Chapter 5 Bankruptcy Small Business – Unlike a year ago, 2019, when major corporate insolvencies were shaped by economic, market and foreign exchange factors, 2020 was dominated by the Covid-19 pandemic. The pandemic won’t account for all the changes in 2020. Corporate fortunes, the year, but it carries more weight, especially among companies in the energy, retail, restaurant, entertainment, healthcare, travel and hospitality industries. Forced shutdowns that began in the spring of 2020 wreaked havoc on thousands of companies that faced a sharp drop in demand for their products and services. Many have weathered the worst storms by adapting their business models to meet the unique challenges of government aid packages or pandemics. Others were unable to close their doors or file for bankruptcy protection to try to restructure their balance sheets or sell their assets.
In late 2020 and early 2021, the unprecedented pressure the pandemic has placed on the US economy was widely expected to lead to a surge in corporate bankruptcy filings. That boom never materialized. Instead, the number of corporate bankruptcy filings in the U.S. will drop sharply in 2021. Reasons for the decline (discussed in more detail in “Recent Trends in Corporate Debt and Restructuring: Laying the Groundwork for Future Major Chapter 11 Cases or More Runways.”) include:
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The decline continued despite the highest inflation rate in 40 years (as of November 2021), due to a dysfunctional supply chain and pandemic uncertainty due to delta and omicron variations and vaccine indecision.
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According to New Generation Research, Inc. According to BankruptciData.com, there were 6,691 business bankruptcy filings in 2021, up from 11,375 in 2020 and 10,056 in 2019. The real estate sector led the way in 2021, with more than 1,100 entries. Other industries with high levels of applications in 2021 include construction and materials, healthcare and medicine, banking and finance, restaurants and transportation.
There were 3,587 non-business Chapter 11 filings in 2021, compared to 6,870 in 2020 and 5,236 in 2019. One hundred fifty-seven debtors have filed for recognition of foreign bankruptcy cases in the United States under Chapter 15 bankruptcy. In 2021, three municipalities filed Chapter 9 debt relief petitions.
Bankruptcy data and research firm Reorg similarly reported 275 Chapter 11 filings in 2021 by companies with at least $10 million in debt, the slowest since 2012 and fewer than 300 cases in at least six years. Of those 275 Chapter 11 filings, real estate companies (28%), consumer discretionary (20%), health care (10%), energy (9%), industrials (8%) and financials (5%) filed. A large number of cases. Company filings declined from 2020 in all sectors except the utilities sector, which saw increased activity following winter storm Uri in Texas.
According to BankruptciData.com, bankruptcy filings for “public companies” (defined as companies with publicly traded stock or debt) fell to 22 in 2021, after hitting a more than decade high in 2020 (with 110 filings). At the height of the Great Recession, 138 public companies filed for bankruptcy in 2008 and 211 in 2009.
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The total assets of the 22 public companies that filed for bankruptcy in 2021 were $19.2 billion, up from $292.7 billion in 2020. By contrast, the 138 public companies that filed for bankruptcy in 2008 had assets totaling $1.2 trillion.
Companies in the oil and gas sector held the brass ring in public company bankruptcy filings in 2021, accounting for 23% of the 22 public company bankruptcies this year (five cases). Another sector with a significant number of public company applications in 2021 is banking and finance, with four cases (18%). Other industries with public filings in 2021 include telecommunications, construction and materials, transportation, computers and software, apparel and textiles, chemicals and related products, aviation, retail, hotels and gaming, automotive, restaurants and mining (one case each). .
2021 added just eight public company names to the $1 billion bankruptcy club (by asset value), up from 51 in 2020.
The largest public company bankruptcy filing of 2021 — oil and gas exploration and production company Seadrill Ltd., with $7.3 billion in assets — didn’t even make the top 50 public bankruptcies of all time. By asset value, the remaining public company in the top 10 bankruptcy filings in 2021 is real estate investment trust Washington Prime Group Inc. ($4.0 billion in assets); GTT Communications, Inc. is an Internet services and infrastructure company. ($2.8 billion in assets); Gas company Ferrellgas Partners, L.P. ($1.7 billion in assets); Luckin Coffee Inc. coffee chain ($1.2 billion in assets); Multi-utility company Just Energi Group Inc. ($1.09 billion in assets); Hotel, resort and cruise line owner Carlson Travel Inc. ($1.0 billion in assets); Application software company Riverbed Technology, Inc. ($1.0 billion in assets); Hotel operator Grupo Posadas S.A.P. D C.V. ($946 million in assets); and oil and gas exploration company HighPoint Resources Corp. ($826 million in assets).
