We discussed in a prior post the completion of the auction and bankruptcy court approval of sale of assets to an affiliate of Fluid Routing Solutions. Despite its success in getting the sale approved, Fluid Routing Solutions was unable to obtain the concurrence of its automaker customers to the Proposed Sale Order. Fluid Routing Solutions advised the bankruptcy court in submitting the Proposed Sale Order to the bankruptcy court that Toyota, Chrysler, Ford and General Motors (the “Automaker Customers”) provided comments to the proposed order that were “wholly inconsistent with, and went far beyond, the requirements of the Agreement”.
On March 26, 2009, 48 days after the Chapter 11 filing, the sale of the fluid routing business and assets of Fluid Routing Solutions was approved. The winning bidder a/k/a the only bidder was FRS Holding Corp., (“FRS Deux”) who was the “stalking horse bidder” and an admitted “affiliate of an insider of the Debtors” and affiliate of the DIP lender, Sun Fluid Routing Finance, LLC (“Sun”). The purchase price is $11 million “less Cure Amounts less Prorated Taxes, minus/plus the Closing Net Assets Shortfall/Surplus.”
In another blow to maintaining administrative solvency (much less any hope of recovery by the unsecured creditors on prepetition claims), on March 23, 2009, Cadence Innovation settled its $4,914,075 claim against GM for $2,830,000 ($2,000,000 cash and $830,000 GM loan reduction). For Cadence Innovation this result certainly represents a disappointment. The $4,914,075 certainly would have been viewed as “in the bank.”
Looking at the Cadence Innovation November 30, 2008 balance sheet, you would see total assets of $88 million. The December 31, 2008 balance sheet shows total assets of only $6.5 million. What happened?
See the Ritz Camera Docsheet™ Report for subsequent developments in the Ritz Camera bankruptcy proceedings.
In a bankruptcy that may signal the opening of the 2009 floodgates of retail sector filings, Ritz Camera Centers, Inc. filed on February 23 Chapter 11 proceedings in Delaware in Case No. 09-10617. The focus in this bankruptcy will be on the store leases – how many and which ones are to be rejected, which ones are going to be renegotiated upon threat of rejection, and which ones are going to be assumed for assignment.
See the Foamex International Docsheet™ Report for subsequent developments in the Foamex International bankruptcy proceedings.
Feb. 23, 2009 – Foamex International, Inc., together with 7 affiliates, filed for Chapter 11 protection in Delaware on February 18, 2009. The affiliates are: Foamex, L.P.; Foamex Latin America, Inc.; Foamex Asia, Inc.; FMXI, LLC; Foamex Carpet Cushion LLC; Foamex Mexico, Inc.; and Foamex Canada Inc..
We have made the following preliminary observations:
- There is a high risk of bankruptcy preference claims in this bankruptcy;
- This is yet another automotive supplier casualty, although the press has not noted it as such;
- A very high amount, in both dollars and percentage, is being sought for payment of prepetition amounts to “critical cendors”;
- A realistic but expansive definition of “critical vendors” is being used;
- Inclusion on the critical vendor list is not immunity from a bankruptcy preference claim.
We discuss each of these observations in more detail below.
Cadence Innovation has agreed to the sale of its interests in a Czech corporation “Cadence Bohemia” to Magna Presstec AG. Unfortunately, no dollars from this sale will find there way to Cadence Innovation.
Feb. 20, 2009 – On February 12, 2009, another volley was fired in the onging Cadence Innovation LLC (“Cadence”) battle with GM. This time Cadence fired the volley. In an adversarial “Complaint to recover Money and to Enforce Accomodation Agreement and Stipulation and Consent Order”, Cadence alleges that GM is refusing to pay Cadence more than $4,914,075, including amounts due for equipment and raw material that GM purchased from Cadence. The purchase price was to be determined as a post-sale matter by an agreed appraiser. The designated appraiser firm was Hilco Appraisal Services, LLC. (“Hilco”).
The story is not the latest GM/Cadence fight. The story is the results of the appraisal, which was released on January 13, 2009 and attached to the February 12, 2009 Cadence complaint. This appraisal shows that the orderly liquidation value is $.10 on the dollar of fair market value.
Feb. 19, 2009 – In an article entitled Section 365 Executory Contract Assumption Defense to a Bankruptcy Preference Claim, we discuss the absolute defense to a preference claim created when a bankrupt company or its trustee “assumes” an “executory contract”. That defense was firmly established in a 2003 decision by the Third Circuit Court of Appeals in the bankruptcy case of In re Kiwi International Air Lines Inc., so the defense is sometimes called the Kiwi defense.
The Kiwi defense is a defense that we believe may be underutilized. As we explain elsewhere on this web site, the facts needed to establish the 3 most common defenses are “fixed” at the time of the bankruptcy filing. As to establishing the subsequent new value, ordinary course of business and contemporaneous exchange defenses, there is nothing that the supplier can do but pull together books and records.
In our posts on the bankruptcy of Fluid Routing Solutions, we have discussed unique aspects of this case that made it worthy of study. These aspects include the following:
- apparent inability to get institutional financing despite strengths;
- sophistication of the overall bankruptcy strategy;
- first day motions that were specifically directed at keeping the supplier base in place;
- challenges of a bankruptcy of a supplier in the automotive sector;
- being part of the investment portfolio of a major, private equity player, Sun Capital Partners;
- DIP financing from a Sun Capital Partners affiliate;
- close scrutiny given the case by Chrysler, Ford and Toyota;
- presence of the UAW,
- speed at which the case was moving.