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NewsOK Q&A: Laws allow for various contingencies in dealing with bankrupt companies

From NewsOK / by Paula Burkes
Published: April 18, 2017
Click to see full story – Laws allow for various contingencies in dealing with bankrupt companies

Click to see Gretchen Latham’s attorney profile

Gretchen M. Latham’s practice focuses on representing creditors in foreclosure, bankruptcy, collection and replevin cases. She offers these services to her clients on a statewide basis as well as in all three Bankruptcy and Federal Court Districts in Oklahoma.

Q: Can a lender still do business with a bankrupt company?

A: Most generally, yes. When a business files for bankruptcy, the type of case is most commonly a Chapter 11 case. In a Chapter 11, it’s possible for the company to remain in possession of its assets, including equipment and inventory, and continue to do business. This includes interacting with vendors and lenders on a regular basis. As a creditor, the safeguard in place for repayment of any loan made to a company operating under a Chapter 11 is that post-petition debts are given priority as an administrative claim. This helps to eliminate some of the risk, and provide assurances of repayment. However, if the type of case filed is a Chapter 7, the company will no longer be operating its business and all of its assets are scheduled for liquidation.

Q: Can goods that are shipped to a Chapter 11 debtor be recovered?

A: The Bankruptcy Code does allow for reclamation of recently shipped goods, pursuant to 11 U.S.C. Section 546. There’s a somewhat tight timeline for exercising the right of reclamation, which must be precipitated by making demand.

Q: How can I get paid by a Chapter 11 debtor?

A: An option for making a payment claim, which is not unique to a Chapter 11 case, is for a creditor to file a proof of claim. The proof of claim will set forth the balance due and payment terms. The deadline to get a claim on file will vary from court to court, and the required form is typically provided with notice of the filing. Payment on a proof of claim can take a while, so be prepared to wait for the case to come to completion.

 

SCOTUS overturns structured bankruptcy dismissal in favor of payment priority rules

“Chapter 11 permits some flexibility, but a court still cannot confirm a plan that contains priority-violating distributions over the objection of an impaired creditor class.” – U.S. Supreme Court Ruling in Czyzewski v. Jevic Holding Corp.

A landmark decision handed down last Wednesday from the U.S. Supreme Court reversed a bankruptcy court ruling that approved a “structured” Chapter 11 bankruptcy dismissal settlement for a collapsed trucking company. WSJ reported that, in the highly anticipated ruling, SCOTUS overturned a controversial payout plan that disregarded important bankruptcy rules.

In Czyzewski v. Jevic Holding Corp., the High Court ruled that the dismissal violates payment priority rules of the Bankruptcy Code as set out by Congress, which gives a special priority creditor status to employees who are owed unpaid wages. In the decision, SCOTUS sent the case back to bankruptcy court so that it may be properly adjudicated.

The Backstory

In 2006, private-equity firm Sun Capital Partners’ acquired Jevic Transportation, Inc. in a leveraged buyout, according to the Wall Street Journal. By the following year, the company had started experiencing financial difficulty. In 2008, Jevic Transportation filed its Chapter 11 petition.

A day prior to the bankruptcy filing, Jevic ceased operations and about 90 percent of its employees were abruptly terminated. A group of the company’s truck-driver force filed a multi-million dollar class-action lawsuit claiming that the layoffs violated the Worker Adjustment and Retraining Notification (WARN) Acts. According to Federal Regulation Title 20, Section 639.1(a), employers are required to give a 60-day notice of plant closings and mass layoffs.

The suit included over $8 million in employee priority wage claims under Section 507(a)(4) of the Bankruptcy Code. Jevic truck drivers were awarded a judgment against Jevic, entitling the workers to payment ahead of general unsecured claims against the Jevic estate.

Another lawsuit was brought by the official committee of Jevic’s unsecured creditors claiming fraudulent conveyance and equitable subordination against secured creditors, Sun Capital and CIT Group, which funded the LBO. During the course of Chapter 11 proceedings, Jevic stated that it had run out of money to fight the claims, which set into motion a settlement with the unsecured creditors’ committee representing Jevic’s unsecured creditors in the form of a structured dismissal. A Delaware bankruptcy judge approved a payout plan and dismissed the case.

The Controversy

Under the settlement negotiated by Sun, CIT, Jevic and the committee, no assets were to be distributed to the truck drivers despite the WARN Act class-action judgment. The settlement did, however, provide for distributions to general unsecured claims. The group of Jevic truck drivers appealed the bankruptcy court ruling to the U.S District Court for the District of Delaware and the Third U.S. Circuit Court of Appeals, but was the appeals were denied.

This past summer, the Supreme Court agreed to review the case. At that time, the Wall Street Journal wrote:

“The question of what to do about bankruptcy rules that get in the way of a settlement has divided courts of appeal across the country, with some courts rejecting settlements that don’t comply with the scheme set out by Congress for who gets paid first.”

