Commercial Bankruptcies: Avoidable Transfer Powers in a Bankruptcy Proceeding

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.

A Brief Look at Avoidable Transfer Powers in a Bankruptcy Proceeding

The debtor in possession in a bankruptcy filing, or the trustee as the case may be, has so-called avoiding powers. These powers may be used to undo a transfer of money or property made during a certain period of time before the bankruptcy petition is filed. By avoiding a particular transfer of property, the debtor in possession can cancel the transaction and force the return or "disgorgement" of the payments or property, which then are available to pay all creditors. Generally, and subject to various conditions, the power to avoid transfers is effective against transfers made by the debtor within a specified period before filing the petition. But transfers to "insiders" (i.e., relatives, general partners, and directors or officers of the debtor) made up to a year before filing can be avoided. In addition, under 11 U.S.C. § 544, the trustee is authorized to avoid transfers under applicable state law, which often provides for longer time periods. Avoiding powers prevent unfair prepetition payments to one creditor at the expense of all other creditors.

BANKRUPT COMPANIES (information on many more in the Bulletin)

Anthracite Capital Inc., a Manhattan, N.Y. real-estate investment trust which recently filed Chapter 7 to liquidate, listed assets of between $100 million and $500 million and liabilities of between $500 million and $1 billion. For more information contact the U.S. Bankruptcy Court at 212-668-2780.

Bosque Power Co. LLC., along with five affiliates, filed Chapter 11 in the U.S. Bankruptcy Court for the Western District of Texas. The firm listed assets and liabilities of between $100 million and $500 million each. The filing was under case number 10-60348. For more information contact the court at 888-436-7477.

Eddie Bauer Holdings Inc., Bellevue, Wa., won approval from the U.S. Bankruptcy Court for its joint liquidation plan.

Innatech LLC, Birmingham, Mi., filed Chapter 11 in the U.S. Bankruptcy Court for the Eastern District of Michigan. The firm listed assets and liabilities of between $10 million and $50 million each. The filing was under case number 10-49380. For more information contact the court at 877-422-3066.

Lehman Brothers Holdings Inc. might just end up being the most costly bankruptcy reorganization in history, at least as far as legal fees are concerned. Since filing in September 2008, the Chapter 11 estate has paid out almost $680 million in fees to attorneys, restructuring consultants and other financial advisers. Bankruptcy consultant Alvarez and Marsal has been pulling in $480,000 a day for its work on the case, while Weil Gotshal & Manges has reportedly been charging fees to the tune of about $300,000 each day it has been working on the case.

New York City Off-Track Betting was told by the U.S. Bankruptcy Court that it can go ahead with its bankruptcy plan, despite objections that were raised by the New York Racing Association. The NYRA claimed that New York City Off-Track Betting, which is operating under Chapter 9 protection, doesn’t have any real business prospects and is simply using bankruptcy proceedings to avoid making payments on its debts. The case is being handled in the court in Manhattan, N.Y. under case number 09-17121. For further information contact court at 212-668-2780.

Visteon Corp., the Van Buren Township, Mi. auto-parts supplier, changed its mind and has now decided it doesn’t want to terminate pension plans for 23,000 employees and retirees. While Visteon, a former unit of Ford Motor Co., said over the winter that it wanted to transfer three pension plans to the federal government’s Pension Benefit Guarantee Corp., in a recent filing in its bankruptcy proceedings Visteon said it now wants to hold on to the pension plans thanks to improved finances and operating results.