Privacy Tip #437 – 23andMe Files for Bankruptcy—What to Do If It Has Your Genetic Information
Genetic testing company 23andMe has filed for Chapter 11 bankruptcy protection, and its CEO has resigned. It is seeking to sell “substantially all of its assets” through a reorganization plan that will have to be approved by a federal bankruptcy judge.
Mark Jensen, Chair and member of the Special Committee of the Board of Directors stated: “We are committed to continuing to safeguard customer data and being transparent about the management of user data going forward, and data privacy will be an important consideration in any potential transaction.” The company has also stated that the buyer must comply with applicable law in using the data.
That said, privacy professionals are concerned about the sale of the data in 23andMe’s possession, including the sensitive genetic information of over 15 million people. People often assume that the information is protected by HIPAA or the Genetic Information Nondiscrimination Act, but as my students know, neither applies to genetic information collected and used by a private company. State laws may apply, and consumers could be offered the ability to request the deletion of their data.
The company has said that customers can delete their data and terminate their accounts. The California Attorney General “urgently” suggests that consumers request the deletion of their data and destruction of the genetic materials in its possession and offers a step-by-step guide on how to do so.
Apparently, so many people have followed the suggestion that the 23andMe website crashed. The site is now back up and running, so 23andMe customers may wish to log in and request the deletion of their data and termination of their accounts.
HMRC Supports a UK Restructuring Plan with its Change in Approach – Good News for Future RPs?
You may have read our previous blog about the Outside Clinic Restructuring Plan (RP) which asked whether 5p was enough to cram down HMRC and thought, well surely if that’s not enough, 10p would work? The Enzen Restructuring Plans (RPs) that were sanctioned this week also sought to compromise HMRC’s secondary preferential debt proposing a payment that would see HMRC recover 10p in the £ compared to nil in the relevant alternative. The Enzen RPs were not only sanctioned but also supported by HMRC – does this signal a change in attitude by HMRC?
In 2022 and 2023 we saw a number of RPs seeking to compromise HMRC secondary preferential debt in one way or another, and HMRC opposing those. Their reasons for not supporting often centered around the fact that HMRC is an involuntary creditor and that it has preferential status (in respect of certain of its debts) in an insolvency and therefore should be treated differently to other unsecured creditors in an RP.
The risk of HMRC challenge seemed to dissuade many (at least in the mid-market) from using the RP as a tool to restructure after plans proposed by the Great Annual Savings (GAS), Nasmyth and Prezzo were all opposed by HMRC. It was following those cases that HMRC then issued guidance outlining its expectations. Other RPs that have involved HMRC debt included Fitness First where HMRC’s debt was rescheduled, rather than compromised, and Clinton Cards, where HMRC’s debt also remained intact. It is perhaps not therefore surprising we haven’t seen many “HMRC” RPs since these due to the risk (and not to mention the cost) of a potential challenge from HMRC.
The Enzen RPs therefore seem to signal a change in attitude by HMRC who, for the first time, positively supported the plans. But why the change?
There were two plans proposed by Enzen entities, (Enzen Global Limited (EGL) and Enzen Limited (EL). HMRC was owed £5,286,674 by EGL in respect of preferential debts, and £4,319,890 by EL.
The EGL plan proposed to pay HMRC £250,000 in cash, equivalent to a return of 4.2p in the £ compared to 0.1p in the relevant alternative (in this case administration). Under the EL plan HMRC was also to receive a £250,000 cash payment resulting in a return of 5.6p in the £ compared to nil in the relevant alternative – which would also be administration. Essentially HMRC would receive a payment of approximately 10p in the £ under both plans.
Certain other preferential debts (VAT, NIC and PAYE) which were being paid when they fell due, were treated as critical payments under the RPs so were not compromised.
Although HMRC made noises at the convening stage suggesting that it might oppose the RPs there was no indication as to the basis on which it would do so. At this point HMRC’s position was governed by the fact that it hadn’t had enough time to consider its stance ahead of the convening hearing, given the substantial amount of material they had to review.
Between the convening hearing and sanction, HMRC raised its concerns in correspondence with the plan companies (although there is no specific detail about those concerns) save that they highlighted:
that the court should not cram down HMRC without good reason (following Naysmyth)
HMRC has a critical public function, and its views should carry considerable weight (following GAS).
Following this HMRC negotiated an additional £100,000 payment from both EGL and EL which increased its returns under the RPs to 6.6p under the EGL plan and to 8.1p under the EL plan. On that basis HMRC voted in favour of the RPs.
At the sanction hearing HMRC made their position on the RP clear and made the following statements indicating a new approach:
HMRC told the court that they knew they had opposed plans in the past (referencing Naysmith and GAS in particular), but they wanted their stance to the Enzen plan to prove indicative of a more proactive approach in relation to RPs.
HMRC also made it clear it is looking to participate as fully as possible with RPs where it can in the future.
The main reason HMRC supported in this case was because of the increased payment EML and EL were willing to give them, which meant there was a material increase to them.
There are at least two more plans that are coming before the court for sanction soon – Outside Clinic and Capricorn – that include an element of HMRC debt. Following the Enzen RPs it will be interesting to see, in light of HMRC’s positive engagement on Enzen, whether HMRC will support those.
The Enzen RPs will no doubt spark interest from the mid-market given HMRC’s stance to date has arguably been a blocker on mid-market RPs, but the costs of tabling an RP are still likely to be a concern given the litigious nature of many. Also if it is HMRC’s policy to now participate in restructuring plan hearings (even if they support) who bears those costs?
Annabelle McKeeve also contributed to this article.
(UK) The Issue With Hybrid Insolvency Claims Rumbles On
Should a claim be struck out where the applicant has failed to comply with the procedural requirements relating to “hybrid” claims? In the recent case of Park Regis Birmingham LLP [2025] EWHC 139 (ch), the High Court held that it would be disproportionate to strike out the claim on that basis.
Hybrid Claims
Hybrid claims are those that include claims under the insolvency legislation (e.g. “transaction avoidance” claims), as well as company claims (e.g. unlawful dividends or sums owing under a director’s loan account). Previously, it was common practice for such claims to be issued as a single insolvency act application, rather than as a Part 7 claim.
Since the Manolete Partners plc v Hayward and Barrett Holdings case in 2021, applicants have been required to issue these claims separately, with the insolvency claims being issued as an insolvency application, and the company claims being issued as a separate Part 7 claim. The applicant can then issue an application to request that the separate proceedings are managed together e.g. at a single trial. This has meant that the costs of issuing such claims have increased, as the issue fee for a Part 7 claim can be up to £10,000, whereas the issue fee for an insolvency application is £308.
Facts
In the Park Regis case, the applicants had incorrectly issued a hybrid claim as a single insolvency application, without issuing the separate Part 7 claim for the company claims. However, when issuing the application, the applicant’s lawyers had informed the Court that the issue fee for the application would be £10,000, as the claim was a hybrid claim, and therefore the £10,000 fee was paid.
