Below is our initial take on recent bankruptcy-related developments:
Bankruptcies in Canada are up 33.8% in the first quarter of 2022 in relation to Q1 of 2021 as pandemic-era government support ends, marking a return to a more normal market and pre-pandemic bankruptcy filing levels.
S&K Take: Appears as though there has been an increase in restructuring activity north of the border. The US market did not see a corresponding increase—Q1 was down from 2021, and April was more of the same. Market conditions suggest that change should be on the way, however. Federal stimulus is rolling off, interest rates are rising, inflation is raging, supply chain issues abound, and the labor market is in disarray. It may take some time for these issues to spur more filings, but that outcome seems like. Perhaps later in 2022 heading into 2023.
PWM Property Management, which owns 245 Park Avenue in New York, placed part of the blame of their November 2021 bankruptcy on SL Green, an investor in the building, who allegedly failed to replace a major tenant (Major League Baseball). The two parties went to arbitration, where SL Green was found to be entitled to $185 million due to contractual protections in the event of losses due to a bankruptcy.
S&K Take: The HNA entity that was party to the arbitration is a non-debtor, so the action was not stayed. It will be interesting to see whether this decision has an impact on the bankruptcy cases (or if this HNA entity becomes a debtor at some point as well). With the rising rates mentioned above, it seems likely that we will be seeing a good deal of real estate related deals in distress soon.
Judge Julie Manning of the U.S. Bankruptcy Court in Bridgeport, Conn. said it is unclear how creditors would be able to continue funding the bankruptcy of businessman Guo Wengui if she refuses to dismiss his chapter 11 case.
S&K Take: The individual chapter 11 of Guo Wengui (aka Ho Wan Kwok) has seen a tumultuous few months. The debtor has an online presence that suggests he is a billionaire, but he claims to have no assets. His children purportedly support his lifestyle, which has (again, purportedly) been threatened by the Chinese government, which he alleges have funded litigation aimed at taking him down. His son’s hedge fund was going to finance his case, centered around an independent investigation into his assets by a to-be-determined party. But certain of his creditors, namely Pacific Alliance, had other ideas. Aggressive litigation spearheaded by PAX had the debtor rethink his strategy and agree to a dismissal. One would think that Judge Manning would dismiss the case, but it seems as though she is also considering a conversion. We will keep you posted on this one.
Bankruptcy Court Judge Paul Warren denied the Roman Catholic Diocese of Rochester’s request to reimpose a freeze on state court actions against priests and other church officials.
S&K Take: An example of enough is enough when it comes to stays of litigation against non-debtors. Such injunctions have been relatively commonplace in mass tort cases, although they have drawn significant scrutiny (think Purdue, for example) and are almost always challenged. More often than not, debtors do get a chance to implement such a stay and seek to execute on a restructuring transaction. In this case, though, the Rochester Roman Diocese cases have been pending for nearly three years and patience wore thin. We will have to keep an eye on how this plays out—it will be interesting to see how disruptive the non-bankruptcy litigation becomes. There is also a settlement offer from the debtors on the table ($147.5 million), although plaintiffs have dismissed as insufficient.