“The Bankruptcy Code contains a clearly-defined priority scheme for distributions to creditors of the bankruptcy estate, which is grounded on considerations of fairness to all creditors,” said Clayton D. Ketter, a Director at Phillips Murrah who specializes in financial restructurings and bankruptcy matters.

The negotiated structured dismissal did not include the consent of the group of Jevic truck drivers, the SCOTUS opinion stated, which allowed Jevic to evade its priority-creditor responsibility to the unpaid drivers. As long as priority creditors don’t consent to the deal, such settlements can’t be approved, the High Court said.

“In the case before us, a Bankruptcy Court dismissed a Chapter 11 bankruptcy. But the court did not simply restore the prepetition status quo. Instead, the court ordered a distribution of estate assets that gave money to high-priority secured creditors and to low-priority general unsecured creditors but which skipped certain dissenting mid-priority creditors. The skipped creditors would have been entitled to payment ahead of the general unsecured creditors in a Chapter 11 plan (or in a Chapter 7 liquidation). See §§507, 725, 726, 1129. The question before us is whether a bankruptcy court has the legal power to order this priority-skipping kind of distribution scheme in connection with a Chapter 11 dismissal.

In our view, a bankruptcy court does not have such a power. A distribution scheme ordered in connection with the dismissal of a Chapter 11 case cannot, without the consent of the affected parties, deviate from the basic priority rules that apply under the primary mechanisms the Code establishes for final distributions of estate value in business bankruptcies,” wrote Justice Breyer.

“The Supreme Court’s ruling reinforces the enforceability of those priorities and clarifies that priority line jumping through a structured settlement will not be permitted,” Ketter said.

The Jevic case will now head back to bankruptcy court for more work.

The Takeaway

What are the implications of this decision, beyond the fairly narrow Supreme Court’s ruling? Will it affect the overall utilization of structured dismissals across the industry?

Ketter said that he has noticed a rise of structured dismissals in bankruptcy cases, which typically follow a sale of a substantial portion of the debtor’s assets.

“I don’t foresee the Jevic decision changing that,” he added. “The Supreme Court Justices did not say that structured dismissals are not allowed.  Rather, they said that structured dismissals that violate the bankruptcy code’s priority scheme are not allowed.  Thus, we are likely to continue to see structured dismissals used, so long as they do not impermissibly skip a class of creditors in making distributions.”

However, Ketter added that decision may have broader implications outside the realm of structured dismissals.

“For example, there are types of plans within a bankruptcy case where a priority class voluntarily gifts a portion of the recovery it would otherwise be due to a lower priority class,” he added. “Sometimes, those gifted distributions skip other classes sitting higher on the priority scheme.  The Jevic decision raises the question of whether such plans are permissible.”

 

Clayton D. Ketter is a Director and a litigator whose practice involves a wide range of business litigation in both federal and state court, including extensive experience in financial restructurings and bankruptcy matters.

Medical bankruptcies likely to rise

Gavel to Gavel appears in The Journal Record. This column was originally published in The Journal Record on Jan. 26, 2017.


Clayton D. Ketter is a Director and a litigator whose practice involves a wide range of business litigation in both federal and state court, including extensive experience in financial restructurings and bankruptcy matters.

By Phillips Murrah Director Clayton D. Ketter

One of the central promises of Donald Trump’s candidacy was that, once elected, the Affordable Care Act (also known as Obamacare) would be repealed. Now, with President Trump in office, and aided by a Republican Congress, the ACA’s remaining days are likely numbered.

According to the U.S. Department of Health and Human Services, the ACA has resulted in an estimated 20 million people who previously lacked health insurance becoming insured. Along with the many other effects resulting from a large number of Americans becoming insured, one less discussed consequence was a drop in medical-related bankruptcy filings.

Research by Daniel A. Austen, an associate professor at the Northeastern University School of Law, found that medical costs were a predominant cause of between 18 to 25 percent of all bankruptcies. Since the ACA was passed, one study by the National Bureau of Economic Research found that medical debt had been significantly reduced for those covered by the act.

These findings are intuitive, as hospital visits are often unexpected and typically result in large bills. Without insurance, most individuals lack the financial flexibility to absorb those medical debts. Bankruptcy can be an effective tool in those situations, as it can either allow a person to repay the debt over time or, in some cases, wipe it out altogether.

Problems can arise, however, for those facing ongoing health issues. A bankruptcy filing will only eliminate past debt. It does nothing for liabilities incurred after the bankruptcy is filed. Further, there are certain time restrictions to how often a person can receive a bankruptcy discharge. Depending on the type of bankruptcy at issue, those time limitations can be up to eight years. Thus, if an uninsured person is faced with a health issue that forces them to seek bankruptcy, his or her financial options may be seriously constrained if health issues return before the time limitations have run.

