The intersection of M&M liens and bankruptcy law

Category: Bankruptcy Law
Published: Monday, 22 December 2014
Written by Admin

The Fifth Circuit recently dealt with the interplay of bankruptcy and oil and gas liens in the case ofIn Re: TSC. Seiber Services, LC, decided November 3, 2014.

The facts of this case are as follows: EnCana hired Seiber as the general contractor to oversee the construction of a 12 natural gas pipeline in Robertson County, Texas. Seiber hired Holt to provide heavy machinery, parts and services; and Transamerican Underground was hired to install over two thousand feet of pipe. The agreement between EnCana and Seiber said that EnCana would withhold all sums remaining if a subcontractor notified EnCana that it had not been paid by Seiber. After construction commenced, Holt received two partial payments, but then Seiber stopped paying. Holt notified EnCana that it was not being paid in August of 2009. Seiber filed bankruptcy in October 2009. Transamerican notified EnCana that it was not being paid shortly after the filing.

In September 2009, EnCana filed an interpleader, deposited the remaining funds owed to Seiber into the registry of the court, and served Seiber, Holt, and Transamerican (along with other unpaid subcontractors). In April 2012, the bankruptcy court found that EnCana had tendered all required funds into the registry of the court and subsequently discharged EnCana from the action.

Transamerica filed its lien affidavit against EnCanas property in November 2009. Holt filed its lien affidavit in March 2010.

Holt and Transamerica claimed liens under Chapter 56 of the Texas Property Code (the Oil amp; Gas Lien Statute) and under Chapter 162 of the Texas Property Code (the Construction Trust Funds Act). The bankruptcy court held that neither lien statute applied and that the interpleader funds belonged to the bankruptcy estate, not the subcontractors. On appeal, the federal district court agreed with the bankruptcy court. The matter was then appealed to the Fifth Circuit in order to determine whether the bankruptcy and district courts erred in holding that the disputed (interpled) funds were the property of the bankruptcy estate.

Under section 541 of the Bankruptcy Code, the bankruptcy estate consists of all legal or equitable interests of the debtor in property as of the time of the bankruptcy. Accordingly, the Chapter 7 Trustee argued, the Bankruptcy Code provision trumped the lien claims as to the interpled funds existing at the time of the bankruptcy filing.

Deferring to Texas law, the Fifth Circuit noted that both statutes reflect an admonition of liberal construction to protect laborers and materialmen. The Chapter 7 Trustee argued when EnCana deposited the funds into the court registry, the statutory liens of Holt and Transamerican were extinguished and could not attach to the deposited funds or to EnCanas property. Even if the liens could prevail, they could not do so until the lien affidavits were filed which occurred well after the commencemnet of the bankruptcy filing. Furthermore, the Chapter 7 Trustee also argued that the liens do not attach to cash in an interpleader account. He also argued the Construction Trust Funds Act did not apply because the interpleader deposit was not a payment made to a contractor or subcontractorhellip;.

The Chapter 7 Trustee argued that the amount owed by EnCana was fixed by the amount owed on the date of the lien affidavit, and since EnCana no longer owed anything on that date, the lien did not and could not have attached. The Fifth Circuit stated that the critical time period was when notice was provided to EnCana (not when the lien affidavits were filed), holding further that it was the amount owed by EnCana on the notice date that establishes the amount due.

The Chapter 7 Trustee had argued that the filing of the interpleader automatically satisfied the debt to Seiber so, again, EnCana did not owe anything so the claims could attach to nothing. Rejecting this argument, the Fifth Circuit ruled that one must distinguish between the act of depositing funds into the court registry and discharging the depositor of any further liability. In doing so, the Court reasoned a court must approve of the amount deposited before a party can be deemed to have satisfied its liability under the statutes.

Turning to the problem whether lien claims attach to property and not to interpled funds, the Fifth Circuit sidestepped the issue by noting that, in this case the underlying bankruptcy court order transferred the mineral liens to the interplead funds. The court noted that this order had become final and nonappealable.

Lessons learned: subcontractors should closely monitor their projects and receivables and comply with all state notice and lien statutes. Which will likely prove most effective, when notice is provided to all interested parties at the earliest possible date. A subcontractor should be on guard if a contractor becomes slow-paying which often signals insolvency. If an owner attempts to pay what he owes the contractor by utilizing the mechanism of interpleader, it is possible under certain circumstances, for a contractor to lose both its money and its lien rights. Finally, a subcontractor should closely monitor the status of interplead funds to make sure that if the base lien is released, its liens attach to those funds.



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New Bankruptcy, Elder Law & Estate Planning Law Firm Opens in Springdale ...

Category: Bankruptcy Law
Published: Monday, 22 December 2014
Written by Admin
New Bankruptcy, Elder Law amp; Estate Planning Law Firm Opens in Springdale, Arkansas Attorney Gary DeWitt opens the DeWitt Law Firm, PLLC, in Springdale, Arkansas this month. At the new firm, DeWitt will practice bankruptcy law, elder law, and estate planning law.

