attorney. But it is not the magic bullet in and of itself. We believe that there is an art in even the manner that you make your demand.

So whenever we send a demand letter out from our law firm we usually abide by a few general principles. One, we want to let them know very clearly that in fact we have been engaged. So we want to start out the demand letter by making sure that it is very clear that that account debtor knows that our client has engaged our firm to collect that debt. That does several things, it lets them know very clearly again that it has been elevated to the status of being pursued by an attorney, but also lets that account debtor know that they should be communicating with us. They should be responding to us if they have counsel involved, that counsel should be responding to us, that we are now representing our client in collecting this debt.

Some of the other things that we like to do are point to and attach the relevant documents that establish the debt. I think it is always a mistake when I see a demand letter from an attorney that goes out to someone that has not paid and just says ‘you owe us money please pay.’ It is important to let the account debtor know exactly what the operative documents are, maybe it is an invoice, or a credit application that has the terms to govern or a contract. But whatever it is, including a loan document should always be referenced in the demand letter and point to as much as you can reference the sections and terms and conditions that govern the relationship. If the documents are not too voluminous I recommend attaching them to the demand letter.

You start to run into some problems mainly if you have documents that are simply not practical to attach them all or send them all in the demand letter. In that situation you would certainly want to reference the documents. For example, you might say ‘dear account debtor, this letter is in reference to loan documented dated whatever date, please see section 4 of the default provisions that talk about what happens upon default.’ So if it the documents are too voluminous to attach you should certainly still reference them. We also like to make sure we tell them what the debt is on that date, what exactly is the debt that is owing as of the date of the letter. So as of today, January 1st 2014, the debt you owe my client is $850,000. You should also then very clearly spell out if in fact there are other interests, penalties, attorneys’ fees, anything else that might be due in owing and break that up the best that you can. For example, if you have interest that is accruing, you should break that out and be very clear on what the per diem is so that account debtor knows that every day that goes on, the debt that was referenced is in fact increasing.

They should also know that attorneys’ fees are going to be included in debt, if you are allowed to collect attorneys’ fee what penalties are being incurred. You do not want any surprises. You should then also let the account debtor know where they are to be sending payment, you do not want any confusion. Is it to send payment to a processing centre, is it now to be sent to the attorney? You want to keep the letter as short as possible. I recommend demand letters should be no more than 3 pages and try and keep them shorter than that if possible. The more clear and concise you can be, the better and you will increase your ability to collect.

This has been another installment of the 5 minute Legal Master series where expert attorneys help you master important legal topics. For more information on this and other topics please visit 5minutelegalmaster.com

5 Minute Legal Master Series: Execution

September 30, 2014

The goal of execution is to turn a debtor’s assets into money, which will then be distributed to the creditors. What is the difference between personal property and real property? Can money from the debtor’s bank account be used to pay the judgment? Bernstein-Burkley, P.C. Managing Partner, Robert S. Bernstein, answers these questions and more in this 5 Minute Legal Master Series episode: EXECUTION

If you have any topics that you’d like to hear about, don’t hesitate to email info@bernsteinlaw.com, and don’t forget to subscribe to the 5 Minute Legal Master Channel!

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Photos from Bernstein-Burkley, P.C.’s Collections Seminar

September 29, 2014

Bernstein-Burkley, P.C. recently hosted its first collections seminar, titled “Collections: Turning Debt into Dollars.” The event was an opportunity for attendees to talk to Bernstein-Burkley’s Creditors’ Rights attorneys and learn how to maximize their collection efforts, and turn their company’s receivables into results.

The event covered the following:

1. DOING YOUR HOMEWORK: Learn how to evaluate your claim and your debtor using due diligence and technology.
2. NAVIGATING A COLLECTION LAWSUIT: Learn how to reach the finish line (judgment) as quickly and as efficiently as possible.
3. TURNING YOUR JUDGMENT INTO RESULTS: Learn how to convert your paper judgment into real dollars.

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Bernstein-Burkley, P.C. to host COLLECTIONS: TURNING DEBT INTO DOLLARS

September 17, 2014

Collections Seminar Invite

Join us for a FREE luncheon and seminar on how to maximize your collections efforts, and turn your company’s receivables into results.

Session 1: Doing Your Homework
Learn how to evaluate your claim and your debtor using due diligence and technology.

Session 2: Navigating a Collection Lawsuit
Learn how to finish line (judgment) as quickly and efficiently as possible.

Session 3: Turning Your Judgment into Results
Convert your paper judgment into real dollars.

WHEN:
Thursday, September 25, 2014
12 to 3 p.m.
Lunch to be served from 12 to 1

WHERE:
The Rivers Club
301 Grant Street
Pittsburgh, PA 15219

Please RSVP to mdoyle@bernsteinlaw.com or 412.456.8113

5 Minute Legal Master Series: Judgment and Judgment Liens

August 22, 2014

What is a judgment, and how do you know if you have a judgment lien? Is a judgment only valid for 5 years? Bernstein-Burkley, P.C. Partner, Nicholas D. Krawec, answers these questions and more in this week’s 5 Minute Legal Master Series episode: JUDGMENT AND JUDGMENT LIENS.