Such scenarios are all too familiar to bankruptcy practitioners, especially given insurance companies’ distaste to insuring people who have histories of health issues. Although there has been a temporary decline in those types of cases, they are likely to make a comeback should Congress choose to repeal the ACA without enacting a replacement or stopgap.

Clayton D. Ketter is a litigator at Phillips Murrah with experience in financial restructurings and bankruptcy matters.

What are involuntary bankruptcies?

Gavel to Gavel appears in The Journal Record. This column was originally published in The Journal Record on May 12, 2016.


Clayton D. Ketter is a Director and a litigator whose practice involves a wide range of business litigation in both federal and state court, including extensive experience in financial restructurings and bankruptcy matters.

By Phillips Murrah Director Clayton D. Ketter

Bankruptcies are on the rise. Expectations are that, unless oil and gas prices reverse course, related bankruptcy filings will continue.

The majority of these filings will be commenced by a debtor seeking shelter from creditors, known as voluntary filings. Used much less frequently are involuntary filings, where one or more creditors initiate a bankruptcy case without a debtor’s consent.

Two requirements must be met to force a debtor into an involuntary bankruptcy. One pertains to the number of creditors involved. Debtors with less than 12 creditors require only one creditor holding at least $15,325 in aggregate unsecured claims to file the petition to start an involuntary case. Debtors with 12 or more creditors require a petitioning group of three or more creditors holding the same amount. The second requirement is that the debtor is generally not paying its debts as they become due. When these requirements are met, an individual or business (farmers are the exception), can be compelled into bankruptcy.

Involuntary bankruptcies can be used strategically by creditors in certain situations. The most common is to initiate creditor protections afforded by the Bankruptcy Code, which apply equally whether a case is voluntary or involuntary. Creditor protections include stopping a debtor from paying select debts to the detriment of other creditors, and allowing preferential and fraudulent transfers, made pre-bankruptcy, to be reversed in certain situations. The ability to potentially remove incompetent or bad-acting management is another compelling creditor protection.

Another motive is control of venue. Bankruptcy law permits a proceeding to be commenced in various jurisdictions, including an entity’s state of formation. Thus, a corporation incorporated in Delaware may file bankruptcy there, even if its headquarters, operations and creditors are in Oklahoma. Such filings can increase costs for other interested parties located in Oklahoma. To prevent such a filing, a creditor may wish to commence an involuntary case in its preferred jurisdiction.

While involuntary bankruptcy can be an effective tool for a creditor, it is not without costs and risks. A debtor can challenge by arguing that the debts of the creditor are not valid or that the debtor has been paying on time. Resolution of these issues can require expensive litigation. These potential costs should be carefully considered when strategizing on whether an involuntary bankruptcy may be advisable.

What effect does bankruptcy have on oil and gas leases?

Gavel to Gavel appears in The Journal Record. This column was originally published in The Journal Record on Mar. 31, 2016.


Melissa R. Gardner is a Director who represents both privately-owned and public companies in a wide variety of oil and gas matters, with a strong emphasis on oil and gas title examination.

By Phillips Murrah Director Melissa R. Gardner

It is an understatement to say these are trying times in the oil and gas industry.

There are multiple reports in the news that predict we have not hit bottom and that our state will be uniquely affected. While oil and gas companies, contractors and service companies have industry insiders to rely on, many individual mineral owners might find themselves without resources or direction, wondering what effect these proceedings will have on the benefits they’ve come to expect under oil and gas leases.

Here’s some helpful information for those who have executed these leases, who are faced with persistent negative news about the companies holding the leases.

It is important to note that, if a company is considering bankruptcy, it could take various forms. Chapter 7 and Chapter 11 are the two most common types of business bankruptcy.

In the first, business typically ceases and a trustee takes control of all assets, including the business’s oil and gas leases, with any eye toward liquidation. However, in Chapter 11 bankruptcy proceedings, the company generally remains in control of its assets and develops a plan of reorganization, often with the goal of remaining in business after its debts are restructured. While Chapter 11 may be ultimately more favorable to the mineral owners, one can take comfort that current payments and leases are not necessarily in jeopardy in either case.

In a bankruptcy proceeding, the bankruptcy trustee or Chapter 11 debtor in possession is only ultimately entitled to property of the bankruptcy debtor, which generally would not include royalties payable to mineral owners. Likewise, in Oklahoma, oil and gas leases typically survive the bankruptcy. This means royalty payments frequently continue, virtually uninterrupted, after a bankruptcy case has been filed and the leases may continue to be developed for the benefit of all notwithstanding the bankruptcy.

Obviously, this downturn has been difficult for many in our state. Hopefully, these facts will provide a mineral owner with some comfort that, even in these times, the payments they have come to rely on under existing oil and gas leases will not automatically be affected adversely by a leaseholder’s bankruptcy. It’s certainly worth investigating more before you assume these benefits will disappear.

