Bankruptcy & Corporate Restructuring

Bankruptcy & Corporate Restructuring Department

The Bankruptcy & Corporate Restructuring Department of Cole Schotz represents debtors, creditors’ committees, institutional and individual creditors, secured parties, venture capitalists, equity holders, trustees, receivers and parties with substantial interests in insolvency proceedings throughout the United States.

Business Reorganization

Provide guidance in the selection of various reorganization options and provide all services necessary to facilitate the filing of Chapter 11 and the implementation of a Chapter 11 plan of reorganization
Represent debtors, committees, secured creditors, equity holders, purchasers of assets, plan proponents and trustees in all aspects of the Chapter 11 reorganization process
Facilitate debtor-in-possession and permanent financing, equity participations and potential mergers, acquisitions and strategic alliances
Frequently retained as Special Counsel to participate in complex litigation (adversary proceedings) within Chapter 11 proceedings

Business Advice

Provide advice regarding out-of-court debt restructuring, rehabilitative measures including negotiated settlements of debt, recapitalization and renegotiation of loans, leases and other fixed obligations

Bankruptcy Liquidation

Institute and process orderly liquidations under federal and state law
Assist clients in seeking the most advantageous means of disposing business interests, whether through asset or stock sales

Bankruptcy Litigation

Represent debtors, trustees, secured creditors, committees, landlords, employees and individuals in complex bankruptcy litigation
Handle complex matters involving insolvency issues in state and federal courts

REPRESENTATIVE MATTERS

On September 26, 2007, the United States Bankruptcy Court for the District of New Jersey confirmed the Master Plan of Reorganization for Kara Homes, Inc. and 56 affiliated entities. We represented the Official Committee of Unsecured Creditors during the Chapter 11 proceedings and were intimately involved in the negotiations culminating in the Master Plan, which will result in a meaningful dividend for unsecured creditors. The Kara Homes Chapter 11 cases presented several novel legal issues, and confirmation of the Master Plan, after less than a year in bankruptcy, was a significant achievement in view of the declining real estate and homebuilding market. Several similarly situated homebuilders throughout the country have failed to reorganize or have languished in Chapter 11. Cole Schotz will continue to work toward enhancing the recoveries of Kara Homes' creditors through its representation of the Liquidating Trustee appointed under the Master Plan.

In a highly publicized bankruptcy case in the Southern District of New York, Maywood Capital Corp., the debtors' principals were alleged to have engaged in a multi-million "Ponzi" scheme through the sale of real estate-related securities. A year before the bankruptcy filings, our client, unaware of the alleged Ponzi, purchased eight properties in Upper Manhattan from the debtors. Shortly after the bankruptcy filings, the Chapter 11 Trustee commenced a number of adversary proceedings against our client, seeking to set aside the sales and recover the properties for the debtors' estates. The developer and their principals turned to Cole Schotz to defend against the Trustee's claims. Our client purchased the properties from the debtors through a series of complex transactions and had expended in excess of $14 million to acquire and commence development of the various properties. The Trustee refused to consider any resolution that would entitle our client to maintain title to the properties, which were located in strategic redevelopment sections of New York City. Rather, the Trustee vigorously prosecuted the adversary proceedings in an attempt to gain control of the eight properties, which had appreciated substantially since the time of our client's acquisition. At the outset of the case, Cole Schotz successfully defeated the Trustee's application for preliminary restraints and turnover of the properties to the Trustee, and our client was permitted to manage and operate the properties during the course of the Chapter 11 proceedings. Cole Schotz also filed a plan of reorganization which, if confirmed, would have resulted in our client retaining ownership of all eight properties. The Trustee's refusal to consider our client's reorganization plan forced the Cole Schotz team to proceed to trial in the summer of 2007. The Cole Schotz attorneys demonstrated their trial expertise and skills, particularly through the critical cross-examination of the Trustee's expert accounting witness and rebuttal witness. After the trial, and before the Court rendered a decision on the merits, the Trustee moved to sell a number of our client's properties to third parties. Cole Schotz objected and raised a host of issues that could have derailed the Trustee's efforts. As a result of Cole Schotz's diligent efforts, the Trustee finally capitulated and entered into a settlement that allowed our client to maintain ownership to all of its properties and pursue its development plans in New York City. The resolution of this complex bankruptcy proceeding resulted, in large part, through the Cole Schotz team's trial strategy and acumen of insolvency, litigation and real estate issues.

Passaic Beth Israel (PBI) was a New Jersey nonprofit hospital that operated a 264-bed acute care hospital in Passaic, NJ, and PBI served the Passaic and northern New Jersey community for more than 100 years. In 2006, PBI faced a financial crisis caused by rising costs and declining levels of public and private reimbursements, as well as changes in the healthcare system, including shorter lengths of hospital stays, competition by ambulatory surgery centers, large amounts of unreimbursed charity care, large operating losses, increased payables and defaults under its secured bond indentures.