The respondents applied to strike the claim out, on the basis that the applicant had failed to comply with the Hayward and Barrett Holdings case and argued that the applicant’s approach constituted an abuse of process.
The judge held that the applicant had failed to comply with the procedural requirements regarding hybrid claims. However, in exercising her discretion about whether to strike out the claim, the judge held that striking out the claim would be too severe a penalty for that failure. The judge therefore exercised her discretion (under CPR 3.10) to waive the procedural defect and allowed the claim to proceed as if it had been properly issued.
Commentary
While the judge in this case declined to strike out the claim, the judge was clear that the applicant’s attempt to issue the claim by way of a single insolvency application, but paying the higher Part 7 issue fee, was procedurally incorrect. Had this approach been endorsed it would have made issuing such applications more straightforward for practitioners, but the judge noted the absolute requirement for separate proceedings.
We understand that this decision has been appealed – so watch this space for further comment. In the interim practitioners should continue to apply the Hayward and Barrett Holdings approach and issue two sets of proceedings to avoid the risk of a claim being struck out. Although the procedural defect was waived in this case, the power to do that is a discretionary one!
The Insolvency Service in the First Review of the Insolvency Rules has reported that they are considering whether an amendment to the Rules is required to address the Hayward and Barrett Holdings case which would hopefully see a return to previous practice – one set of proceedings with one court fee. But to date there has been no indication from the Insolvency Service when (if) they will progress that and unless further clarity is provided on appeal it seems the sensible approach for practitioners is to follow Hayward when pursuing a claim.
Board of Directors 101: Roles, Responsibilities, and Best Practices
Serving on a board of directors is a pivotal role in corporate governance, demanding a clear understanding of legal and financial responsibilities. This article delves into the core functions of a board, the fiduciary duties of its members, and the distinctions between fiduciary and advisory boards.
Understanding the Board of Directors
A board of directors serves as a corporation’s governing body, representing shareholders and overseeing the organization’s management. Jonathan Friedland, a corporate partner with Much Shelist PC, notes that the board’s primary functions include providing strategic direction, ensuring legal compliance, and upholding ethical standards.
Boards are typically composed of:
Inside Directors: Individuals who are part of the company’s management, such as executives or major shareholders.
Outside Directors: Independent members who are not involved in daily operations, offering unbiased perspectives.
In public companies, boards are mandated by law and must adhere to stringent compliance and financial disclosure requirements. Private companies, while not always legally required to have a board, often establish one to benefit from external expertise and governance.
The Purpose and Responsibilities of the Board
Allan Grafman highlights that an effective board transcends mere oversight; it actively shapes the company’s trajectory.
Key responsibilities include:
Strategic Oversight: Guiding long-term planning and ensuring alignment with the company’s mission.
CEO Supervision: Appointing, evaluating, and, if necessary, replacing the Chief Executive Officer.
Succession Planning: Preparing for future leadership transitions to maintain organizational stability.
Legal and Ethical Compliance: Ensuring adherence to laws and ethical standards to mitigate risks.
For public companies, these duties are underscored by regulations such as the Sarbanes-Oxley Act, which mandates accurate financial reporting and internal controls. Private companies, though subject to fewer regulations, must still navigate complex governance landscapes, balancing the interests of various stakeholders.
Fiduciary Duties of Board Members
Board members are bound by fiduciary duties, which are legal obligations to act in the best interests of the corporation and its shareholders.
These duties encompass:
Duty of Care: Directors must make informed decisions with the diligence that a reasonably prudent person would exercise in similar circumstances. This involves staying informed about the company’s operations and relevant market conditions.
Duty of Loyalty: Directors are required to prioritize the corporation’s interests above personal gains, avoiding conflicts of interest. This means refraining from engaging in activities that could harm the company or benefit them at the company’s expense.
The Business Judgment Rule offers directors protection, presuming that decisions are made in good faith and with due care. However, this presumption can be challenged if there is evidence of gross negligence or self-dealing. In such cases, courts may apply the Entire Fairness Doctrine, requiring directors to prove that their actions were entirely fair to the corporation and its shareholders.
Fiduciary vs. Advisory Boards
David Spitulnik notes that fiduciary and advisory boards are distinct in role and authority.
Fiduciary and advisory boards differ in the following key ways:
Fiduciary Boards
Legal Obligation: Hold legal responsibilities and are accountable to shareholders.
Decision-Making Authority: Empowered to make binding decisions, including hiring and firing executives.
Regulatory Compliance: Must adhere to corporate governance laws and regulations.
Advisory Boards
Non-Binding Guidance: Offer strategic advice without the authority to make final decisions.
Flexibility: Provide insights on specific issues, such as market expansion or product development.
No Legal Liability: Generally not subject to the same legal obligations as fiduciary boards.
For private companies, advisory boards can be useful in providing expertise and mentorship without the formalities and liabilities associated with fiduciary boards.
Qualities of Effective Board Members
Alex Sharpe emphasizes that board members should have the requisite skills.
Exceptional board members will possess a combination of attributes:
Financial Acumen: A strong grasp of financial statements and the ability to assess the company’s fiscal health.
Strategic Vision: The capacity to think long-term and guide the company toward sustainable growth.
Integrity: Upholding ethical standards and fostering a culture of transparency.
Industry Expertise: Deep knowledge of the sector to provide relevant insights.
Effective Communication: The ability to articulate ideas clearly and listen actively to diverse perspectives.
Spitulnik adds that meticulous preparation, such as reviewing materials in advance and taking detailed notes during meetings, enhances a director’s effectiveness and demonstrates commitment.
Compensating Board Members
Compensation for board members varies based on the company’s size, industry, and resources. While some private companies may not offer monetary compensation, providing equity stakes or other incentives can attract and retain talented directors. Companies with revenues under $20 million often have informal advisory boards with minimal compensation, whereas larger companies may offer more substantial remuneration packages.
Common Challenges in Board Governance
Even well-structured boards can encounter pitfalls. Allan Grafman and Jonathan Friedland identify several common challenges:
Role Ambiguity: Unclear definitions of responsibilities can lead to overlaps or gaps in governance.
Inefficient Meetings: Poorly organized meetings can result in unproductive discussions and delays in decision-making. Ensuring a well-structured agenda and sticking to key priorities can improve efficiency.
Lack of Strategic Focus: Boards that concentrate solely on compliance and operational oversight may fail to provide long-term strategic guidance. A balanced approach is necessary to foster both accountability and growth.
Weak Team Dynamics: A dysfunctional board can hinder progress. Differences in opinion are natural, but a lack of mutual respect or collaboration can create gridlock. Establishing clear governance policies and encouraging open dialogue are essential.
Outdated Board Composition: The business environment is constantly evolving. Boards that fail to bring in fresh perspectives or adapt to industry shifts risk becoming ineffective. Periodic board evaluations and diversity initiatives can enhance governance.
Legal and Financial Risks Facing Boards
Board members must navigate various legal and financial risks. Failing to uphold fiduciary duties can lead to lawsuits, regulatory scrutiny, and financial losses. Understanding these risks is crucial to effective governance.
