Reynolds Center for Business

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					     Finding stories in
     bankruptcy court
         Prepared by Chris Roush
Director, Carolina Business News Initiative
University of North Carolina at Chapel Hill
          How this works
• Use the navigation bar to advance from
  slide to slide.
• When you encounter quiz questions, hit
  the “continue” button after you make
  your selection.
• You will be told if you are correct or not,
  and then be taken to the next slide.
• Enjoy the tutorial!
Bankruptcy court background
• The bankruptcy court system is a
  federal court system.
• It allows for individuals and companies
  to enter the court and seek to
  reorganize the debt it owes.
• Most major cities in the country have
  bankruptcy courts.
Bankruptcy court background
• The bankruptcy court system is a process
  that allows companies and individuals that
  cannot pay their debts to have some or all of
  their debts discharged or reorganized.
• Attempts to provide fair method of repayment.
• A company entering bankruptcy court does
  NOT necessarily mean it’s going out of
 Bankruptcy court background
• Understanding how bankruptcy court works
  and why businesses file for bankruptcy court
  protection is important for any reporter, not
  just those working on the business desk.
• When businesses file for protection from their
  creditors, those that are owed money could
  range from government entities such as the
  local school board to a federal agency that
  contracted with the business to perform
  services or provide goods.
 Bankruptcy court background
• In the quarter ended June 30, 2008, there
  were more than 276,000 bankruptcy court
  cases filed, up dramatically from the 210,000
  filed in the same quarter of 2007.
• Business filings went from 6,705 in the
  second quarter of 2007 to 9,743 in the
  second quarter of 2008 – an increase of 45.3
• Tracking total bankruptcy filings can tell you
  something about the economy.
Bankruptcy court background
• The largest number of filings occurs
  when an individual files Chapter 7.
  There are more than 1.3 million of those
  every year.
• But it’s the big corporate cases that get
  most of the attention – and news
 Bankruptcy court background
• Six of the 13 largest bankruptcies in terms of
  company assets were filed in 2002.
• Those major companies included WorldCom,
  Enron, Global Crossing, Conseco and Kmart.
• Airlines such as Delta and Northwest recently
  reorganized under the bankruptcy laws.
  Goldman Sachs filed earlier this year as part
  of the economy crisis
• Web sites such as
  follow major company cases.
 Bankruptcy court background
• Chapter 7 is liquidation. Everything must be
  sold to repay creditors.
• Chapter 9 is for municipalities.
• Chapter 11 is reorganization. Debtor
  maintains control of the business unless court
  appoints trustee.
• Chapter 12 is for farmers and fishermen.
• Chapter 13 is when person believes that they
  can repay debt within reasonable time period.
 Bankruptcy court background
• Although Chapter 11 filings make up a small
  portion of the total filings, this is the filing that
  most businesses undertake.
• Still, there are some businesses that file for
  Chapter 7.
• Chapter 11 filings can also be converted to
  Chapter 7 by judge if no reorganization plan
  can be agreed upon.
Bankruptcy court background
• Understanding how bankruptcy court
  works – and where to obtain information
  about bankruptcy cases – can
  determine the success or failure of
  someone’s coverage.
• Bankruptcy court operates just like
  county, circuit and federal courts.
• You have to know the playing field.
Bankruptcy court background
• You also have to know the issues
  surrounding bankruptcy court.
• In October 2005, new bankruptcy court
  legislation took effect, attempting to
  wipe out abuse of the system.
• As a result, there was a glut of cases
  filed before Oct. 17, 2005, under the old
               Quick review
•    Answer the following questions before
     going on to the next session.
1.  What is the filing that most businesses commonly
a. Chapter 7
b. Chapter 11
c. Chapter 12
d. Chapter 13
The answer is B. Most companies file for Chapter 11
    bankruptcy court protection.
                   Quick review
2. The bankruptcy system is part of what court system?

a.   State court
b.   Circuit court
c.   Federal court
d.   Small claims court

The answer is C. Bankruptcy court is part of the
   federal court system.
Bankruptcy court filings
     Bankruptcy court filings
• Documents filed by companies in a bankruptcy
  reorganization can be valuable resources for
• They often have names and phone numbers, and
  information about the company’s inner workings.