Bankruptcy as a backdrop

Clay Ketter’s guest column, Gavel to Gavel, originally published in The Journal Record on February 18, 2016.
View Clay Ketter’s attorney profile here.


Clayton D. Ketter is a litigator whose practice involves a wide range of business litigation in both federal and state court, including extensive experience in financial restructurings and bankruptcy matters.

Clayton D. Ketter is a litigator whose practice involves a wide range of business litigation in both federal and state court, including extensive experience in financial restructurings and bankruptcy matters.

Chesapeake Energy’s stock price took a hit last week after news outlets reported that it retained Kirkland & Ellis, widely recognized as one of the nation’s top corporate bankruptcy law firms. Chesapeake was quick to issue a press release stating that it has no plans to pursue bankruptcy, which led to a small rebound in its stock price.

People may wonder why a company with no plans to file bankruptcy would hire an experienced bankruptcy law firm. The answer is likely prudence; the company wants to be fully informed about available options.

When companies detect potential financial trouble, it is not unusual for them to retain a law firm’s restructuring specialists to assist in assessing the situation and weighing alternatives for resolving the issue in the best possible way. That may not include filing for bankruptcy protection, but, rather, simply help in restructuring debt obligations.

When a company experiences financial stress, there is value in thoroughly preparing a well-thought-out plan to address the problem, which often involves developing a bankruptcy strategy as a point of reference and being prepared to file, if appropriate. With a bankruptcy scenario as a backdrop, a company and its restructuring advisers typically attempt to work with the company’s creditors to restructure their agreements in a manner more favorable to the creditor than they might receive in bankruptcy. Ideally, this would allow the company to get back on the right financial track and, ultimately, to make things right with its creditors without a bankruptcy filing.

Creditors of large corporations, usually sophisticated financial institutions, will be aware that restructuring specialists are prepared to put the company into bankruptcy for its protection should an alternative agreement not be reached. However, bankruptcy can be a disruptive, risky process that does not always yield the best outcome for either side. Risks on one side include company ownership being transferred to the creditors, and on the other, the creditors’ recoveries being less than what they might have recovered in the absence of a bankruptcy.

Thus, bankruptcy considerations often educate and motivate both sides to work together to find an out-of-court solution to their debt issues and, thereby, avoid bankruptcy altogether.

However, in situations where parties are unable to come to terms, the due diligence done by the company and its restructuring advisers can be used to take appropriate action to protect the company and its interests.

Surviving an Energy Industry Down-Cycle

This article was published in OIPA Wellhead, a publication produced by Oklahoma Independent Petroleum Association and distributed to its membership.

Resulting financial stress on your business can be survived

By Elizabeth K. Brown

brown-elizabeth-portrait

Liz Brown is a director at Phillips Murrah, P.C., where she has practiced for most of her legal career. Liz is primarily a tax and transactional lawyer with a special emphasis in the energy industry.

As we all know all too well, the profitability of the energy industry is dependent on oil and gas prices, which are often volatile and generally cyclical. Unfortunately, we in the oil and gas business are in the midst of another industry down-cycle.

According to the recent Baker Hughes’ North America Rig Count report, the number of rigs drilling for oil and natural gas has been cut in half since November. The price of oil has been cut by more than half as compared to last year. In response to lower prices, some oil and gas companies have reportedly reduced their capital expenditure budgets, reported substantial losses, and are selling off assets.  Service and drilling companies have announced major layoffs and so far appear to have been the hardest hit.

Under these circumstances, virtually all companies that are engaged in the Oklahoma energy sector, whether they are exploration and production or service companies, are dealing with reduced profitability and some are struggling to meet their financial obligations.

When a company that relies on a robust energy sector starts to feel the pinch of a down-cycle, restructuring debt or seeking relief through a Chapter 11 bankruptcy reorganization may be the way for the business to survive. Either the workout or a bankruptcy allows the business to have some time for the economy or business sector to recover or for the business to work through its financial difficulties.

What to do?

When a company is experiencing financial stress, the best course of action is to accept the reality of the situation and address it quickly. The first step is for the business to develop a budget so that it has a clear understanding of its current monthly revenues and expenses, its projected future revenues and expenses based upon reasonable assumptions, and the current and estimated future value of its assets. Once the business has that information, it can develop a pragmatic approach to dealing with its expenses and liabilities and will then be ready to approach it creditors with a plan for restructuring.

“If a company is having trouble meeting its obligations, creditors want to know why, what is being done to address the situation and, ultimately, what the overall prospects for recovery are for the business, both outside and through bankruptcy.” said Phillips Murrah bankruptcy attorney Stephen W. Elliott.

The Workout: Avoiding Bankruptcy

A workout is an out-of-court process through which the business owner and the creditors of the business try to reach an agreement to modify the terms of their contractual obligations. Workouts typically involve an agreement of the business’ primary lender to waive defaults or forbear on the lender’s rights to collect interest and principal payments on the loan for a period of time to give the business the opportunity to get back on its feet.  The workout terms may include debt forgiveness, changes in loan amortization, reduced interest rates, or deferred principal or interest payments.