Director and Officer (D&O) Liability
Board members can be held personally liable for decisions that result in financial harm to the company or its shareholders, though the Business Judgment Rule is commonly a powerful shield. To further mitigate this risk, many companies purchase Directors and Officers (D&O) insurance, which protects individuals from personal financial losses due to lawsuits or claims against them in their capacity as board members. A director can also purchase a personal policy as additional protection.
However, D&O insurance policies do not cover fraud, criminal acts, or intentional misconduct. Board members must remain vigilant in their decision-making to avoid legal exposure.
Financial Oversight and Accountability
Strong financial governance is a cornerstone of board responsibilities. Directors must ensure accurate financial reporting, prevent fraudulent activities, and comply with regulatory requirements, though many that apply to public companies do not apply to privately owned companies.
Failing to meet these obligations can lead to SEC investigations, shareholder lawsuits, and reputational damage. Adopting internal controls, conducting regular financial audits, and requiring management accountability are essential practices for boards to prevent financial mismanagement.
Bankruptcy and Restructuring Considerations
If a company becomes financially distressed, board members must navigate complex restructuring decisions, including whether to file for Chapter 11 bankruptcy. This raises the oft-cited and equally oft-misunderstood ‘zone of insolvency.’ EDITORS’ NOTE: Read What To Do When Your Company May Be Insolvent for more information about this.
David Spitulnik explains that delaying restructuring efforts or failing to act prudently can expose board members to liability. Seeking expert legal and financial guidance is crucial when a company faces distress. Directors in financial distress must prioritize maximizing value for all stakeholders.
Best Practices for Effective Board Governance
Strong boards do more than fulfill legal requirements — they drive long-term value. Implementing best practices can significantly enhance a board’s effectiveness.
Regular Board Evaluations
Evaluating board performance through annual assessments helps identify areas for improvement.
Effective evaluations should consider:
Board composition and expertise
Meeting efficiency and decision-making processes
Director engagement and contributions
Clear Governance Policies
Establishing bylaws, conflict-of-interest policies, and codes of conduct ensures that board members adhere to best practices. Transparency in governance fosters trust among shareholders and stakeholders.
Ongoing Education and Development
Staying informed about changes in laws, financial regulations, and industry trends is essential for directors. Continuous education, such as attending governance training programs or legal briefings, ensures that board members remain effective in their roles.
Active Shareholder Engagement
For public companies, engaging with shareholders proactively helps build confidence and alignment between the board and investors. Boards that listen to shareholder concerns and maintain open communication reduce the risk of activist investor disruptions.
Conclusion
Serving on a board of directors carries significant legal, financial, and strategic responsibilities. Board members must navigate fiduciary duties, compliance requirements, financial oversight, and governance challenges while ensuring the company’s long-term success.
The best boards don’t just react to problems they anticipate them. Directors who stay informed, exercise sound judgment, and uphold ethical standards can make a lasting impact on their organizations.
Understanding these principles is essential for professionals considering board service or advising boards. A well-run board is not just a legal necessity — it is a strategic asset that drives corporate success.
To learn more about this topic view Board Of Directors Boot Camp / Roles & Responsibilities: a Primer. The quoted remarks referenced in this article were made either during this webinar or shortly thereafter during post-webinar interviews with the panelists. Readers may also be interested in reading other articles about the roles, structures, and duties of a board of directors.
This article was originally published here.
©2025. DailyDACTM, LLC d/b/a/ Financial PoiseTM. This article is subject to the disclaimers found here.
Who Owns the Policy vs. Who Owns the Proceeds? The Distinction Matters During Bankruptcy
One of the most important assets of a debtor’s estate in bankruptcy often is insurance purchased by the debtor before bankruptcy arises, to protect the company’s business, assets, and leaders. Insurance assets can be particularly key when the debtor’s estate faces liabilities from mass-tort suits and claims, securities and other claims relating to management of the entity before bankruptcy. However, questions often arise about who is entitled to the insurance. Is the debtor (and its trustee) entitled to recover and use the insurance? Or, under the terms of the relevant insurance policy, or policies, are others entitled to payments owed by the insurance?
In addressing these issues, bankruptcy courts often have distinguished between ownership of the policy itself and, under the terms of the policy, the insureds who are entitled to the benefit of the “insurance proceeds.” This issue typically arises with regard to liability insurance and can arise with regard to a variety of types of liability coverages, including commercial general liability (CGL) and directors and officers (D&O) liability coverage. First-party insurance, in contrast, applies to protect assets and exposures of the company, putting it outside of the reach of this issue of ownership of insurance-policy proceeds.
Thus, during bankruptcy, litigation may arise about who owns the insurance policy and who owns, or is entitled to payment of, the policy’s “proceeds.” Determining whether the proceeds from a liability insurance policy often turns on interpretation of policy provisions which, when analyzed, are relevant to resolution of this issue and, thus, present classic insurance-coverage issues. D&O policies typically purchased by companies often present challenging questions because they provide different types of coverage to different entities and individuals. A primary purpose of D&O insurance, of course, is to protect individual directors and officers of the company and other individual insureds, and the existence of such insurance helps ensure that qualified people are willing to serve on company boards and as officers (and, depending on who the D&O policy defines “insured,” as employees) of the company. Resolution of this issue depends on the nature of the liability faced and by whom, as well as numerous insurance factors, like the type of insurance and the policy language at issue.
Who Owns the Policy?
The bankruptcy estate is broadly defined to include “all legal or equitable interests of the debtor in property as of the commencement of the case.”[1] Courts generally consider a debtor’s insurance policy as part of the estate. However, owning the policy as an asset does not automatically determine who receives the proceeds. The key question typically addressed by bankruptcy courts is “whether the debtor would have a right to receive and keep those proceeds when the insurer paid on a claim.”[2] If “the debtor has no legally cognizable claim to the insurance proceeds, [then] those proceeds are not part of the estate.”[3] This inquiry often depends on the nature of the policy and the specific provisions governing the parties’ interests in the payment of policy proceeds. Ultimately, whether the policy proceeds are considered part of the bankruptcy estate depends on the type of policy and who was intended under the insurance policy to benefit from it. Consequently, most courts distinguish between the insurance policies themselves and the proceeds from those policies.
Who Owns the Proceeds?
Whether insurance policy proceeds are considered property of the debtor’s estate depends on who is entitled to the proceeds when the insurer pays the claim. Generally, insurance proceeds paid directly to a debtor are deemed property of the estate. Examples of these “first party” coverages include collision, life, and fire policies where the debtor is the beneficiary. If the proceeds from these policies are payable to the debtor rather than a third party, they are recognized as property of the estate.[4] Conversely, policy proceeds are not considered property of the debtor’s estate when they are not payable to the debtor.[5]
Who Owns D&O Policy Proceeds?
The question often arises in the context of D&O insurance, which is designed to protect individual directors, officers, and other individual insureds; and, under many policies, the debtor company itself against securities claims, fiduciary breach claims, and other similar claims. Indeed, D&O insurance provides its most important protection during bankruptcy, as the debtor company’s ability to indemnify individual insureds may be impaired due to financial constraints or prohibited by bankruptcy law.