Faced with the prospect of having to close its doors, PBI's Board of Trustees turned to Cole Schotz to help save this venerable institution. When it became clear that an out-of-court restructuring of its debt was not feasible, Cole Schotz filed Chapter 11 bankruptcy on behalf of PBI on July 10, 2006.

In November 2006, PBI was hours away from having to close down for lack of operating funds. Because it appeared that PBI lacked the funds to make payroll, the New Jersey Commissioner of Health placed PBI's emergency room and ordered cancellation of certain surgical procedures in anticipation of an imminent cessation of its operations.

However, through round-the-clock negotiations, Cole Schotz was able to successfully put together a package of interim financing with a consortium of PBI's bond holders, the New Jersey Health Care Facilities Financing Authority (NJHCFFA), St Mary's and concerned citizens. This financing package provided necessary funds to permit PBI to continue to operate. Cole Schotz simultaneously orchestrated the sale and merger of PBI with neighboring St. Mary's Hospital at the PBI campus. The sale was completed on February 28, 2007. St. Mary's is now in the process of selling its smaller, more antiquated facility. That transaction is being financed through the first-time use of NJHCFFA Hospital Asset Transformation Bonds, which are backed by State of New Jersey credit enhancements. The Cole Schotz team, led by Michael Sirota and Gerald Gline, represented PBI in all aspects of this unique and complex transaction, including the Bankruptcy Court proceedings and the state regulatory process involving the New Jersey Department of Health, NJHCFFA, the New Jersey Attorney General's approval under New Jersey's Community Healthcare Assets Protection Act (CHAPA) and the required approval by the New Jersey Superior Court under CHAPA. According to Mario Marghella, Chairman of PBI's Board, "In confronting the ultimate 'bet the ranch' situation and the need to select the rare combination of healthcare and insolvency expertise, PBI wisely chose Cole Schotz to quarterback the restructuring efforts. This successful transaction, which allows for continued delivery of quality healthcare for the Passaic community, would not have been possible without the skill, knowledge, energy and creativity of all of the lawyers at Cole Schotz who worked tirelessly to make it happen." Both New Jersey and New York have commissioned task forces to make recommendations for changes, including hospital consolidations, to strengthen the health care delivery system. The PBI transaction was at the forefront of these efforts, and Cole Schotz is gratified that it has helped establish the prototype for dealing with these complex problems.

Cole Schotz was selected over several national law firms as counsel to the Official Committee of Unsecured Creditors in the Chapter 11 proceeding of Kara Homes, Inc., one of New Jersey's largest residential builders. Kara Homes entered its Chapter 11 proceeding in dire financial straights, unable to continue construction on its several residential projects or to satisfy even its payroll and related obligations. Cole Schotz was instrumental in helping obtain Bankruptcy Court approval of debtor-in-possession financing, over the objection of nearly a dozen project lenders owed more than $200 million, to keep Kara's reorganization hopes alive. Cole Schotz continues to work closely with Kara's professionals and crisis managers to formulate strategies for Kara's financial restructuring.

In the Adelphia Communications Corporation Chapter 11 bankruptcy case, filed in the United States Bankruptcy Court for the Southern District of New York, Cole Schotz was retained as special bankruptcy law counsel for class action plaintiffs involved in a securities lawsuit suit relating to Adelphia. The Bankruptcy & Corporate Restructuring Department represented the class action plaintiffs in all bankruptcy law matters pending before the Bankruptcy Court and the United States District Court for the Southern District of New York.

In a case described by the bankruptcy judge presiding in the Adelphia matter as a “difficult case that has been among the most challenging – and contentious – in bankruptcy history,” Cole Schotz was called upon to protect and advance the interests of the class action plaintiffs. Among other achievements, Cole Schotz was successful in eliminating an extension of certain third party releases that could have dramatically affected the rights and interest of the class action plaintiffs against certain of the defendants in the securities class action litigation pending in the United States District Court for the Southern District of New York.

Representation of the class action plaintiffs in the Adelphia bankruptcy case was the most recent in a series of successful representations by Cole Schotz of class action plaintiffs in bankruptcy matters. Cole Schotz attorneys are either currently representing or have previously represented class action plaintiffs in numerous other bankruptcy matters, including Calpine Corp., Drexel Burnham Lambert Group, Inc., Lone Star Industries, Inc., Refco Inc. and Suprema Specialties.

Cole, Schotz acted as outside bankruptcy and insolvency counsel for Laurus Master Fund, a private investment fund managed by Laurus Capital Management, a New York-based investment adviser with approximately $1.6 billion under management. The firm assisted Laurus to achieve recoveries from equity and asset-based investments in formal bankruptcy proceedings throughout the United States, as well as the successful implementation of “out-of-court” restructurings and foreclosures. The firm's insolvency, corporate and litigation expertise was employed to maximize returns for Laurus in projects involving food, construction and telecommunications companies, and most recently, a $40.6 million bankruptcy litigation and transaction for the sale of drilling rigs.

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