The ultimate goal of the workout is to allow the business to continue operating so that (i) the creditors of the business can ultimately be paid more than they would have received if the business was shut down and the assets were sold at liquidation prices; and (ii) the business can recover from its financial difficulties, all without the costs, delays, and potential uncertainties frequently inherent in bankruptcy. If the workout would be as or more beneficial to the business and its primary creditors than a bankruptcy, then bankruptcy can often be avoided.

“In my experience, candid communication is often the key to avoiding bankruptcy and resolving financial issues through a workout,” Elliott continued.

What are Benefits of Bankruptcy?

Bankruptcy provides potential, wide-ranging benefits to the debtor not available through out-of-court workouts. In a Chapter 11, the debtor oftentimes acts as trustee of the business and continues to manage the company as the “debtor in possession.” Chapter 11 affords the business a number of tools to restructure its debt.

One of the best known is the automatic stay which stops collection efforts outside of the bankruptcy court and keeps the business and its assets from being picked apart piecemeal by creditors. Additionally, in bankruptcy, the business may be able to obtain financing on more favorable terms than it could outside of bankruptcy by giving the post-bankruptcy lender priority over other creditors. Also, there is the possibility in bankruptcy for the business to be able to rapidly sell assets free and clear of liens and even over creditors’ objections, which under some circumstances may be the only way for the business to be able to sell its assets for fair market (as opposed to liquidation) value or to obtain funds to continue the operations.

Finally, the bankruptcy process provides the business with the opportunity for the bankruptcy court to bind creditors involuntarily to the reorganization plan of the business.  The reorganization plan may restructure obligations and discharge debts of the business. This ability of the bankruptcy court to bind creditors can be critical if the business owner’s efforts to put a workout together have failed due to some creditors’ refusal to agree to the proposed workout terms or because there are too many creditors for the business to be able reach an agreement with them.

Action Beats Hesitation

The best course of action for the business owner to deal with financial stress on the business is to be proactive, regardless of whether the solution is in the form of a workout or entails a bankruptcy.  Communication among the business and its creditors is very important.  Generally the earlier the lines of communication are opened between the business and its creditors, the better the chances are of a successful resolution.  The failure of the business to communicate with its creditors concerning its financial stress will often result in creditors assuming the worst and taking legal action that the creditor might not have taken if the business owner had simply communicated with them.  Once those collection actions have begun, filing bankruptcy may be the only course of action available to save the business.

A business owner’s denial of the precarious financial situation of the business or inaction can result in a needless loss of business value and can potentially impair the business’ ability to restructure or reorganize and survive the financial crisis. If you find that your business is in a precarious financial situation, taking action now may minimize the problems created by the down-turn.

About the authors:

Elizabeth K. Brown is an attorney and director of Phillips Murrah P.C., a member of the OIPA board of directors and CEO of The Gloria Corporation, an oil and natural gas exploration and production company.

 

Bankruptcy issues from the creditor perspective

Gavel to Gavel appears in The Journal Record. This column was originally published in The Journal Record on July 16, 2015.


Gretchen M. Latham’s practice focuses on representing creditors in foreclosure, bankruptcy, collection and replevin cases.

Gretchen M. Latham’s practice focuses on representing creditors in foreclosure, bankruptcy, collection and replevin cases.

By Phillips Murrah attorney, Gretchen Latham

During a bankruptcy case, we often hear about the debtor perspective. Whether due to unfavorable market conditions or poor planning, the result is financial hardship that inhibits a borrower from completing a loan agreement.

On the other side is the creditor, a lender that supplied funding and would like to recover as much of the investment as possible. Legal issues from the creditor perspective differ from that of the debtor. Some typical creditor-related issues include:

Standing to lift a stay

When a bankruptcy is filed, the debtor gets the benefit of an automatic stay preventing collections activities by the creditor. To enforce a security interest, the creditor can request to lift the stay.

More frequently, given recent rulings by the Oklahoma Supreme Court in foreclosure matters, debtors challenge the creditor’s right to even enforce the security interest. Thus, the result is the debtor seeks the stay to remain in place. Creative debtor attorneys are now making an attempt to use the state Supreme Court’s reasoning in bankruptcy court as well.

Timely execution of the statement of intention

There is some case law holding when debtors fail to timely perform their stated intent, the stay is lifted. When this happens, it is appropriate for a lender to file for relief from the stay and cite these cases as legal authority for the request.

Appropriate value for vehicles in a Chapter 13

A Chapter 13 “reorganizes” debt and allows the debtor to make one monthly payment to a trustee, who then disburses payment to the creditors. When a vehicle loan is involved, lenders are seeing frequent attempts to cram down the vehicle’s value in order to pay less. A savvy creditor will know how and when to object to this type of plan treatment.