D&O insurance policies typically offer three types of coverage:
Side A: Covers losses arising from claims against individual directors and officers that is not indemnified by the company, either by reason of insolvency or because the company is not permitted to indemnify.
Side B: Reimburses the company indemnification paid on behalf of individual directors and officers arising from claims against those individuals.
Side C: Provides direct coverage to the company for securities claims and sometimes some other kinds of claims.
Generally, D&O policy proceeds are not considered property of the debtor’s estate if they benefit only the directors, officers, and individual insureds (e.g., Side A coverage only). Courts have also found that, because the debtor did not have a “direct interest” in Side A or Side B coverage proceeds, those proceeds were not property of the estate.[6]
Other courts have determined that Side B proceeds can be considered property of the debtor if the coverage limits have been or could be depleted by indemnification requests, potentially leaving the company without coverage for future indemnification demands. These courts have found that Side B insurance proceeds were property of the estate.[7] However, if the covered indemnification “has not occurred, is hypothetical, or speculative,” courts may find that the policy proceeds are not property of the estate.[8]
With respect to Side C coverage, courts have found that policy proceeds from entity coverage are property of the estate.[9] This is not surprising because the debtor can easily be said to have an interest in the proceeds as an insured under the policy. Other courts have taken a broader view, asserting that a bankruptcy estate includes any assets that enhance the value of the Estate. Thus, as long as the policy includes Side B or Side C coverage, the policy proceeds meet the “fundamental test” because the bankruptcy estate is worth more with the insurance policy than without it.[10]
Trustees Can’t Settle Company’s Lawsuit Against Former CEO
One recent decision from the U.S. Court of Appeals for the Fourth Circuit, In re Levine, No. 23-1349, 2025 WL 610303 (4th Cir. Feb. 26, 2025), shows how disputes about ownership and control of D&O insurance claims can play out in practice. Levine involved a “tale of two bankruptcies and two adversary actions,” where the Fourth Circuit ruled that the separate bankruptcy trustees for a debtor company and its former CEO could not settle the company’s fraud claims against the CEO using insurance proceeds from a D&O policy purchased by the company before bankruptcy.[11] In affirming dismissal of an adversary declaratory action addressing this issue on jurisdictional grounds, the Fourth Circuit offered insightful commentary on the purpose and intent of D&O liability policies and their treatment in bankruptcy proceedings.
First, the company’s purchase of the D&O policy did not grant the company “first-party” status or standing to sue. The policy was “activated,” the Fourth Circuit concluded, because the company sued the CEO. In that scenario, only the CEO was considered an insured under the policy, not the company.
Second, the trustee sought to recover defense costs in the adversary proceeding against the CEO for fraud. The trustee tried to leverage the “wasting” policy—namely, that defense costs were eroding the policy’s available limits—to support his standing argument. The court ruled that the trustee’s “fear” was not enough.
Third, while the insurance policy itself could be considered an asset of the estate, according to the Fourth Circuit, courts “routinely” find that, when a D&O policy provides direct coverage to the directors and officers (as was the case here), the policy proceeds are not considered property of the debtor company’s estate.
Ultimately, the court emphasized that the purpose of D&O coverage is to protect individuals, like the CEO, from incurring liability as directors and officers of the debtor and to ensure that potential losses incurred as a result of their service in such capacities remain separate from their personal finances. Consequently, courts “regularly” recognize that the benefits provided to these individuals by D&O policies “cannot be stripped from them by a bankruptcy trustee.” As a result, the trustee had no claim to the right of consent to settlement under the policy.
Conclusion
The Fourth Circuit’s decision underscores the importance of Side A coverage to protect directors, officers, and individual insureds when an insolvent company is unable or unwilling to indemnify them for the defense costs and potential liability they face due to their service to the company.
In case of bankruptcy, Side A D&O coverage may be the only protection standing between an individual director or officer and personal exposure. For that reason, preserving scarce insurance limits for the benefit of individual insureds is paramount. This can be accomplished in a number of ways. The simplest perhaps is just buying more insurance in the form of higher limits in the company’s existing “Side ABC” policy covering both the company and its directors and officers. Another pathway is to purchase “dedicated” Side A-only limits, which can be used exclusively to protect individuals when the company is unable or unwilling to indemnify them or advance their legal fees and costs.
Side A-only limits are often provided automatically or with payment of additional premium in existing D&O policy forms, but often times they are better secured in entirely separate, standalone policies. Those standalone policies often provide other benefits, like fewer exclusions, more coverage, and better terms no available under traditional Side ABC forms. Working closely with experienced risk professionals, including insurance brokers, consultants, and outside coverage counsel can help companies place, renew, and modify insurance programs with an eye towards providing effective protection for insured executives that responds as expected at the point of claim. While insurance considerations are important during bankruptcy proceedings, the best time to start ensuring the effectiveness of insurance protection is long before insolvency arises.
[1] 11 U.S.C. § 541(a).
[2] Houston v. Edgeworth (In re Edgeworth ), 993 F.2d 51, 55 (5th Cir. 1993).
[3] Id. at 56.
[4] In re Endoscopy Ctr. of S. Nevada, LLC, 451 B.R. 527, 544 (Bankr. D. Nev. 2011).
[5] In re Allied Digital Techs., Corp., 306 B.R. 505, 512 (Bankr. D. Del. 2004).
[6] See, e.g., In re Youngstown Osteopathic Hosp. Ass’n, 271 B.R. 544, 548-550 (Bankr. N.D. Ohio 2002).
[7] In re Leslie Fay Cos., Inc., 207 B.R. 764, 785 (Bankr. S.D.N.Y. 1997).
[8] In re Allied Digital Techs. Corp., 306 B.R. 505, 512 (Bankr. D. Del. 2004).
[9] In re Sacred Heart Hosp. of Norristown, 182 B.R. 413, 420 (Bankr. E.D. Pa. 1995).
[10] Circle K Corp. v. Marks (In re Circle K Corp.), 121 B.R. 257 (Bankr. D. Ariz. 1990).
[11] In re Levine, No. 23-1349, 2025 WL 610303 (4th Cir. Feb. 26, 2025).
Weekly Bankruptcy Alert March 24, 2025 (For the Week Ending March 23, 2025)
Covering reported business bankruptcy filings in Massachusetts, Maine, New Hampshire, and Rhode Island, and Chapter 11 bankruptcy filings in New York and Delaware listing assets of more than $1 million.
Because your business extends beyond the borders of a single state, ours does too. Today, we are a multi-disciplinary team of highly creative, hard working, responsive, business savvy and experienced bankruptcy and creditors’ rights professionals serving you from offices located in four New England states and the District of Columbia.
