Upcoming Committee Formation Meeting:  Friday, April 27, 2018 10:00 AM

Case Name: 18-10894 (MFW)

Location: Delaware State Bar Association, 405 N. King Street, 2nd Floor, Wilmington, DE 19801

Notice of Formation Meeting for Official Committee of Unsecured Creditors can be found here. See the petition for relief.

Contact Norman L. Pernick and G. David Dean for more information.

Section 365 of the Bankruptcy Code provides that a debtor “subject to the court’s approval, may assume or reject any executory contract or unexpired lease of the debtor.”  11 U.S.C. § 365.  This provision is a powerful tool because it allows a chapter 11 debtor to assume agreements that will be beneficial to restructuring efforts while rejecting agreements that are burdensome.  Given its importance, the application of section 365 is not without challenge and subject to interpretation.

Two recent bankruptcy court decisions, In re Cho, 581 B.R. 452 (Bankr. D. Md. 2018) and In re Thane International, Inc., No. 15-12186-KG, 2018 WL 1027658 (Bankr. D. Del. Feb. 21, 2018), examine the fundamentals of executory contracts — when a contract is “executory” and whether there can be an “implied” assumption and assignment of an executory contract.

In re Cho

Considering whether a prepetition settlement agreement was an executory contract that could be rejected, the Maryland bankruptcy court, in Cho, observed: “whether a contract is executory depends on the facts of the particular matter, the language of the subject agreement, and the consequences under applicable nonbankruptcy law of either party ceasing to perform any ongoing or remaining obligations under the contract.”  Cho, 581 B.R. at 454.

In Cho, the debtors were defendants in state court litigation prior to filing bankruptcy.  Id.  The parties to the state court litigation agreed to a settlement that was reduced to writing, but the defendants refused to sign and maintained that the plaintiffs violated a certain non-disparagement provision in the settlement.  Id.  The state court ruled that there was a valid agreement and compelled the parties to execute the agreement.  Id.  Thereafter, the defendants filed for chapter 11 relief and moved to reject the settlement agreement as an executory contract under section 365 of the Bankruptcy Code.  Id.

Based on the facts and state court ruling, the bankruptcy court initially determined that there was a valid and enforceable contract under Maryland law.  Id. at 460.  Then, the court considered whether the contract was an “executory contract” for purposes of rejection under section 365 of the Bankruptcy Code.  Id. at 461.  Applying the Countryman test, the court evaluated whether both parties had unperformed obligations under the contract, which if not performed would result in a material breach of the contract.  Id.  Under the settlement agreement, the debtors were required to, in part, transfer a dry-cleaning business to the plaintiffs and make a cash payment.  Id. at 462-463.  The plaintiffs were required to dismiss litigation and note a certain judgment was satisfied.   Id. at 463.  In addition, both parties had non-disparagement obligations.  Id.

The main issue for the court was whether the obligations, and in particular the plaintiff’s obligations, were material under Maryland law.  Id. at 462.  The court noted this question depended on the primary purpose of the contract, which the court found to be settling the litigation and providing finality and certainty to the parties, and the non-disparagement provision bolstered and served this purpose.  Id. at 463-464.  Accordingly, the court held that the agreement could be rejected as an executory contract and the record supported the debtors’ business judgment and request to reject.  Id. at 466.  The court also observed that rejection generally does not eviscerate the non-breach party’s state law rights under the contract but any nonbankruptcy rights that the plaintiffs retain do not include the right to request specific performance of the agreement.  Id. at 467-68 citing Newman Grill Sys., LLC v. Ducane Gas Grills, Inc., 320 B.R. 324, 337 (Bankr. D. S.C. 2004).

In re Thane International

 In Thane, Delaware bankruptcy court considered “whether an executory contract that was neither affirmatively assumed nor rejected was included and assigned in a sale transaction.”  Thane, 2018 WL 1027658 at *1.  In Thane, the court had approved a sale of substantially all of the debtor’s assets under section 363 of the Bankruptcy Code.  Id.  A contract with a producer of informercials was not included as a contract to be assumed and assigned as part of the sale.  Id. Several months after the sale closed, the producer filed suit against the purchaser alleging it was owed royalties under a production agreement with the debtor.  Id.  The producer argued that the purchaser’s post-closing conduct and use of the contract effectuated a valid assumption and assignment of the contract.  Id. at *4.  The purchaser moved to dismiss the action on the basis that the producer failed to “distinguish pre- and post-closing royalties” and argued, in part, that an assumption and assignment did not occur because the “strictures” were not met, and “course of conduct cannot substitute.”  Id. at *1 and 2.