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Eighteen public companies with assets of more than $1 billion emerged from bankruptcy in 2021, up from 25 the previous year. Following a trend that began in 2012, most of those companies were restructured rather than liquidated or sold. More than half of the Chapter 11 plans confirmed by $1 billion public companies in 2021 were in pre-planned or pre-planned bankruptcy cases.
Automatic stop. In City of Chicago v. Fulton, 141 S. Ct. 585 (2021), the United States Supreme Court held that a creditor holding a debtor’s property does not automatically violate the prohibition of Bankruptcy Code section 362(a)(3) by holding the property after the bankruptcy petition is filed.
, no. 19-3049 (2d Cir. Oct. 7, 2021), the Second Circuit affirmed the lower court’s dismissal of the debtor’s liquidating trustee’s Chapter 11 claims against various shareholders, officers, directors, employees, and The Court of Appeals affirmed in a majority. Financial advisors, among other things, avoid and recover fraudulent and preferential transfers, breaches of fiduciary duties and professional misconduct. In that decision, the Second Circuit adopted a “control test” to determine whether a corporation’s officers can attribute fraudulent intent to its directors for the purpose of avoiding litigation.
In re Bernard L. Madoff Inv. Sec LLC, 12 F.4th 171 (2d Cir. 2021), a case brought by a trustee managing the assets of Bernard L., a defunct investment firm, was referred to the U.S. Circuit for the Second Circuit. The Court of Appeals reinstated. Madoff Inv. Sec Madoff LLC is seeking to recover hundreds of millions of dollars in fraudulent transfers made to former clients and certain defendants as part of the Madoff Ponzi scheme. An appeals court reversed a bankruptcy court’s 2019 ruling that dismissed a trustee’s claims against certain defendants, saying they did not receive the transferred funds in “good faith.” The Second Circuit reversed the district court’s 2014 ruling:
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, no. 21-2543 (2d Cir. Oct. 8, 2021) (discussed elsewhere on this issue), the U.S. District Court for the Southern District of New York affirmed the bankruptcy court’s decision:
Bankruptcy fees for US trustees. Several court judgments during 2020-21. Addressing the constitutionality of the 2017 law, beginning in 2018, it significantly increased fees charged in Chapter 11 cases by the US Trustee Program, which oversees bankruptcy cases in all but two federal districts (Alabama and North Carolina). Bankruptcy Administrator Program (“BA”). The same increase is not imposed in BA counties until nine months after the law takes effect on January 1, 2018, and the BA fee increase applies only to cases filed after that date. By the end of 2021 the four circles dealing with this issue were equally divided. The Fifth Circuit — the Eleventh Circuit — broke the deadlock in early 2022 when it ruled that the rate hike was constitutionally justified.
The Second and Tenth Circuits found a violation of the uniformity requirement of the U.S. Constitution (art. I, § 8, § 4) because the increase did not immediately apply to Chapter 11 debtors in the two BA states. To American trustees
, 15 F.4th 1011 (10th Cir. 2021). In contrast, the Fourth and Fifth Circuits found no constitutional defects.
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, 979 F.3d 366 (5th Cir. 2020). In the Fourth Circuit case, the creditor petitioned the U.S. Supreme Court to address the circuit division. The court agreed to consider the appeal on January 10, 2022.
Limitations on Filing Bankruptcy In re 3P Hightstovn, LLC, 631 B.R. 205 (Bankr. D.N.J. 2021), a Chapter 11 case filed by a Delaware limited liability company (“LLC”) was filed by the U.S. District Court for the District of New Jersey. The bankruptcy court dismissed it because the LLC agreement prevents a company from filing for bankruptcy without the owner’s consent. Capital contributions are non-reimbursed preferential membership interest. According to the court, the bankruptcy prohibition was invalid on grounds of public policy