• The U.S. Bankruptcy Code does allows a court to
  prevent public access to filings if they include trade
  secrets or confidential information about a company’s
  operations, or if scandalous or defamatory information
  about a person is filed.
     Bankruptcy court filings
• The initial filing, or petition, will list the
  company’s assets and debts.
• The trick often is finding the initial filing.
• Companies will shop for a preferred venue –
  i.e., a friendly judge. Winn-Dixie created a
  New York subsidiary simply to file in that
• Many companies will file in Delaware
  because that is the state in which they are
     Bankruptcy court filings
• Also, some bankruptcy court jurisdictions
  allow companies to file after the court has
  closed and on the weekends.
• This allows them to avoid publicity until they
  make an official announcement.
• Note that all public companies must file a
  Form 8-K when they file for bankruptcy court
     Bankruptcy court filings
• Why does a company file for bankruptcy
  court protection instead of trying to work
  out a deal with its creditors?
• Because bankruptcy court automatically
  halts all judgments, collection activities,
  foreclosures, and repossessions of
         Bankruptcy court filings
• Here is a typical story from an initial filing:
•   When it opened in 1990, the Oxmoor golf and steeplechase
    development in eastern Jefferson County was another success among
    the vast holdings of HFH Inc., the Louisville real-estate developer that
    soared during the golf course and residential building boom in the late
    1980s and early 1990s.
•   Today Oxmoor Golf & Steeplechase Inc., which operates Oxmoor
    Country Club at 9000 Limehouse Lane, is proceeding through
    bankruptcy after running up debts to nearly 200 creditors and facing
    four lawsuits by suppliers seeking to recoup their money.
•   The not-for-profit corporation filed for protection from its creditors in
    U.S. Bankruptcy Court for the Western District of Kentucky on July 5, a
    move that shields its assets while it attempts to reorganize. In a petition
    entered with the court, Oxmoor Golf & Steeplechase claimed debts of
    $5 million and assets of $1 million.
     Bankruptcy court filings
• Note the term “filed for protection from its
• This is how you describe a company entering
  Chapter 11 bankruptcy court.
• Do NOT write that the company is bankrupt.
• Do NOT write that the company is going out
  of business.
• Can write that the company doesn’t have
  enough money to pay all of its bills.
     Bankruptcy court filings
• Here is a tip: When writing about businesses,
  don’t just look for corporate bankruptcies.
• Once found a CFO of a publicly traded
  company who had two personal bankruptcies
  in his past.
• How can he manage the books of a public
  company when he can’t manage his own
      Bankruptcy court filings
• A later filing, called the debtor’s list, will list
  all of the people that the company owes
  money, as well as their addresses and phone
• This should be considered a free source list.
• Many people and businesses owed money by
  a company in bankruptcy court are willing to
     Bankruptcy court filings
• Sometimes, the decision to file is not made by
  the company but by some of its creditors.
• This is called an involuntary bankruptcy.
• At least three creditors owed money by a
  company can join together and force a
  company into bankruptcy court.
• The company can contest the involuntary
     Bankruptcy court filings
• The business will have to develop a
  reorganization plan and file it with the
• This plan will detail how much it plans to
  repay creditors and must be approved
  by those owed money.
• Can often detail store closings, layoffs,
     Bankruptcy court filings
• The most important detail in the
  reorganization plan is how much
  creditors will be repaid.
• Typically referred to as a ratio, such as
  60 cents for every $1 they are owed.
• The higher the ratio, the better the deal
  for the creditors.
     Bankruptcy court filings
• It’s also important for reorganization plan
  stories to point out how much the company’s
  debt was reduced as part of the plan.
• An inability to pay the money it owes is the
  primary reason why a company enters
  bankruptcy court.
• If the debt has not been reduced enough,
  then the company could face trouble down
  the road.
      Bankruptcy court filings
• The reorganization plan is vital to the future success
  of a company.
• A reorganization plan that weakens a company can
  lead to the business falling back into the habits that
  caused its initial problems and leading to yet another
  bankruptcy court filing.
• A reorganization plan that gives little or nothing back
  to creditors often results in investors not wanting to
  be involved in the new company.
