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California Bankruptcy blog

Section 529 Plans for Education Expenses Not Exempt from Execution under California Law

On April 21, 2016, the Second Appellate District for the Court of Appeal of the State of California ruled that savings plans for qualified education expenses created under 26 U.S.C. § 529 are not exempt from execution of a judgment under California law. The court also overturned the trial court's determination that the debtor's retirement plans are fully exempt for further consideration of his means of support.

The basics of a receivership order

One of the most important aspects of a commercial bankruptcy is the preservation of assets that could conceivably be sold to pay off some of the business’ debts. To achieve this, bankruptcy court judges have the power to appoint receivers to act as an agent to keep, manage or even sell property that is part of the bankruptcy estate. Receivers can be appointed to preserve the interest of mortgage lenders (when real estate is at issue) or the interests of potential buyers for the business.

Receivers may be general in nature, with the authority to manage all aspects of a distressed business or property, or they can be “special” appointments with limited powers directed toward preserving a specific asset. Nevertheless, before a receiver may take any action, the court must issue a receivership order. This post will highlight some of the basics of such an order.

Can small businesses survive Chapter 11 bankruptcy?

Our last post highlighted the potential for sporting goods retailer The Sports Authority to emerge from Chapter 11 bankruptcy. Stemming from a prior post bemoaning how retailers struggle to make it through the bankruptcy process, the prospects are not promising for a happy ending. This is primarily because of how a retailer’s assets may be leveraged to prevent an effective restructuring.

Despite these difficulties for large businesses, Chapter 11 bankruptcy may still be a viable option. For the uninitiated, small businesses are described as those with 500 employees or less, and they still make up the large majority of Chapter 11 filings across the U.S. Indeed, many of these petitions are converted to Chapter 7 liquidation proceedings, but not every small business is doomed to failure. 

What will become of Sports Authority

March is commonly a good month for sporting goods retailers. After all, a majority of the country is preparing for youth baseball leagues to begin. Also, many golf courses across the nation are opening (or are weeks away from doing so). And with March Madness ready to begin, basketball apparel usually sells well.

While March may bode well for some retailers, Sports Authority has filed for Chapter 11 bankruptcy protection. The Colorado based retailer recently failed to make a $20 million interest payment on a $343 million loan that is scheduled to be due in 2018. In order to further reduce costs and expedite a restructuring plan, it plans to close more than 140 stores across the United States. 

Will banks see bankruptcy reform applicable to them?

We have all heard the moniker “too big to fail” when it comes to America’s largest financial institutions. Indeed, the precautions now in place can prevent the economy from collapsing if one of the financial behemoths becomes insolvent, even if only on a temporary basis. But smaller banks can still fall prey to the throes of a down economy. In these instances, investors and customers alike must be protected.

Because of this, Congress is considering a new bill that could streamline the bankruptcy process for troubled banks. According to recent media reports, the House Judiciary Committee has approved a new bill that could be heard in the near future that could change the way financial institutions go through the process. 

How Quiksilver may find its way out of bankruptcy

In our last post, we highlighted a few reasons why it may be difficult for retailers to emerge from Chapter 11 bankruptcy. Given the changes in the U.S. Bankruptcy Code and the market for companies to facilitate going out of business sales to protect unsold assets, more retailers are apt to fold up their tents.

However, there are still companies who buck the trend. Southern California apparel maker Quiksilver is poised to be one of them. The embattled company known for making clothes that resonate with the surfing community filed for Chapter 11 bankruptcy protection in November 2015 so that it may restructure more than $600 million. Nearly three months later, it appears that the company has a plan that will allow it to emerge from bankruptcy

Why fewer retailers emerge from bankruptcy

The market for mergers and acquisitions in the middle market (i.e. transactions valued between $50 million and $2 billion) are expected to continue at last year’s pace. While that may be good news for some troubled retailers, others are likely to seek Chapter 11 bankruptcy protection as a way to restructure their obligations so that they do not have to close their doors.

While bankruptcy may be a sound and prudent move for struggling retailers that cannot find a merge partner, retailers that seek bankruptcy protection are more likely to fail compared to similar entities in other industries. There are countless stories of failed retailers that go through bankruptcy, including Circuit City, Filene’s Basement and even Radio Shack.  

A brief look at ABCs and Section 363 sales

Along with complexities and challenges of termination of a business or reorganization through Chapter 11 bankruptcy come opportunities to solve vexing financial and logistical problems. Liquidating or selling assets during a wind-down or during a bankruptcy is often necessary for smooth business operations to go on. Assignments for the benefit of creditors (ABCs) as an alternative to bankruptcy and section 363 sales in Chapter 11 bankruptcy are two ways that many business owners can proceed efficiently in the face of financial difficulties.

When the goal is an out-of-court method of winding down a business and liquidating assets efficiently, an ABC may be the best course of action. Businesses en route to termination can initiate an ABC, choosing their own assignees. These businesses can manage the process of termination through ABCs. An ABC allows for careful planning and selection of an assignee with the right blend of knowledge and experience to meet the company's unique circumstances. Quite a few companies conclude that an ABC, rather than bankruptcy, is the least damaging way to handle financial decline. 

Commercial bankruptcy: a tool for recovery

Commercial bankruptcy may be an outcome of a corporate wind-down or it may provide a promising path to restoration of financial health for a business. This post will look at examples of each, reminding readers that business bankruptcy can be a stepping stone along the way rather than a dead end.

Recent notable San Francisco area Chapter 11 debt reorganization bankruptcy filings have included a well-known South San Francisco pharmaceutical company and, as referenced in an earlier post, an iconic San Francisco craft brewery.

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