Chapter 11
Debtor Name
BusinessType1
BankruptcyCourt
Assets
Liabilities
FilingDate
7Q59 Amherst, LLC(Hadley, MA)
Real Estate and Rental and Leasing
Springfield(MA)
$1,000,001to$10 Million
$1,000,001to$10 Million
3/17/25
Village Roadshow Entertainment Group USA Inc.2(West Hollywood, CA)
Motion Picture and Video Industries
Wilmington(DE)
$100,000,001to$500 Million
$500,000,001to$1 Billion
3/17/25
MOM CA Investor Group LLC(Newport Beach, CA)
Management of Companies and Enterprises
Wilmington(DE)
$50,000,001to$100 Million
$10,000,001to$50 Million
3/17/25
MOM BS Investor Group LLC(Newport Beach, CA)
Management of Companies and Enterprises
Wilmington(DE)
$10,000,001to$50 Million
$10,000,001to$50 Million
3/17/25
MOM AS Investor Group LLC(Newport Beach, CA)
Management of Companies and Enterprises
Wilmington(DE)
$10,000,001to$50 Million
$10,000,001to$50 Million
3/17/25
Greystone Property Development LLC(Roslindale, MA)
Construction
Boston(MA)
$1,000,001to$10 Million
$1,000,001to$10 Million
3/19/25
Maine Craft Distilling LLC(Portland, ME)
Not Disclosed
Portland(ME)
$500,001to$1 Million
$1,000,001to$10 Million
3/21/25
Danimer Scientific, Inc.3(Bainbridge, GA)
Resin, Synthetic Rubber and Artificial Synthetic Fibers and Filaments Manufacturing
Wilmington(DE)
$500,000,001to$1 Billion
$100,000,001to$500 Million
3/18/25
Benson Hill, Inc.(Saint Louis,4 MO)
Oilseed and Grain Farming
Wilmington(DE)
$100,000,001to$500 Million
$100,000,001to$500 Million
3/20/25
Chapter 7
Debtor Name
BusinessType1
BankruptcyCourt
Assets
Liabilities
FilingDate
Kiromic BioPharma, Inc.(Houston, TX)
Scientific Research and Development Services
Wilmington(DE)
$1,000,001to$10 Million
$10,000,001to$50 Million
03/21/25
1Business Type information is taken from Bankruptcy Court filings, which may include incorrect categorization by the debtor or others.
2Additional affiliate filings include: Crescent Film Holdings Limited, Village Roadshow Distribution (BVI) Limited, Village Roadshow Distribution Pty Ltd, Village Roadshow Distribution UK Limited, Village Roadshow Distribution USA Inc., Village Roadshow Entertainment Group (BVI) Limited, Village Roadshow Entertainment Group Asia Limited, Village Roadshow Film Administration Management Pty Ltd, Village Roadshow Films (BVI) Limited, Village Roadshow Films Global Inc., Village Roadshow Films North America Inc., Village Roadshow Holdings USA Inc., Village Roadshow Pictures Entertainment Inc., Village Roadshow Pictures North America Inc., Village Roadshow Productions (BVI) Ltd., Village Roadshow Productions Inc., Village Roadshow VS Films LLC, VR DTE Distribution USA Inc., VR DTE Productions Limited, VR Films Holdings (BVI) Limited, VR Funding LLC, VR Zoo Distribution USA Inc., VR Zoo Productions Ltd, VREG Films Ltd, VREG Funding LLC, VREG IP Global LLC, VREG J2 Global LLC, VREG MM2 IP Global LLC, VREG OP Global LLC, VREG Production Services Inc., VREG Television Inc., VREG Wonka IP Global LLC and VREG WW IP Global LLC.
3Additional affiliate filings include: Danimer Bioplastics, Inc., Danimer Scientific Holdings, LLC, Danimer Scientific Kentucky, Inc., Danimer Scientific Manufacturing, Inc., Danimer Scientific, LLC, Meredian Bioplastics, Inc., Meredian Holdings Group, Inc., Meredian Inc., and Novomer, Inc.
4Additional affiliate filings include: Benson Hill Fresh, LLC, Benson Hill Holdings, Inc., Benson Hill ND OldCo., Inc., Benson Hill Seeds Holding, Inc., Benson Hill Seeds, Inc., BHB Holdings, LLC, DDB Holdings, Inc., and J&J Southern Farms, Inc.
Entitled to Stay Relief? Prove it.
Bankruptcy is a headache for lenders.
For example, you make a commercial real estate loan and record your deed of trust. The borrower pays you for a time but then defaults. You tried loan forbearance and modification, but it was unsuccessful. The borrower falls further and further behind on the loan. You are left with no choice but to foreclose on your collateral.
You start a foreclosure special proceeding in state court. You pay your attorney and a foreclosure trustee. After what seems like forever — months of continuances, no payments, and possible depreciation of your collateral — the clerk of court authorizes the sale of the property. Another month goes by, and a sale is conducted. Your credit bid is the only bid for the property. Nine days of the upset bid period pass, and you are one day away from owning the property. Then, an unwelcomed companion arrives with your morning coffee: A NOTICE OF BANKRUPTCY CASE stamped with the official seal of the United States Bankruptcy Court.
Your borrower has filed for bankruptcy, and the automatic stay is in effect. You cannot complete the foreclosure. You do not own the property. Your loan is not off the books.
Now, you pay your attorney to represent you in the bankruptcy. The borrower has filed Chapter 11, says he intends to reorganize and needs the property to succeed. The bankruptcy case languishes for six months. Finally, the debtor concedes that reorganization is unlikely, and the bankruptcy court dismisses the case. You can now resume the foreclosure, but by law, you must conduct a new sale. You can’t just let the original upset bid run for the full 10 days. You conduct another foreclosure sale, you credit bid again, and nine days of the upset bid period pass. Then, in the words of Yogi Berra, it’s déjà vu all over again. Your borrower filed a second bankruptcy, and the automatic stay has blocked the completion of your foreclosure.
Now what? A creditor can move for relief from the automatic stay. This article focuses on real property collateral and when a debtor has schemed to delay, hinder, or defraud its creditors by transferring an interest in the property without permission or by filing multiple bankruptcy cases affecting the property.
A recent decision by the Honorable Ashley A. Edwards, the newly-appointed bankruptcy judge for the Western District of North Carolina, stresses the importance of proving the material facts necessary to pierce a debtor’s automatic stay shield.
Stay relief is an exception to the broad protections of bankruptcy afforded a debtor. The creditor must prove that the specific facts warrant it. Our illustration, with the back-to-back bankruptcy filings, looks like an easy win for the lender. However, the bankruptcy court denied the lender’s motion for stay relief. Why? Because it appears the lender filed a motion and did little else to establish the key facts to support stay relief.
The bankruptcy court pointed out that the lender offered no evidence at the hearing – no documents, exhibits, or witness testimony. The bankruptcy court also held that establishing a “scheme” is a heightened burden. Courts define “scheme” narrowly. The facts must establish a debtor’s “intentional artful plot or plan,” not just “misadventure or negligence.” Stay relief is appropriate where facts establish multiple property transfers without consideration to circumvent a creditor’s rights and remedies. Reliance on public records alone is insufficient. The court will want testimony from key participants in the scheme.