The bankruptcy court rejected the producer’s argument that the purchaser’s course of conduct constituted an implied or tacit assumption.  Id. at *6.  The court held that “there is no assumption” of an executory contract “absent a motion” as required under section 365 of the Bankruptcy Code.  Id.  In so ruling, the court observed that “there simply cannot be an assumption without providing the necessary cure and adequate assurance of one”, which the producer did not receive.  Id. at *7 citing 11 U.S.C. § 365(b)(1)(A)-(C).  As summarized by the court, section 365 allows a debtor “to do three things with an executory contract: (i) reject it, (ii) assume it or (iii) assume and assign it.”  Thane at *10.

The Cho and Thane decisions provide helpful guidance in determining whether an agreement is executory and a debtor’s options under section 365.  Cho is a reminder of the power of section 365 to a debtor while Thane is a reminder to adhere to the Code’s procedural requirements to obtain the benefits of section 365.

Bertucci’s Holdings, Inc., along with nine subsidiaries and affiliates, has filed a petition for relief under Chapter 11 in the Bankruptcy Court for the District of Delaware (Lead Case No. 18-10894).  Bertucci’s, headquartered in Worcester, MA, is a brick oven Italian eatery with fifty-nine (59) locations through the Northeast and Mid-Atlantic.  According to the First Day Declaration, Bertucci’s enters Chapter 11 intending to immediately reject 29 of its leases and intends to pursue a sale of substantially all of its assets, with Right Lane Dough Acquisition, LLC, as stalking horse purchaser.  Bertucci’s is also seeking approval to borrow up to $4 million in DIP Financing from Right Lane Dough.  Bertucci’s proposed bid procedures seek to have the auction held on May 29, 2018, and the Sale Hearing held on May 30, 2018.  Prime Clerk LLC is the proposed claims and noticing agent.  The cases have been assigned to the Honorable Mary F. Walrath.

Contact Norman L. Pernick or G. David Dean for more information regarding this matter.  Please note, however, that Cole Schotz P.C. does not represent the debtors in these cases and cannot respond to questions directed toward the debtors.

Upcoming Committee Formation Meeting:  Thursday, April 12, 2018 10:00 AM

Case Name: 18-10834 (KG)

Location: U.S. Trustee Office, 844 King Street, Suite 3209, Wilmington, DE 19801

Notice of Formation Meeting for Official Committee of Unsecured Creditors can be found here. See the petition for relief.

Contact Norman L. Pernick and G. David Dean for more information.

VER Technologies HoldCo LLC, along with eight subsidiaries and affiliates, has filed a petition for relief under Chapter 11 in the Bankruptcy Court for the District of Delaware (Lead Case No. 18-10834).  VER, a media production equipment and solutions provider, has some familiarity with the Chapter 11 process, having purchased the assets of DigitalSound Production Services in a sale under Section 363 of the Bankruptcy Code in December 2015.  Although a first day declaration has not yet been filed, VER’s petition discloses that it enters Chapter 11 having entered into a restructuring support agreement and will be seeking approval of DIP Financing provided by its pre-petition senior lenders.  KCC LLC is the proposed claims and noticing agent.  The cases have been assigned to the Honorable Kevin Gross.

Contact Norman L. Pernick or G. David Dean for more information regarding this matter.  Please note, however, that Cole Schotz P.C. does not represent the debtors in these cases and cannot respond to questions directed toward the debtors.

EV Energy Partners, L.P., along with thirteen (13) affiliates and subsidiaries, has filed a petition for relief under Chapter 11 in the Bankruptcy Court for the District of Delaware (Lead Case No. 18-10814).  EV, based in Houston, Texas, is an upstream oil & gas developer operating throughout the United States.  According to the Debtors’ press release, they enter Chapter 11 having entered into a restructuring support agreement with their senior noteholders and lenders and having solicited votes on a prepackaged plan of reorganization.   According to the First Day Declaration, 100% of the Debtors’ senior lenders and ~92% of the Debtors’ senior noteholders have voted in favor of the plan.  The Disclosure Statement to the Plan may be found here.  The Debtors seek to have a confirmation hearing held on May 15, 2018.  Prime Clerk LLC is the proposed claims and noticing agent.  The cases have been assigned to the Honorable Christopher S. Sontchi.