If you have any topics that you’d like to hear about, don’t hesitate to email info@bernsteinlaw.com, and don’t forget to subscribe to the 5 Minute Legal Master Channel!

Transcription

Judgments and Judgment Liens (6:08)

Welcome to the 5 Minute Legal Master series where expert legal attorneys help you master important legal topics. Today, board certified creditors’ rights attorney Nicholas D. Krawec discusses judgment and judgment liens.

Hello. Today I would like to talk about judgments and judgment liens. A judgment is what you are seeking when you file suit, it is that final judicial determination that the debt for while you filed suit to recover is properly due and owing to you from the judgment debtor. Whether or not you have a judgment lien depends on 2 factors: 1. Is your judgment entered in a court of record which in Pennsylvania is a court of common pleas or federal district court. 2. Does the judgment debtor own real estate in the county in which the judgment has been entered to which the judgment lien has been attached. Under Pennsylvania law and procedure, when a judgment on a verdict, order of court or an award in arbitration is entered in the court’s judgment index, it shall continue a lien upon property located in the county that subject to the lien. Create a lien upon all the property located in the county that is in the name of the judgment debtor and if a judgment debtor owns real estate in another committee, you can transfer the judgment in the county it is entered to the court of common pleas in the county of which the judgment debtor owns real estate.

In Pennsylvania a judgment automatically acts as a lien against real estate owned by the debtor in the county in which the judgment is recorded at the time it is entered. Exceptions to the provision include f your judgment is against an individual who is married and the individual owns real estate with his or her spouse as (1:53). In that situation there is no judgment lien against the entireties property if you only have a judgment against 1 of the spouses. If a judgment is obtained but eh judgment debtor is not collectable, you may not have a judgment lean necessarily. For example, the debtor owns real estate but here is presently not sufficient equity in the real estate to satisfy your judgment or sufficient equity for the judgment lien to attach. In other words, the property is worth less than the amount that the defendant owes on it. In this circumstance, the creditor may wait for an improvement in the debtor’s finance circumstances and/or the judgment debtor may seek to obtain finance in the future. That can really be helpful to you, disregard all the stories you may hear about a judgment only be valid for 5 years, that is not accurate. That is the statute of limitations for initiating an action for reviving a judgment lien on real property.

An action to revive a judgment lien against real property has to be initiated within 5 years of the entry of judgment in order to maintain its lien property or the judgment creditor’s place in line against any subsequent intervening judgments and liens. A judgment lien may still be revived after that 5 years statute of limitation period for revival but its priority against intervening liens would be lost. In other words, it would lose its place in line and go to the back of the line.

Let us move on to reviving a judgment lien to attach to after acquiring property. For example, the judgment debtor did not own property at the time you obtained judgment against him but subsequently acquires it. If the judgment debtor did not own real estate at the time judgment was entered but acquires it later perhaps via an inheritance, through a divorce settlement or even a subsequent purchase after the judgment, the key thing to keep in mind is that if your judgment debtor owns real estate, make sure you index your judgment in a court of record in the county in which the judgment debtor has obtained that after acquired real estate.

With regard to personal property of the judgment debtor, even if the judgment debtor does not own real estate the judgment creditor should not necessarily let the existence of prior judgments against the debtor prevent him from executing against personal property. By that I mean, equipment, vehicles, furniture for business. The judgment does not serve as a lien against the judgment debtors personal property, you can still obtain a lien by sending the sheriff out and doing a levy on those items of personal property. It is the sheriff’s levy the creates the lien, that is why say that the creditors should not be discouraged by the existence of prior judgments if it is the creditors intent to issue an execution on the judgment against the judgment debtor’s personal property. You just have to beat the prior judgment creditors to the punch in having the sheriff levied on the judgment debtor’s personal property.

So remember the distinction regarding the effect of a judgment as a lien when you are looking at assets of the debtor out of which to satisfy a judgment. Number 1, the judgment automatically acts as a lien against real estate owned by the debtor in the county where the judgment is recorded at the time is recorded. Your lien priority against real estate is established just by virtue of having the judgment recorded. Secondly, a judgment does not act as a lien against a judgment debtor’s personal property, so you lien priority against personal property is not a established just because you have a judgment. You need to take the affirmative step of executing on the judgment and having the sheriff levy upon the judgment debtor’s personal property. It is the sheriff’s levy that establishes a lien against personal property.

Thanks for listening!

This has been another installment of the 5 minute Legal Master series where expert attorneys help you master important legal topics. For more information on this and other topics please visit 5minutelegalmaster.com

 

5 Minute Legal Master Series: Shareholder Litigation

August 5, 2014

Under what circumstances can shareholders find themselves in litigation? What are the duty of loyalty and the duty of care, and what does it mean if company leadership is in breach of these duties? Bernstein-Burkley, P.C. Partner, Kirk B. Burkley, answers these questions and more in this week’s 5 Minute Legal Master Series episode: SHAREHOLDER LITIGATION.

If you have any topics that you’d like to hear about, don’t hesitate to email info@bernsteinlaw.com, and don’t forget to subscribe to the 5 Minute Legal Master Channel!

Continue reading “5 Minute Legal Master Series: Shareholder Litigation”