Despite the two bankruptcy filings during the upset bid period, sufficient facts remained unclear to the bankruptcy court to permit stay relief. Even with judicial notice of the multiple bankruptcies, the court required additional facts showing a scheme and relating to the use, tenancy, and status of the property.
This case underscores an important lesson: if you’re going to seek stay relief, follow the Powell Doctrine and deploy every relevant fact in your arsenal to support all the elements of your motion. Don’t simply file a motion, show up at the hearing, and expect the court to “get it.” Descend on the courthouse with your witnesses and exhibits and be ready to conduct a mini-trial. This is time-consuming and expensive, but it will put you in the best position to win.
Weekly Bankruptcy Alert March 17, 2025 (For the Week Ending March 16, 2025)
Covering reported business bankruptcy filings in Massachusetts, Maine, New Hampshire, and Rhode Island, and Chapter 11 bankruptcy filings in New York and Delaware listing assets of more than $1 million.
Chapter 11
Debtor Name
BusinessType1
BankruptcyCourt
Assets
Liabilities
FilingDate
SaaliRealty LLC(Lynn, MA)
Not Disclosed
Boston(MA)
$500,001to$1 Million
$500,001to$1 Million
03/11/25
Essential Minerals, LLC(New Castle, DE)
Not Disclosed
Wilmington(DE)
$1,000,001to$10 Million
$10,000,001to$50 Million
03/10/25
Retreat at Laguna Villas, LLC2(Newport Beach, CA)
Activities Related to Real Estate
Wilmington(DE)
$100,000,001to$500 Million
$100,000,001to$500 Million
03/10/25
Sugar Hill 473 LLC(New York, NY)
Lessors of Real Estate
Manhattan(NY)
$1,000,001to$10 Million
$1,000,001to$10 Million
03/12/25
F21 OpCo, LLC(Los Angeles, CA)
Clothing Store
Wilmington(DE)
$100,000,001to$500 Million
$1,000,000,001to$10 Billion
03/16/25
F21 Puerto Rico, LLC(Los Angeles, CA)
Clothing Store
Wilmington(DE)
$100,000,001to$500 Million
$1,000,000,001to$10 Billion
03/16/25
F21 GiftCo Management, LLC(Los Angeles, CA)
Clothing Store
Wilmington(DE)
$100,000,001to$500 Million
$1,000,000,001to$10 Billion
03/16/25
Brightmark Plastics Renewal LLC(San Francisco, CA)
Waste Treatment and Disposal
Wilmington(DE)
$100,000,001to$500 Million
$100,000,001to$500 Million
03/16/25
Brightmark Plastics Renewal Indiana LLC(San Francisco, CA)
Waste Treatment and Disposal
Wilmington(DE)
$100,000,001to$500 Million
$100,000,001to$500 Million
03/16/25
Brightmark Plastics Renewal Services LLC(San Francisco, (CA)
Waste Treatment and Disposal
Wilmington(DE)
$100,000,001to$500 Million
$100,000,001to$500 Million
03/16/25
Chapter 7
Debtor Name
BusinessType1
BankruptcyCourt
Assets
Liabilities
FilingDate
Coastal Craft Distributors Corp.(Fall River, MA)
Not Disclosed
Boston(MA)
Not Disclosed
Not Disclosed
03/11/25
Plaster Fun Time Limited(Framingham, MA)
Other Amusement and Recreation Industries
Worcester(MA)
$100,001to$500,000
$1,000,001to$10 Million
03/13/25
The Blinc Group, Inc.(New York, NY)
Miscellaneous Durable Goods Merchant Wholesalers
Manhattan(NY)
$1,000,001to$10 Million
$1,000,001to$10 Million
03/14/25
CMD Properties LLC(Narragansett, RI)
Activities Related to Real Estate
Providence(RI)
$1,000,001to$10 Million
$1,000,001to$10 Million
03/14/25
Wakefield Tavern LLC(Wakefield, RI)
Restaurants and Other Eating Places
Providence(RI)
$50,001to$100,000
$1,000,001to$10 Million
03/14/25
Catarina’s Italian Restaurant Inc.(Narragansett, RI)
Restaurants and Other Eating Places
Providence(RI)
$100,001to$500,000
$1,000,001to$10 Million
03/14/25
1Business Type information is taken from Bankruptcy Court filings, which may include incorrect categorization by the debtor or others.
2Additional affiliate filings include: MOM CA Investco LLC, MOM AS Investco LLC, MOM BS Investco LLC, Aryabhata Group LLC, 694 NCH Apartments, LLC, 777 AT Laguna, LLC, 891 Laguna Canyon Road, LLC, Cliff Drive Properties DE, LLC, Heisler Laguna, LLC, Hotel Laguna, LLC, Laguna Art District Complex, LLC, Laguna Festival Center, LLC, Sunset Cove Villas, LLC, Tesoro Redlands DE, LLC, 4110 West 3rd Street DE, LLC, 314 S. Harvard DE, LLC, Laguna HI, LLC, Laguna HW, LLC, The Masters Building, LLC and 837 Park Avenue, LLC.
U.S. Trustee Objects to Stalking Horse Bid Protections in Three Recent Delaware Bankruptcy Cases
Recently, the Office of the United States Trustee (the “UST”) has been objecting to debtors’ motions to establish bidding procedures to sell some or all of an estate’s assets pursuant to section 363 of the Bankruptcy Code. As highlighted in three recent Delaware cases, the UST has objected to stalking horse bid protections on a number of grounds, including: (a) when such protections would be payable; (b) the proposed priority classification for such protections; (c) the scope of the bid protections; and (d) whether the debtor has demonstrated that such protections benefit the estate and are necessary to preserve estate value. Understanding the UST’s concerns is critical when negotiating with a stalking horse bidder.
Jo-Ann Stores[1]
On January 15, 2025, the Jo-Ann Stores debtors filed chapter 11 bankruptcy petitions. Alongside the petition, the debtors filed a motion to approve bidding procedures and a stalking horse agreement with Gordon Brothers Retail Partners. The proposed bid protections for the stalking horse included (a) up to $500,000 for reasonable out-of-pocket expenses and (b) up to $1.6 million for the reasonable costs incurred to acquire signage for going-out-of-business sales. On February 5, 2025, the UST objected to the bidding procedures motion and raised the following points concerning the stalking horse agreement:
The stalking horse was an affiliate of the debtors’ prepetition lenders’ first-in-last-out (“FILO”) agent and therefore did not need to conduct significant due diligence or be induced to bid in exchange for its affiliate to be paid in full from the sale proceeds.
The initial minimum overbid of $2.2 million was too large and would chill bidding.
The bid protections were not eligible to receive super-priority administrative expense status because the stalking horse was not providing postpetition financing (section 364(c)(1)) and was not a secured creditor who received insufficient adequate protection for the postpetition diminution in value of their collateral (section 507(b)).
Because the debtors’ prepetition FILO agent was an affiliate of the stalking horse, the affiliated prepetition lenders should not be a consultation party or at least should be shielded from sharing information with the stalking horse.