Adequate protection payments in a Chapter 13

Often, it takes months for a Chapter 13 plan to confirm. For the creditor, this presents the problem of not receiving payment on their loan for a significant amount of time. The remedy is to seek an order of adequate protection, which will direct the trustee to make a pro rata payment to the creditor pending confirmation of the plan.

With the correct tools, financially stressed firms can avoid bankruptcy

From NewsOK / by Paula Burkes
Published: May 19, 2015
Click to see full story – With the correct tools, financially stressed firms can avoid bankruptcy

Click to see Stephen W. Elliott’s attorney profile

Oklahoma bankruptcy litigator Stephen Elliott, an attorney with Phillips Murrah, talks about dealing with market vulnerability and how to avoid bankruptcy.


Stephen W. Elliott is a director and shareholder of the firm. He represents creditors and debtors in out-of court workouts, litigation and bankruptcy in addition to representing clients in general litigation matters.

Stephen W. Elliott, a director at Phillips Murrah, represents creditors and debtors in out-of court workouts, litigation and bankruptcy in addition to representing clients in general litigation matters.

Q: There’s a lot of talk about low oil prices and how it may affect the business community in Oklahoma. Do you foresee trouble?

A: While Oklahoma’s economy is more diversified than it was during past downturns in the oil and gas industry, it’s hard to imagine current prices won’t adversely impact the Oklahoma business community. Oil and gas is still the dominant industry driving the Oklahoma economy. When the oil and gas industry suffers, we all suffer. For example, some oil and gas companies have reportedly reduced their capital expenditure budgets, reported substantial losses, and are selling off assets. Service and drilling companies have announced major layoffs. Among other things, with increased unemployment, mortgage foreclosures are likely to increase. With a materially increased number of foreclosures, real estate values typically drop. If oil prices don’t rebound soon, fallout seems inevitable. How bad the fallout may be depends largely on how debtors and creditors choose to address the current circumstances. In many instances, working together is likely to yield better results for both groups.

Q: If a company is experiencing financial stress, how can they avoid bankruptcy, and what is a “workout?”

A: In my experience, candid communication is often the key to avoiding bankruptcy and resolving financial issues through a workout. If a company is having trouble meeting its obligations, creditors want to know why, what is being done to address the situation and, ultimately, what their overall prospects for recovery are, both outside and through bankruptcy. A workout is an out-of-court process through which the parties try to reach an agreement to modify the terms of their original transaction. Workouts may involve debt forgiveness, and frequently involve changes in amortization, changes in interest rate, and changes in principal or interest payment due dates. The ultimate goal of the workout is to reach an agreement that puts the relationship on a footing consistent with existing financial conditions without the costs, delays and potential uncertainties frequently inherent in bankruptcy. If the workout would be as or more beneficial to both parties than a bankruptcy would be, bankruptcy can often be avoided.

Q: What is the best course of action when considering restructuring?

A: Accept the reality of the situation quickly and address it rapidly. To do so, the company must know its current revenue and expenses, be able to credibly project future revenue and expenses, and reasonably quantify the current and estimated future value of its assets. Once the company has that information, a pragmatic approach to dealing with its liabilities can be formulated. Denial or inaction can result in a needless loss of value and potentially impair the reorganization alternatives that may have otherwise been available. Communication is also very important, and generally the earlier the better. The failure to communicate will often result in creditors assuming the worst and taking collections actions they might not have taken if the debtor had simply communicated appropriately. Once those collection actions have begun, the prospects of avoiding bankruptcy are frequently reduced.

Q: Under what circumstances is bankruptcy preferable?

A: The potential benefits of bankruptcy are wide-ranging. For example, the debtor and its assets are protected by the automatic stay, which stops collection efforts outside of bankruptcy court, and keeps a debtor and its assets from being picked apart piecemeal. Bankruptcy also provides the possibility of being able to rapidly sell assets free and clear of liens and over creditors’ objections, which under some circumstances may be the only way to realize fair value of certain types of assets. Bankruptcy also provides the opportunity to bind creditors involuntarily to reorganization plans through which obligations are restructured and debt is discharged. This can be critical if efforts to put a workout together failed because some creditors refused or because there are too many creditors to deal with through a workout. Court supervision of the debtor, its property, and its actions, and ready access to a judge, also tends to be viewed by most as a benefit of bankruptcy.

Read the Q&A at NewsOK here.

Director and bankruptcy leader Tim Kline featured in The Oklahoman Q&A

kline paper

Click to see this on NewsOK.com

Although Phillips Murrah Director Tim Kline will recoil at the use of this descriptor, I (Marketing Director, Dave Rhea) am going to be so bold and reckless as to say he is legendary. As I listened to him review some of the highlights of his personal history, I felt like I was in the room with a great Oklahoma oral historian.