Contact Norman L. Pernick or G. David Dean for more information regarding this matter.  Please note, however, that Cole Schotz P.C. does not represent the debtors in these cases and cannot respond to questions directed toward the debtors.

Destination Properties of America LLC, an Avondale, Arizona-based travel and real estate agency, has filed a petition for relief under Chapter 11 in the Bankruptcy Court for the District of Delaware (Case No. 18-10732).  The Petition identifies the Debtor as a small business debtor and estimates the Debtor’s assets to be between $1–$10 million and liabilities to be between $500,000–$1 million.  A list of top creditors has not yet been filed.  No claims or noticing agent has been proposed.  The case has been assigned to the Honorable Laurie Selber Silverstein.

Contact Norman L. Pernick for more information regarding this matter.  Please note, however, that Cole Schotz P.C. does not represent the debtors in these cases and cannot respond to questions directed toward the debtors.

Frog Rock Investments, LLC, along with three subsidiaries and affiliates, has filed a petition for relief under Chapter 11 in the Bankruptcy Court  for the District of Delaware.  All of the Debtors are affiliates of, and are seeking joint administration with, the Woodbridge Group of Companies, et al. (Lead Case No. 17-12560).  According to the Corporate Organizational Chart attached to the Petition, the additional Debtors are “non-collateral filers.”  Cole Schotz reported on Woodbridge’s filing here, and on the filing of additional Woodbridge co-Debtors here, here and here.  The Garden City Group is the claims and noticing agent.  The cases have been assigned to the Honorable Kevin J. Carey.

Contact Norman L. Pernick for more information regarding this matter.  Please note, however, that Cole Schotz P.C. does not represent the debtors in these cases and cannot respond to questions directed toward the debtors.

Southeastern Grocers, LLC, along with twenty-six (26) of its affiliates and subsidiaries, has filed a petition for relief under Chapter 11 in the Bankruptcy Court for the District of Delaware (Lead Case No. 18-10700).  Southeastern, headquartered in Jacksonville, FL, is one of the largest supermarket operators in the United States, and operates under the Winn/Dixie, BI-LO, Harveys and Fresco y Mas trademarks.   Southeastern previously announced on March 15, 2018, that it had entered into a restructuring support agreements with an ad hoc group representing 80% of Southeastern’s unsecured noteholders.  Southeastern enters Chapter 11 having solicited votes pre-petition on its prepackaged plan of reorganization and seek to have a confirmation hearing held on May 10, 2018.  According to the First Day Declaration, more than 68% of Southeastern’s unsecured noteholders and 99% of its existing equity holders have voted in favor of the Plan.  The disclosure statement can be found here.   Prime Clerk LLC is the proposed claims and noticing agent.  The cases have been assigned to the Honorable Mary F. Walrath.

Contact Norman L. Pernick for more information regarding this matter.  Please note, however, that Cole Schotz P.C. does not represent the debtors in these cases and cannot respond to questions directed toward the debtors.

Remington Outdoor Company, Inc., along with twelve of its affiliates and subsidiaries, has filed a petition for relief under Chapter 11 in the Bankruptcy Court for the District of Delaware (Lead Case No. 18-10684).  Headquartered in Madison, North Carolina, Remington is well-known as one of America’s largest and oldest firearms manufacturers.  According to the First Day Declaration, Remington has filed Chapter 11 as a result of numerous factors, including unsustainable debt levels, rising costs and declining sales.  Remington previously announced on February 12, 2018, that it had entered into a restructuring support agreement with its term loan lenders and third lien noteholders to support a prepackaged plan of reorganization.  According to the Disclosure Statement, the Plan will reduce Remington’s consolidated indebtedness by $700 million and contemplates a contribution of nearly $150 million in new capital.  Remington is also seeking approval of over $145 million in DIP Financing provided by Remington’s pre-petition ABL and term loan lenders, consisting of $100 million in new money and a rollup of the $45 million pre-petition bridge loan provided by Remington’s term loan lenders.  Prime Clerk LLC is the proposed claims and noticing agent.  The cases have been assigned to the Honorable Brendan Linehan Shannon.

Contact Norman L. Pernick for more information regarding this matter.  Please note, however, that Cole Schotz P.C. does not represent the debtors in these cases and cannot respond to questions directed toward the debtors.