The bankruptcy court ultimately agreed that as an affiliate of the stalking horse bidder, the prepetition FILO agent could not be a consolidation party during the bidding process but otherwise overruled the UST’s remaining objections.
Ligado Networks[2]
On January 6, 2025, a day after filing chapter 11 bankruptcy petitions, the Ligado Networks debtors filed a bidding procedures motion, which included a stalking horse agreement with AST & Science, LLC. If consummated, the stalking horse agreement would provide the debtors with hundreds of millions of dollars through several different payment streams (e.g., common stock, convertible notes, warrants, percentage of net revenue, annual usage rights payment), the sum of which did not have a fixed value. The stalking horse agreement included a $200 million bid protection, which the debtors argued was reasonable based on the complex transaction, similar transaction fees approved in prior Delaware cases, being required by AST, and providing a material benefit to the estates. The UST objected to the bidding procedures motion and raised the following points concerning the stalking horse agreement:
No bid protection should be paid if the transaction could not be consummated for regulatory reasons because the debtors have no control on whether regulatory approval is obtained, and regulatory denial would force the debtors to begin negotiating with alternative purchaser(s) and lose $200 million.
Any alternative purchaser the debtors select as the successful bidder must result in not merely any transaction, but one that is a higher and better bid than AST’s.
It would be improper to include a second-protection fee of an additional $250 million if the debtors’ $40 billion takings lawsuit against the U.S. related to the debtors’ wireless terrestrial 5G services adversely affected AST’s use of the debtors’ L-band spectrum (i.e., a range of radio frequencies used for satellite navigation, maritime and aviation safety, and radars).
Similar to the objection in Jo-Ann Stores, the stalking horse should not be granted super-priority expense status because only sections 364(c)(1) and 507(b) authorize such a classification.
The large $200 million bid protection should be market tested.
The debtors and UST subsequently resolved the UST’s objection by agreeing: (a) that the bid protection would be payable after a failure to receive regulatory approval only if the debtors subsequently consummated a higher or better transaction; (b) only the expense reimbursements would receive super-priority administrative expense status and all other bid protections would merely be treated as an administrative expense (although the postpetition DIP lenders voluntarily agreed to subordinate their obligations to the remaining bid protections); and (c) the request to authorize payment of the $250 million second-protection fee related to any potential impact to the L-band spectrum would be removed. The bankruptcy court entered an order approving the revised bidding procedures.
First Mode[3]
On December 15, 2024, the First Mode debtors filed chapter 11 bankruptcy petitions, and the following day filed their bidding procedures motion. The bidding procedures motion included a stalking horse asset purchase agreement with Cummins, Inc., which proposed to grant Cummins bid protections in the form of a 3% break-up fee and expense reimbursements of up to $550,000. The UST objected to the bid protections on the following grounds:
Similar to the objections in Jo-Ann Stores and Ligado Networks, the bid protections should not prime other administrative expenses as super-priority expenses because only sections 364(c)(1) and 507(b) authorize the classification of an expense as a super-priority administrative expense status.
Certain payment triggering scenarios, such as withdrawing the bidding procedures motion or filing a motion to convert or dismiss the case, provided no benefit to the estates as required by section 503(b) (i.e., does not promote competitive bidding or induce the stalking horse to perform diligence and set a floor price).
The debtors and UST resolved the objections by: (a) classifying the bid protections as an administrative expense claim; (b) providing the UST, debtors, and creditors’ committee five business days to review proposed expense reimbursements before such amounts are payable; and (c) slightly narrowing the circumstances that would trigger payment of the bid protections.
Takeaways
Debtors who seek approval of a stalking horse agreement in their bidding procedures motions should be prepared for the UST to object to certain aspects of the bid protections. First, the UST will most likely object if the proposed classification for the bid protections is a super-priority administrative expense claim. Although the debtors in First Mode conceded to the UST’s position, debtors could attempt to bifurcate the classification by authorizing superpriority status for expense reimbursements (Ligado Networks) or push forward with pursuing full superpriority status, which was successfully obtained in Jo-Ann Stores.
Second, debtors should be cognizant of potential objections to the triggering events for paying bid protections. It is unlikely that a debtor would be permitted to pay bid protections in the event the debtor, without demand by its secured creditor(s), files a motion to convert or dismiss its bankruptcy cases. Further, if there are significant contingencies surrounding the future value of the business (e.g., Ligado Networks’ $40 billion takings lawsuit affecting the L-band spectrum), parties may want to consider reflecting that risk in a reduced sale price or increased bid protection amount rather than as a triggering event for payment of additional protection amounts. And if the contingency is related to obtaining governmental consents before the sale can be consummated (e.g., Ligado Networks’ regulatory approval), such contingency should not likely be a triggering event unless it is succeeded by the consummation of an alternative transaction.
Third, in liquidation situations like Jo-Ann Stores where the stalking horse would incur significant expenses to wind-up the debtors’ businesses and liquidate assets, bankruptcy courts may be more lenient to grant bid protections when such expenses clearly are incurred to benefit the estates.
In conclusion, proactive negotiation with the UST concerning bid protection terms is a prudent first step for counsel of both debtors and the stalking horse bidder to pursue in order to resolve the issues the UST has recently identified in the Jo-Ann Stores, Ligado Networks, and First Mode bankruptcy cases.
[1] In re Jo Ann, Inc., Case No. 25-10068 (CTG) (Bankr. D. Del. Jan. 15, 2025).
[2] In re Ligado Networks LLC, Case No. 25-10006 (TMH) (Bankr. D. Del. Jan. 5, 2025).
[3] First Mode Holdings, Inc., Case No. 24-12794 (KBO) (Dec. 15, 2024).
Court Applies Internal Affairs Doctrine Even Though Statute Refers Only To Directors
Courts are wont to say that Section 2116 of the California Corporations Code codifies the internal affairs doctrine. See Villari v. Mozilo, 208 Cal. App. 4th 1470, 1478 n.8 (Cal. Ct. App. 2012)(“Corporations Code section 2116 codifies [the internal affairs doctrine] in California.”). I have long held the position that this is only partially true. Section 2116 provides:
The directors of a foreign corporation transacting intrastate business are liable to the corporation, its shareholders, creditors, receiver, liquidator or trustee in bankruptcy for the making of unauthorized dividends, purchase of shares or distribution of assets or false certificates, reports or public notices or other violation of official duty according to any applicable laws of the state or place of incorporation or organization, whether committed or done in this state or elsewhere. Such liability may be enforced in the courts of this state. (emphasis added)
The statute makes no reference to officers. Thus, it would seem reasonable to conclude that it does not apply to officers. Courts, however, seem to miss the obvious omission of officers from the statute, as illustrated in a recent ruling by U.S. District Court Judge Janis L. Sammartino in Lapchak v. Paradigm Biopharmaceuticals (USA), Inc., 2025 WL 437904 (S.D. Cal. Feb. 7, 2025). In that case, Judge Sammartino ruled that Delaware law applied to the individual defendant even though the plaintiff failed to allege that the defendant was a director of the corporation. In fact, neither party even alleged that the corporation was incorporated in Delaware, but the court did some online checking. Finally, it is unclear from the ruling whether the individual defendant was even an officer of the corporation.