I found myself thinking on a couple of occasions, “too bad Tim doesn’t have a radio show.” But I guess he’s a little busy being one of the state’s preeminent bankruptcy attorneys. Oh well, I think he could have given Paul Harvey a run for him money.

Business reporter Paula Burkes, from The Oklahoman, was kind enough to stop by the firm recently to talk to Tim for one of the newspaper’s Executive Q&A features. It published Sunday, April 12 and gave people a glimpse into the storied life of a lawyer who has been practicing bankruptcy law since those infamous Penn Square days:


 

The morning of the 1982 Penn Square Bank collapse, Phillips Murrah Director Tim Kline — then a young general litigation attorney — was asked by his firm to call on Oklahoma City oilman Carl Swan, who was a director of the bank.

“It was the Monday following the July 4th weekend, and I was supposed to be off,” said Kline, who remembers he wasn’t too happy about the assignment.

In their meeting, Kline asked Swan if the bank was OK and Swan, in his notorious gruff manner, reported that it was; that the Federal Deposit Insurance Corporation agreed to capitalize millions more and give the bank more time, he said.

But when Kline arrived home and flipped on his TV, he learned the FDIC had pulled the plug on Penn Square Bank.

The infamous bankruptcy is what sparked a nearly 33-year career in bankruptcy law for Kline, whose late father and former Assistant U.S. Attorney David A. Kline Jr. served 14 years as a bankruptcy judge.

At the time of the collapse, Kline was helping his dad teach a bankruptcy law course at Oklahoma City University — largely on the 1978 Bankruptcy Reform Act, which the senior Kline had helped promote.

Tim Kline never intended to go into bankruptcy law but, following the oil bust, circumstances unfolded that way, he said. With so much demand for bankruptcy work, his dad left the bench and they formed Kline & Kline in February 1983, where they worked together for more than 25 years.

Kline in 2011 joined Phillips Murrah, where he continues to specialize in bankruptcy law.

From his offices on the 13th floor of the Corporate Tower, Kline, 65, sat down recently to talk about his life and career. This is an edited transcript:

Q: Tell us about your roots.

A: Of course, my father was an attorney and my mother was a homemaker. I’m the middle child of their three children. My brother is six years older and my sister is eight years younger. My father used to joke that he managed to raise three only children. But we were, and still are, close. In fact, we three and our mother, 94, all live within walking distance from one another on several hundred acres we bought in 1981 in the Jones Public Schools District in eastern Oklahoma County, 10 miles east of I-35, where we have dogs, chickens and horses. My brother-in-law raises cattle. When I was a bachelor, my home was like an overgrown cabin. But since Alyssa and I married, we’ve reinvented it three times. It’s three-storied and our second story overlooks a lake.

Q: Where did you go to school?

A: In elementary school, I was a Mayfair Chipmunk. We lived near 50th and May when Mayfair was a brand-new neighborhood. In the sixth- and seventh-grades, I attended Casady, after my brother was recruited there to play baseball. Once he graduated and went to OU on a baseball scholarship — and I lost my ride to school — I transferred to Putnam City, where I graduated. Growing up, I played baseball, football and basketball, but my siblings were far better athletes. My sister went to OCU on a tennis scholarship. I was into politics. At 7, I remember sitting up and crying when Adlai Stevenson lost; in 1960, I got to hear JFK speak in the municipal auditorium; and before I could vote, I was the Ward 1 campaign chairman for Eugene McCarthy. I also enjoyed speech, debate and plays. My favorite role was the lead my sophomore year in “Look Heavenward Angel.”

Q: What were some of your first jobs and first cars?

A: As a youth, I worked at the municipal ball park. My sophomore year in high school, I threw the first papers of the now-defunct Oklahoma Journal. By the summer of my senior year, I graduated to writing obits and writing some Friday night football stories. My freshman year of college, I was awarded a scholarship to UCO. My father told me if I took it, he’d get me a car, though it wasn’t a very nice car. It was a used light blue Ford Fairlane. When I was a junior, and doing well in school at OU, he bought me a purple Plymouth Road Runner.

Q: Did you always plan on being an attorney?

A: There was a time I considered becoming a philosophy teacher. At OU, I studied under the legendary J. Clayton Feaver and considered getting a Ph.D. in philosophy. I’d earned a graduate minor in it, along with a bachelor’s and master’s in polisci. But instead, I wound up taking the law school entrance exam. I like the problem solving in law, and helping people where they have a practical need. During law school, I interned with the U.S. Attorneys office and worked at the Redlands Racket Club and OKC Tennis Center. I got to play tennis with Colin Robertson. Before my father and I opened our own firm, I clerked for over three years for U.S. federal judge Luther Bohanon. He liked having me in the courtroom with him, so I got to see a lot of good lawyers at work in big trials. I worked the next three years for the firm of Jimmy Linn, a west Texas litigator who was a heavy hitter on the national level.

