BANKRUPTCY & CREDITORS’ RIGHTS

The Bankruptcy & Creditors’ Rights group of Herten Burstein regularly assists its clients in addressing their bankruptcy-related issues. We represent many kinds of businesses as well as individuals affected by insolvency proceedings in all courts, including state courts, bankruptcy courts, district courts, and circuit courts throughout New Jersey, New York, and Delaware. We also represent creditors and other parties affected by assignments for the benefit of creditors.

The group draws not only upon its own bankruptcy and creditors’ rights experience, but also upon that of the firm’s Business Law, Litigation, and Real Estate and Land Use groups in devising customized solutions for each client’s unique situation.

Our clients in bankruptcy matters include:

  • Debtors
  • Secured and unsecured creditors
  • Consignment vendors
  • Landlords
  • Liquidating agents
  • Governmental entities
  • Equity interest holders
  • Other parties in interest

Our Bankruptcy & Creditors’ Rights group collaborates with our Business Law group in the handling of distressed debt situations through out-of-court workouts, restructurings, collection, and foreclosure services. We have also assisted our clients with their acquisitions of assets from financially distressed companies and individuals.
The Bankruptcy & Creditors’ Rights group represents clients, including secured and unsecured creditors, landlords, employees, and individuals, in a variety of bankruptcy-related litigation, both in state and federal courts. These types of matters include:

  • Asset recoveries and foreclosures
  • Automatic stay litigation
  • Assumption and rejection of contracts and real estate leases
  • Mortgage and foreclosure concerns
  • Objections to debtor discharges
  • Preference litigation
  • Fraudulent transfer litigation
  • Lender liability
  • Intellectual property matters
  • Real estate landlord and tenant concerns
  • Recovery of consigned, leased and financed property

Representative transactions include:

Whitehall

Whitehall Jewelers Inc., a nationwide retailer of jewelry, filed a petition for relief under Chapter 11 of the Bankruptcy Code. Most of Whitehall’s inventory was obtained through consignment or “memo” transactions. The consignment agreements provided that the consignment vendors would retain ownership of and title to the consigned goods until the goods were sold to Whitehall’s retail customers.

Whitehall sought the Court’s permission to sell substantially all of their assets, including the consigned goods, pursuant to the Bankruptcy Code, via a going out of business sale to be conducted by a liquidator. Daniel Gielchinsky and a number of other attorneys represented a group of consignment vendors and opposed the sale of the consigned goods, on the basis that Whitehall could not sell the consigned goods free and clear of the consignment vendors’ respective ownership interests. The consignment vendors argued that the consigned goods were not property of Whitehall’s estate within the meaning of the Bankruptcy Code. The consignment vendors also argued that a recent Third Circuit decision held that a determination of the parties’ rights in the consigned goods could not be made by motion, but had to be determined in an adversary proceeding that provided an opportunity for discovery.

The Court ultimately agreed with the argument we asserted on behalf of the consignment vendors, and held that (1) a threshold determination for application of Section 363(f)(4) was whether the consigned goods are indeed property of the  estate, (2) it could not authorize a sale of goods under the Bankruptcy Code without first determining that such property was property of Whitehall’s estate and that Whitehall had not satisfied that burden, (3) that Whitehall’s burden of proof would be particularly heavy because where a sale of substantially all of a debtor’s assets is proposed in the early stages of the case, the proponent bears a heightened burden of proving the elements necessary for authorization, and (4) that it could not determine whether the consigned goods were property of Whitehall’s estates or property of the consignment vendors by motion, and that an adversary proceeding was needed to make that determination.

The Whitehall case demonstrated the strategic importance of creditors and other parties in interest becoming quickly informed and involved at the early stages of a bankruptcy case.  By joining forces early in the case to oppose a sale motion that would have resulted in the consignment goods being sold at a deep discount, Herten Burstein and our consignment vendor clients significantly improved their financial position in the case.

Beth Israel Hospital

The firm settled a number of preference cases filed by the Trustee of the Beth Israel Hospital bankruptcy case on terms that were favorable to our clients. The Best Israel bankruptcy is one of many bankruptcy cases the firm is involved with every year.

Due to the state of the economy, the number of bankruptcy cases and preference complaints filed in those matters has risen dramatically. Due to the experience of Daniel Gielchinsky, who heads our bankruptcy practice, the firm has been able to resolve or settle these cases quickly and efficiently. Although any payment received by a trade creditor during the 90-day period prior to a bankruptcy filing are defined as a preference, there are defenses that one may be able to successfully invoke in order to avoid having to give back all of the payments received in that timeframe. Among the defenses that we investigate are:
(1) whether the payments at issue were intended by the parties to be a contemporaneous exchange,
(2) whether the payments were made in the ordinary course of business, and
(3) whether new value was given by the defendant after the transfer was made.

Herten Burstein attorneys practicing in this area include:

Daniel Y. Gielchinsky
Anthony E. Hope
Christopher T. Karounos
Patrick Ascolese