     Bankruptcy court filings
• A committee of creditors may also come up
  with a reorganization plan. These creditors
  can often be valuable sources.
• If the creditors approve the plan, and if the
  court agrees that the plan is fair, then the
  company is allowed to reorganize its debts
  and emerge from bankruptcy court.
    Bankruptcy court filings
• Look for different types of creditors.
• Secured creditors are more likely to
  get repaid some money than
  unsecured creditors.
• Unsecured creditors are stock holders,
  while secured creditors are bond
     Bankruptcy court filings
• Also note that some companies will file
  for bankruptcy court protection after
  negotiating with their lenders.
• The lenders will agree to a
  reorganization plan before the actual
  bankruptcy filing occurs.
• This is called a pre-packaged
     Bankruptcy court filings
• The length of a company’s stay in bankruptcy
  court can vary depending on the negotiations
  with its creditors.
• Some bankruptcy court proceedings have
  lasted for years, while others have taken
• It’s important to stay on top of a company’s
  case and its progress, or lack of progress.
• Regularly check the docket in the case file.
     Bankruptcy court filings
• Companies that enter bankruptcy court
  protection typically need what is called
  debtor-in-possession financing.
• These are typically loans from banks
  and other lenders.
• The company must get this financing
  approved by a judge.
         Bankruptcy court filings
• Here is a typically DIP financing story:
•   Conseco Inc. on Tuesday received final court approval for $150 million
    in debtor-in-possession financing to keep the company operating during
    its bankruptcy proceedings.
•   Conseco, Indianapolis, will receive the $150 million from a syndicate of
    lenders, including $125 million from FBS DIP LLC, an affiliate of the
    group leading the bidding for the Conseco Finance unit. That group,
    known as CFN Investment Holdings LLC, consists of Fortress
    Investment Group LLC, J.C. Flowers & Co. LLC and Cerberus Capital
    Management LP.
•   The additional $25 million in financing, known as the junior facility, will
    be provided by Lehman Brothers Inc.
•   Judge Carol A. Doyle issued interim orders on the financing matter on
    Dec. 23.
    Bankruptcy court filings
• Anytime someone needs to be paid
  money from the company in bankruptcy,
  there is a filing.
• This can include the executive’s pay,
  attorneys, accountants and consultants.
• Regularly check for these documents.
  They detail the hidden cost behind
  bankruptcy court.
      Bankruptcy court filings
• In February 2003, Bloomberg News disclosed that
  the 25 largest bankruptcies in 2001 and 2002 had
  resulted in a total of $235 million in legal fees as of
  Jan. 31 for the lead law firms for the companies.
• Some of the fees charged in the Global Crossing
  bankruptcy case during that time period by its lead
  law firm, Weil, Gothsal & Manges LLP, included
  $21,694 for meals, $73,182 for computerized
• Also, there was a request for more than $24,000 for
  activities that included composing its fee applications
  for the bankruptcy court judge to approve.
     Bankruptcy court filings
• Always get outside comment about these
• The Bloomberg story of the large fees drew
  criticism from the Texas attorney general,
  who said he saw “little accomplished” for the
  fees and that the “creditors and other people
  who deserve this money are seeing it
     Bankruptcy court filings
• Lastly, check for judge’s rulings
  involving a bankruptcy case your
• A judge has to issue orders for
  everything involved in a bankruptcy
• Regularly check with the clerk or the
  judge’s secretary for new rulings.
                Quick review
•    Answer the following questions before
     going on to the next session.
1.   What creditors typically get repaid first in a
     bankruptcy case?
a.   Secured creditors
b.   Unsecured creditors
c.   Shareholders
d.   All of the above
     The answer is A. Secured credits are the ones who
     get repaid first in a bankruptcy case.
                Quick review
2. What document would give a reporter a list of the
    creditors owed money in a bankruptcy case?
a. Reorganization plan
b. Initial petition
c. Debtor’s list
d. Judge’s ruling.
    The answer is C. A debtor’s list will include the
    names of creditors and how much money each is
Bankruptcy court hearings
   Bankruptcy court hearings
• When a company files for bankruptcy
  court protection, its assets are frozen.
• After the filing, there are hearings to
  decide whether a company can spend
  large amounts of money.
