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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.

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.

Who gets Grandma’s Twitter? Ownership, rights to Internet-based materials

Clay Ketter

Clayton D. Ketter is a litigator whose practice involves a wide range of business litigation including financial restructurings and bankruptcy matters.

By Clay Ketter
Guest Column in The Journal Record
Originally published Sept. 3, 2014

The amount of material we store in the so-called cloud has seen amazing growth. Be it a Web-based email account, iTunes music collection, or a blog dedicated to humorous pictures of cats, each of us has information we value that is solely accessible through the Internet.

Issues of ownership and rights to these Internet-based materials can be tricky. What happens to these rights once a person dies? In the past, family members may have wondered who would inherit the family silver. Now, issues may arise as to not only who gets Grandma’s Twitter account, but whether the account is even transferable.

Oklahoma is a pioneer as to these issues. A statute in effect since 2010 gives an executor the power to take control over social networking, blogging, instant messaging or email accounts following the owner’s death. Oklahoma’s statute, though, predates the explosion of cloud computing and leaves open issues such as how or if digital assets can be conveyed.

Delaware recently became the first state to pass comprehensive legislation aimed at addressing what happens to digital assets. House Bill 345 provides that, upon one’s death, digital assets are to be treated the same as physical assets and gives an executor broad authority to take control of and transfer them. The law applies not just to Web-based accounts, but to video, images, and other digital materials.

gravestone-failwhaleHowever, the Delaware law states that it is subject to certain provisions contained in end user license agreements. Signing up to a new digital account typically requires agreeing to a user agreement. Given the length and complexity of these agreements, it’s a fair assumption that people often agree to the terms without having read the actual agreement. If one were to read the agreement, they would find that typically they are not acquiring the actual digital asset, but instead a limited license to use the asset. For example, when you purchase a song on iTunes, you are actually buying a license.

Therefore, all you effectively end up owning is the personal right to listen to the song. Even under the Delaware statute, upon one’s death, that limited license would prevent the song from being transferred.

You may want to think twice before amending your will to leave a relative your iTunes library. That is, unless you dislike them.

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.