As I have previously contended, officers are agents of the corporation whilst directors qua directors are not. In many cases, their duties and responsibilities may be governed by contractual choice of law provisions and local agency and employment laws. In any event, a plain reading of Section 2116 reveals that officers have no place in it.
Weekly Bankruptcy Alert March 10, 2025 (For the Week Ending March 9, 2025)
Covering reported business bankruptcy filings in Massachusetts, Maine, New Hampshire, and Rhode Island, and Chapter 11 bankruptcy filings in New York and Delaware listing assets of more than $1 million.
Chapter 11
Debtor Name
BusinessType1
BankruptcyCourt
Assets
Liabilities
FilingDate
Mass Power Solutions LLC(Marlborough, MA)
Building Equipment Contractors
Worcester(MA)
$0to$50,000
$1,000,001to$10 Million
3/5/25
Lake Spofford Cabins, Inc.(Spofford, NH)
RV Parks and Recreational Camps
Concord(MA)
$1,000,001to$10 Million
$100,001to$500,000
3/3/25
New Leda Lanes, Inc,(Nashua, NH)
Not Disclosed
Concord(MA)
$100,001to$500,000
$1,000,001to$10 Million
3/3/25
Levy Ventures LLC(New City, NY)
Activities Related to Real Estate
White Plains(NY)
$10,000,001to$50 Million
$10,000,001to$50 Million
3/5/25
JC TopCo, Inc.2(Kansas City, MO)
Management of Companies and Enterprises
Wilmington(DE)
$100,000,001to$500 Million
$100,000,001to$500 Million
3/8/25
Imerys Talc Italy S.P.A.(Turin, Italy)
Nonmetallic Mineral Mining and Quarrying
Wilmington(DE)
$10,000,001to$50 Million
$1,000,001to$10 Million
3/9/25
YJ Simco LLC(New York, NY)
Not Disclosed
Manhattan(NY)
$1,000,001to$10 Million
$1,000,001to$10 Million
3/9/25
Chapter 7
Debtor Name
BusinessType1
BankruptcyCourt
Assets
Liabilities
FilingDate
Guzman Trading, Inc(Randolph, MA)
Not Disclosed
Boston(MA)
$0to$50,000
$100,001to$500,000
3/4/25
Allied Resin Technologies, LLC(Leominster, MA)
Not Disclosed
Worcester(MA)
$100,001to$500,000
$1,000,001to$10 Million
3/6/25
1Business Type information is taken from Bankruptcy Court filings, which may include incorrect categorization by the debtor or others.
2Additional affiliate filings include: JC Parent Corporation, JC Intermediate Holdings, Inc., Jack Cooper Investments, Inc., Jack Cooper Equipment Leasing, LLC, Jack Cooper Holdings, LLC, Jack Cooper Rail & Intermodal, LLC, Jack Cooper Diversified II, LLC, Jack Cooper Transport Company, LLC, Auto Handling, LLC, North American Auto Transportation, LLC, Jack Cooper Retail and Shuttle, LLC, Auto & Boat Relocation Services Company, LLC, Jack Cooper CT Services, LLC and Jack Cooper Logistics II, LLC.
Connecticut Establishes Emergency Certificate of Need Process for Hospitals in Bankruptcy
On March 3, 2025, Connecticut Governor Ned Lamont signed a law establishing a new process for hospitals in bankruptcy to apply for an “emergency certificate of need” (CON) to approve a transfer of ownership. The law, titled “An Act Concerning An Emergency Certificate Of Need Application Process For Transfers Of Ownership Of Hospitals That Have Filed For Bankruptcy Protection, The Assessment Of Motor Vehicles For Property Taxation, A Property Tax Exemption For Veterans Who Are Permanently And Totally Disabled And Funding Of The Special Education Excess Cost Grant” (the “Act”), was passed by the Connecticut Legislature though its emergency certification process in order to expedite its approval, presumably to allow the law and new process to be available for CON review of the potential sale(s) of Prospect Medical hospitals in Connecticut expected this year.
Emergency CON Process
Under the Act, the emergency CON process is to be available when “(1) the hospital subject to the transfer of ownership has filed for bankruptcy protection in any court of competent jurisdiction, and (2) a potential purchaser for such hospital has been or is required to be approved by a bankruptcy court.”
The Act requires the Office of Health Strategy (OHS) to:
Develop an emergency CON application for parties to utilize, and in doing so OHS must “identify any data necessary to analyze the effects of a hospital’s transfer of ownership on health care costs, quality and access in the affected market.”
Notably, if the buyer is a for-profit entity, OHS is permitted to require additional information to ensure that the continuing operation of the hospital is in the public interest.
Make a “completeness” determination on a submitted application within 3 business days.
Once an emergency CON application is deemed complete, OHS may – but is not required to – hold a public hearing within 30 days thereafter, and if a hearing is held OHS must notify the applicant(s) at least 5 days in advance of the hearing date. The Act provides that a public hearing or other proceeding related to review of an emergency CON is not a “contested case” under the state’s Uniform Administrative Procedure Act, which limits the procedural and appeal rights of the applicant(s). The Act also allows OHS to contract with third-party consultants to analyze the effects of the transfer on cost, access, and quality in the community, with the cost borne by the applicant(s) and not to exceed $200,000.
Emergency CON Decisions and Conditions
The Act requires final decisions on emergency CONs to be issued within 60 days of the application being deemed complete. Importantly, OHS is required to “consider the effect of the hospital’s bankruptcy on the patients and communities served by the hospital and the applicant’s plans to restore financial viability” when issuing the final decision. The Act also permits OHS to “impose any condition on an approval of an emergency” CON, as long as OHS includes its rationale (legal and factual) for imposing the condition and the specific CON criterion that the condition relates to, and that such condition is reasonably tailored in time and scope. The Act also expressly provides that any condition imposed by OHS on the approval of an emergency CON will apply to the applicant(s), including any hospital subject to the transfer of ownership “and any subsidiary or group practice that would otherwise require” a CON under state law that is part of the bankruptcy sale. However, the Act does allow the applicant(s) to request a modification of conditions for good cause, including due to changed circumstances or hardship.
Finally, the Act provides that the final decision on an emergency CON, including any conditions imposed by OHS as part of the decision, is not subject to appeal.
Takeaways
The Act seeks to establish a clear expedited pathway for CON review of hospital (and health system) sales as part of the bankruptcy process. The specific process, including the form of application, is likely to be rolled out quickly by OHS to be available as part of the resolution of the Prospect Medical bankruptcy process anticipated to occur during 2025. The ultimate efficacy of the process will depend upon the specific data sought as part of the emergency CON process, and on the scope of any conditions imposed by OHS on the sales (which could introduce uncertainty into the bankruptcy sale and approval process), but the establishment of this avenue for review is likely to be welcomed by parties to hospital system bankruptcy actions.