• There are always documents filed
  before the hearings. Get those, and
  you’ll know what’s going on.
  Bankruptcy court hearings
• For example, a judge typically reviews
  how much a company in bankruptcy
  court is paying its executives and its
• A judge may cut that pay if he or she
  thinks it’s too much.
• Don’t ignore these hearings regarding
  how a company is spending its money.
   Bankruptcy court hearings
• There will also be hearings if a company in
  bankruptcy court wants to sell part of its
  operation to raise cash.
• The judge has to approve the transaction.
• The hearing for transactions often results in a
  bidding war there in the courtroom of the
  subsidiary has value.
• Check for bids in the case file before the
    Bankruptcy court hearings
• Here’s a bidding story from a hearing:
• Berkadia Equity Holdings, a group controlled by investor Warren
  Buffett’s Berkshire Hathaway, led the bidding late Tuesday in a
  spirited auction to buy Conseco Finance Corp. out of
• Berkadia presented the highest bid of $1.2 billion as of 7 p.m.
  The bid is equal to the book value -- or the value of the assets --
  of St. Paul-based Conseco Finance as of Sept. 30, according to
  court documents.
• However, Berkadia could yet be topped by a higher bid. Bidding
  by parties interested in buying Conseco Finance’s mobile home,
  credit card, home equity and home improvement lending
  businesses continued well into Tuesday night.
   Bankruptcy court hearings
• A judge will also hold hearings about the
  reorganization plan if there is a disagreement
  between the company and creditors.
• And there will be hearings to approve the
  reorganization plan as well.
• Judge may not issue a ruling at the end of a
  hearing, but he will take testimony from
  attorneys and others.
  Bankruptcy court hearings
• The final hearing can be the most
  important one because it means that the
  company is leaving bankruptcy court
• Often, the company executives will
  attend, and you can grab them outside
  of the courtroom.
   Bankruptcy court hearings
• Here is a typical exit story:
• SpectraSite Holdings completed its reorganization Monday,
  emerging from bankruptcy protection with less debt, a new stock
  and a modified name. The operator of cell-phone towers shed
  about $1.8 billion in liabilities during the three-month process,
  and it now shows just more than $700 million in debt on its
  balance sheet, said David P. Tomick, the chief financial officer.
• The Cary company will issue 23.75 million new shares, which
  could begin trading today under the ticker symbol SPCSV, and
  changed its legal name to SpectraSite Inc.
• The moves reflect a new beginning for the beleaguered
  company, which fell upon hard times when growth slumped in the
  mobile-phone industry. As carriers such as Cingular Wireless
  won fewer customers, they cut spending, leaving SpectraSite
  with a $2.6 billion debt it couldn't manage.
                Quick review
•    Answer the following questions before
     going on to the next session.
1.   Who decides how a company in bankruptcy court
     spends its money?
a.   The CEO
b.   The clerk of the court
c.   The lawyers representing the company
d.   The judge presiding in the case.
     The correct answer is D. The judge must approve
     all major expenditures.
Bankruptcy court sources
    Bankruptcy court sources
• Lawyers, accountants, investment bankers,
  turnaround consultants and even company
  executives often receive millions of dollars in return
  for their services in helping steer the company
  through the bankruptcy maze.
• These groups of interested parties often clash with
  each other and the company during bankruptcy court
  proceedings. Therefore, it’s important to understand
  what role they play in the process – and what
  information they can give a reporter.
    Bankruptcy court sources
• All bankruptcy cases are overseen by a judge.
• A U.S. bankruptcy judge is a judicial officer of the
  U.S. district court who is appointed by the majority of
  judges of the U.S. court of appeals to exercise
  jurisdiction over bankruptcy matters.
• The number of bankruptcy judges is determined by
  Congress. The Judicial Conference of the United
  States is required to submit recommendations from
  time to time regarding the number of bankruptcy
  judges needed.
• Bankruptcy judges are appointed for 14-year terms.
   Bankruptcy court sources
• Judges rarely talk on the record about
  pending bankruptcy cases.
• But if you get to know them, they often
  will tell you how they plan to rule on
  certain matters in a company case.
• Judges can also steer you in the right
  direction for stories.
    Bankruptcy court sources
• Sometimes, a judge will appoint a trustee to
  oversee a company filing.