Q: What do you like about practicing bankruptcy law?

A: My work is really about avoiding bankruptcy as such. Whether I represent the debtor, creditor or a trustee, I try to bring together parties who are in financial stress and help them clarify what common interests are involved and how to maximize financial recovery. My goal is to do the most for the most people in the most efficient manner possible. Of course, like in all things in life, it takes two to tango. Sometimes, people aren’t cooperative and we have to go to a Plan B scenario and invoke legal remedies and be as confrontational as necessary. I’m as nice as the other side will allow.

Q: How did you meet your wife?

A: Alyssa is a native Canadian. We met at Christmastime 1976, when I went to British Columbia to visit relatives and friends, but then she was only a punk teenager. Her family and I kept in touch over the years and in the summer of ’85, she called to say she and her folks were going to Seattle and would I like to meet them there. She was 23; I was 36. I spent a couple days in Seattle, but had to fly back to Albuquerque for a big case. Three weeks later, I flew to British Columbia, where we wed and spent our honeymoon. She was shocked that it was 100 degrees in Oklahoma City, when our flight arrived home at 11 p.m. on Sept. 1. The next morning, she joked about getting an annulment. But this August, we will have been married 30 years. Alyssa earned an education degree at UCO and taught elementary school, before she had our daughters whom she home schools. After the girls were born, Alyssa’s parents moved to Oklahoma City. We’ve lost her mother, but her father lives in a retirement community. He’s 94 and was over for Easter.

You can view the whole story here: http://newsok.com/executive-qa-penn-square-bank-collapse-sparks-counselors-career-in-bankruptcy-law/article/5409410

 

Avoiding the b-word: The many faces of financial restructuring

Clay Ketter’s guest column, Gavel to Gavel, originally published in The Journal Record  on Mar. 11, 2015.
View Clay Ketter’s attorney profile here.


Clayton D. Ketter is a litigator whose practice involves a wide range of business litigation in both federal and state court, including extensive experience in financial restructurings and bankruptcy matters.

Clayton D. Ketter is a litigator whose practice involves a wide range of business litigation in both federal and state court, including extensive experience in financial restructurings and bankruptcy matters.

The current price of crude oil is sure to make people use language that is inappropriate in polite conversation. As news of idled rigs, layoffs and credit defaults becomes a daily occurrence, the use of the b-word is sure to come up more and more. Of course, I’m referring to that nasty little 10-letter word, bankruptcy.

The stigma that once surrounded a bankruptcy filing has subsided as multiple high-profile companies such as American Airlines, General Motors and the Los Angeles Dodgers have entered the bankruptcy process and emerged as stronger, more viable businesses. Despite these successes, one group that has been gradually shunning the use of the b-word is, surprisingly, bankruptcy attorneys. Yes, the people most familiar with the ins and outs of the Bankruptcy Code, rather than announce themselves as bankruptcy experts, are instead asking to be referred to as financial restructuring specialists. This is particularly true for those attorneys that focus on businesses, as opposed to individuals, facing financial difficulties.

At first glance, it would appear that a rebranding effort is the motivation for this shift. Bankruptcy may suggest failure, death, layoffs and closings. Financial restructuring, comparatively, signifies repair and rebirth of a business. Although marketing has played a part, it fails to explain the whole story. The use of the phrase “financial restructuring” reflects the reality that debtors and creditors facing financial stress have many options at their disposal, not just bankruptcy.

Workouts, divestitures, mergers and asset sales are just some of the tools that a financial restructuring professional may utilize to assist debtors and creditors in resolving financial difficulties. Options also include a bankruptcy filing, whether it be a Chapter 11 reorganization or a Chapter 7 liquidation. However, a bankruptcy filing is not always the right choice. Depending on the circumstances, it often makes sense to avoid the time and expense of a formal proceeding, and instead resolve matters out of court. The title of financial restructuring attorney reflects the fact that multiple options are available to address and repair economic trouble, not just bankruptcy.

Should crude oil prices remain depressed, we are certain to see the b-word used more frequently. However, it’s important to remember that, depending on the circumstances, a more conservative approach may be better.

Kline named director of bankruptcy and creditors’ rights certification board

American Board of Certification of Bankruptcy and Creditors’ Rights Names 2012 Board Members

Staff Report

[ FEBRUARY 2, 2012 – TULSA, Okla. ] – Mac D. Finlayson of Morrel Saffa Craige in Tulsa has been elected president-elect and general counsel for 2012 by the American Board of Certification of Bankruptcy and Creditors’ Rights Attorneys.

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Phillips Murrah law firm forms new partnership

By M. Scott Carter

[ SEPTEMBER 15, 2011 – OKLAHOMA CITY ] The Oklahoma City law firm of Phillips Murrah P.C. is 25 percent bigger today – thanks to a new partnership with the Kline, Kline, Elliott and Bryant firm and other new additions.

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