Commercial Bankruptcy: How Landlords Can Protect Themselves When A Debtor Files for Bankruptcy Protection

The items below are excerpted from the Business Bankruptcy News Bulletin. A full issue contains information on dozens of troubled companies, as well as informational and analysis highlights. Please visit the insideARM bookstore for information on subscribing to the Bulletin.

While landlords can be unsecured creditors, there are ways they can protect themselves when a debtor seeks protection under bankruptcy proceedings. As an example, a landlord can obtain a security deposit, a move that in effect makes them a secured creditor to the extent of that deposit. Another option for a landlord is to require a bankrupt tenant to post a letter of credit, which is considered better than a security deposit. It’s considered better because most courts have held that a landlord may draw down on a letter or credit when the lease is rejected based on the lease and letter of credit without regard to the automatic stay. In addition, still another option for landlords is to gain a guarantee of the lease by a third party.  

Bankruptcy Dismissals And the Failure to Provide Timely Payment Advice

In the past, where bankrupt firms were filing payment advices and judges were not as concerned that the advices were filed within the necessary time period, now, increasingly the U.S. Bankruptcy Courts are forcing debtors and their attorneys to adhere to section 521 of the U.S. Bankruptcy Code as it relates to payment advices. As an example, in one case a debtor’s attorney, claiming he had delivered payment advices to the U.S. trustee as well as a Chapter 7 trustee, reported he was experiencing technical problems and was not able to make filings to the 341 creditors’ meeting within the proper period.  Nevertheless, the court held that the statute was clear.  Cases were automatically dismissed if payment advices or a motion to extend time had not been filed in a timely manner.

One Look at Unlisted Creditors In a Chapter 11 Filing

A creditor ought to be provided with a formal notice of a Chapter 11 case before the debt owed to it can be discharged. Therefore, there may be situations where an unlisted creditor, that has actual notice of the filing, may wish to refrain from filing a proof of claim. Before doing this, however, the creditor should carefully examine the plan to determine the ability to collect the debt. For example, if the debtor will dispose of its assets as part of a reorganization plan, there may be no source from which the creditor can recover its undischarged claim.  If that is the case, the creditor may want to consider filing that proof of claim.

Barden Mississippi Gaming LLC, Tunica Resorts, Ms., filed Chapter 11 in the U.S. Bankruptcy Court in Delaware. The firm listed assets of between $50 million and $100 million and liabilities of between $500 million and $1 billion. The filing was under case number 09-14139. Also filing was Barden Colorado Gaming LLC under case number 09-14140. For more information contact the court at 302-252-2560.

BizEquity Corp., Spring House, Pa., filed Chapter 11 in the U.S. Bankruptcy Court in Delaware. The firm listed assets and liabilities of between $100 million and $500 million each. The filing was under case number 09-14130. For more information contact the court at 302-252-2560.

Financial Resources Management, a mortgage company in New Hampshire which allegedly shut down its operations in recent weeks, is reportedly under pressure from the state’s attorney general, which wants to force it into bankruptcy proceedings following claims by people that the company owes them $23 million. The firm is also being investigated by the Federal Bureau of Investigation.  

Freedom Communications Inc., an Irvine, Ca. firm currently operating under Chapter 11, received a buyout offer for its East Valley Tribune newspaper in Mesa, Az. in a move that could keep the Arizona publication in business. Freedom earlier said that it might shut down the East Valley Tribune after failing to find a buyer for it.

GSI Group Corporation, Bedford, Ma., filed Chapter 11 in the U.S. Bankruptcy Court in Delaware. The firm listed assets and liabilities of between $100 million and $500 million each. The filing was under case number 09-14111. Also filing was GSI Group Inc. under case number 09-14110.  For more information contact the court at 302-252-2560.

Reader’s Digest Association Inc., which filed Chapter 11 over the summer, wants to move its headquarters from its current location in Pleasantville, N.Y. to Manhattan.