• A trustee often will act in the same role as the
  CEO of a company.
• A trustee can be assigned if creditors or
  others argue that the company management
  is unfit to manage its operations.
• In some occasions, the trustee will object to
  something that the company wants to do.
     Bankruptcy court sources
• Here is an example of that, from a hearing:
• The administrator for Midway Airlines’ bankruptcy is worried that
  the carrier may be piling up too much debt too fast as it gears for
  its new life as a US Airways commuter.
• On Wednesday when Midway proposed buying two expensive
  airplanes, she opposed the purchase until the airline could show
  how its existing creditors will be repaid.
• “We’ve got a situation where the debtor is in a hole with regard
  to expenses,” Marjorie Lynch, the administrator for the Eastern
  District Bankruptcy Court, told the judge. “The debtor’s ability to
  pay is doubtful.”
   Bankruptcy court sources
• Attorneys for the company, the
  creditors and other parties will crowd
  the courtroom during any hearing.
• Find out who they are and check in with
  them regularly.
• Attorneys representing creditors are
  more likely to talk than those
  representing the company.
   Bankruptcy court sources
• Often, an attorney will be appointed to
  represent the creditor’s committee.
• This is the person who typically negotiates
  with the company on the reorganization plan.
• Become this person’s best friend. Call them
• They often know what the reorganization plan
  will be before it is filed with the court.
   Bankruptcy court sources
• The clerk of the bankruptcy court is
  often a good source as well.
• Think about it. They have all of this juicy
  information, but no outlet for it.
• They know all of the good filings.
• Attorneys will call them and warn them
  when a big case is about to be filed.
    Bankruptcy court sources
• Don’t forget about the people at the
• Once followed a car dealership bankruptcy
  case where the owner was my best source.
• Other times, employees will be more than
  happy to discuss what’s going on because
  they believe they’re going to lose their job.
   Bankruptcy court sources
• How do you find these employees?
• Check Internet message boards.
• Run a Google search of the company name
  and resume to see who’s looking for a new
  job already.
• Lexis-Nexis search of announcements of new
  employees or new employees at other
  companies who have left the company now in
     Bankruptcy court sources
•    Two sources that you may not think about initially
     can be extremely valuable:
1.   The judge’s clerk or administrative assistant
     often knows what rulings are about to come down
     and what cases he or she has been reviewing.
2.   The court workers who actually process the filings
     on a daily basis can tell you if anything juicy has
     come through that day. (Always check right before
     court closes at 4:30 p.m.)
               Quick review
•    Answer the following questions before
     going on to the next session.
1.   Who is appointed by a judge to oversee a company
     in bankruptcy court’s operations?
a.   A trustee
b.   A creditor’s committee
c.   The lawyers representing the debtors
d.   All of the above.
     The correct answer is A. The trustee often
     oversees a company’s operations.
              Quick review
2. Who are valuable sources that should be
    tapped by a reporter covering a business
    bankruptcy case?
a. Company employees
b. Members of the creditor’s committee
c. A judge’s administrative assistant
d. All of the above
    The correct answer is D. All of these people
    are good sources in bankruptcy cases.
Bankruptcy court resources
  Bankruptcy court resources
• All bankruptcy court districts have an
  online Web site.
• A list is available at
• While few have actual documents
  available online, most do post the court
  dockets for each judge.
  Bankruptcy court resources
• The federal courts have a number of electronic public
  access systems available for business reporters.
• They include Voice Case Information System (VCIS),
  modem-based Public Access to Court Electronic
  Records (PACER), the U.S. Party/Case Index
  (USPCI), Internet access to dockets (which
  sometimes includes document imaging)
  (PACER/RACER), and Electronic Case Filing (ECF).
• Go here to find what you’re looking for:
  Bankruptcy court resources
• is a
  nice resource of information, but is run
  by bankruptcy attorneys.
• There is some good background on the
  history of bankruptcy and an overview
  of the process.
• Also links to regional resources for each
  Bankruptcy court resources
  ts.html is the home page for the U.S.
  bankruptcy court system.
• It has statistics on the different types of
  cases filed by quarter and by
  geographic area.
• Also has samples forms so you can see
  what the filings look like.
  Bankruptcy court resources
• The SEC also has a good site explaining the
  impact for investors of bankruptcy court filings
  on public companies.
• SEC has limited role in bankruptcy cases, but
  will step in if it thinks that company filed for
  bankruptcy court protection to avoid
  securities fraud litigation.
• Covering bankruptcy court is all about
  knowing what to look for and who to ask
  for the information.
• It’s also about being in the right place at
  the right time and showing up for
  important hearings.
• But wait, there’s more….
• Answer the following 10 questions
  about finding information when reporting
  on bankruptcy court and its cases.
• When you have completed answering a
  question, click on continue, and the
  answer will show with an explanation.
• No. 1: Which of these statements is false?
• A.) Both public and private companies can file for bankruptcy
  court protection.
• B.) Executives of companies can file for personal bankruptcy
  court protection.
• C.) A person or company files for bankruptcy court protection
  when it can’t pay its bills.
• D.) It’s faster for a company to exit bankruptcy cour than a
• The answer is D. The time it takes to navigate bankruptcy court
  depends on negotiations with creditors, not who has filed.
• No. 2: What information can you get from a
  company’s bankruptcy court filings?
•   A.) Its revenue for the past year.
•   B.) Who it owes money.
•   C.) Executive compensation.
•   D.) How it was originally formed.
•   The answer is B. A company in bankruptcy court files
    a debtor’s list of everyone it owes money.
• No. 3: What is the most common bankruptcy court
• A.) Personal bankruptcy by an individual.
• B.) Business filing for Chapter 11 reorganization.
• C.) Business filing for Chapter 7 liquidation.
• D.) None of the above.
• The answer is A, although reporters tend to write
  more stories about companies in bankruptcy court.
  Personal bankruptcies are more than 95 percent of
  all filings.
• No. 4: What document details how a
  company plans to exit bankruptcy court?
•   A.) Initial petition.
•   B.) Debtor’s list.
•   C.) Reorganization plan.
•   D.) A and B.
•   The answer is C. The reorganization plan explains
    how a company will pay off some of its debt and how
    it plans to cut expenses.
• No. 5: What type of information can a reporter
  find out by sitting in a bankruptcy court
• A.) The amount of money paid to the attorneys
  representing the company.
• B.) The sale of a subsidiary to raise cash.
• C.) The approval of the reorganization plan by
• D.) All of the above.
• The answer is D. All of these answers are information
  that can be gleaned from bankruptcy court hearings.
• No. 6: Which of these people involved in a
  bankruptcy case is unlikely to talk on the
•   A.) The creditors.
•   B.) The attorneys representing the business.
•   C.) The judge.
•   D.) The trustee.
•   The answer is C. A judge must remain impartial while
    hearing a bankruptcy court case.
• No. 7: Where would you go to find information
  about a bankruptcy case?
•   A.) The online PACER system.
•   B.) The regional bankruptcy court.
•   C.) The circuit court.
•   D.) A and B.
•   The answer is D. Most bankruptcy court filings can be
    obtained by subscribing to the PACER system online
    or by going to bankruptcy court and visiting the
    clerk’s office.
• No. 8: If you wanted to find information about a
  company’s reorganization plan before it was filed with
  the court, who would you talk to?
• A.) Large creditors.
• B.) Attorneys representing the creditor’s committee.
• C.) The trustee.
• D.) All of the above.
• The answer is D. All of these sources might talk to a
  reporter about details of a reorganization plan before
  it is officially filed with the court.
• No. 9: What’s the difference between a secured
  creditor and an unsecured creditor in a corporate
  bankruptcy case?
• A.) A secured creditor holds stock in the company, while an
  unsecured creditor does not.
• B.) A secured creditor has filed a lawsuit against the company,
  while an unsecured creditor has not.
• C.) A secured creditor typically receives some of the money they
  are owed, while an unsecured creditor is rarely repaid.
• D.) A and B.
• The answer is C. Secured creditors are first in line to be repaid.
• No. 10: True or false, can a company in
  bankruptcy court protection receive money
  from lenders?
• A.) True.
• B.) False.
• The answer is A. A company in bankruptcy
  court protection is a candidate for debtor-in-
  possession financing that allows it to continue
  to operate.