Bankruptcy firms to collect huge fees from Detroit

Category: Bankruptcy Law
Published: Sunday, 21 December 2014
Written by Admin
Bankruptcy firms to collect huge fees from Detroit By James Brewer
13 December 2014

In the wake of the Detroit bankruptcy the city is being saddled with tens of millions of dollars in legal fees from corporate law firms. The huge bills further belie the claim that the formal end of bankruptcy will lead to the provision of more money for services and a general revival of the city.

The legal fees add insult to injury to the people of Detroit, who are being robbed of livelihoods and basic services in the interest of handing over huge sums to the bankers, bondholders and speculators.

In an article appearing in the Detroit News last week it was revealed that the city of Detroit owes $28 million in outstanding legal fees alone to investment banking firm Miller Buckfire amp; Co. for its work in preparing transactions relating to the "monetization" of city assets, including the Detroit Water and Sewerage Department (DWSD), and refinancing of the city's debt.

However, the Miller Buckfire tab is only one of the legal bills that Detroit must pay out. Jones Day, the old law firm of former Detroit Emergency Manager Kevyn Orr, billed the city $52.3 million for services as of late October. Accounting firm Ernst amp; Young billed $19.9 million and Conway MacKenzie rang up $17.2 million.

Detroit Mayor Mike Duggan has admitted that total legal fees will be more than $177 million. As of October, $130 million had already been paid out by the city.

Judge Steven Rhodes, the US bankruptcy judge who oversaw Detroit's Chapter 9 filing, gave the Mayor's office authority to challenge the legal bills, but Duggan claimed not to be able to make a public statement. "We are in mediation and I'm under a gag order," Duggan said. "I've expressed my opinion that I think the bills are too high, that they need to come down. There are huge dollars at stake."

The $28 million fee for Miller Buckfire is the result of an "Amended and restated change order " signed by Orr and Kenneth Buckfire in June of this year. The "Services to be Performed" are specified in broad terms, but include the monetization of the DWSD and restructuring of city debt.

Last January Kenneth Buckfire outlined his monetization strategy for the DWSD, declaring, "The only way is to sell it or privatize it. Several private equity firms have expressed interest, but only if they can charge higher rates."

The first step in the privatization of the water department has already been implemented, with the DWSD put under the control of a regional authority thus side-stepping the municipal legal protections on water rate increases and privatization.

Orr's spokesman, Bill Nowling defended the huge legal bill: "That's for the work that they have performed and haven't been paid for yet. The billings are consistent with the contract and the level of service they have provided," adding that Miller Buckfire charges were below "market rate for restructuring city services."

Nowling claimed that the charge would have been more than $100 million if Detroit were a typical customer, asserting that Miller Buckfire saved Detroit more than $1 billion in interest payments through restructuring its finances.

It should be pointed out that the law firms pocketing huge payouts from the bankruptcy were the very enterprises involved in the criminal conspiracy to throw the city into Chapter 9 in the first place. As early as 2011 Jones Day attorneys published an article suggesting that federal bankruptcy law could be used to cut constitutionally protected public employee retiree pensions. In 2012 the state of Michigan hired both Miller Buckfire and the Jones Day law firm in preparation for an eventual bankruptcy filing by Detroit. Jones Day went on to "pitch" the state on how a bankruptcy filing by the city of Detroit could be used to slash pensions.

Meanwhile, the 21,000 active retirees who earn an average of a paltry $19,000 per year are seeing their pensions reduced by some $18 million a year and are having cost of living frozen. The so called claw-backs of annuities savings and cuts to retiree health care amount to even greater sacrifices.



OW Bunker bankruptcy – the insolvency law perspective

Category: Bankruptcy Law
Published: Sunday, 21 December 2014
Written by Admin

Risk of vessel arrest by bunker supplier
Competing claims for payment of stems
Making claims against bankruptcy estate

The bankruptcy of the Danish-based OW Bunker entities with limited liability as per November 7 2014 has given rise to legal uncertainty among shipowners which fear that their vessels may be arrested by unpaid physical bunker suppliers. The risk that payment for bunkers will have to be made twice (ie, both to a physical bunker supplier and to an insolvent bunker provider) appears to be an imminent possibility. This update looks at relevant points from a Danish insolvency law perspective.

Risk of vessel arrest by bunker supplier

A claim for payment of bunkers delivered to a ship is considered a maritime claim which falls under the list of claims set out in Article 1(1) of the Arrest Convention (1952). However, under Danish law an arrest can be made only if the vessel is owned by the debtor which is liable to pay the bunker claim for which arrest is sought (Section 93(4) of the Danish Merchant Shipping Act). This implies that arrest cannot be effected for ships on time charter if only the time charterer (and not the owner) is responsible for payment of the stem.

A physical bunker supplier may apply for security against other assets (eg, bunkers, bank accounts and hire earnings) owned by the debtor for the claim. However, the attachment of such assets can be made only if the bunker supplier can demonstrate to the satisfaction of the court that the debtor would otherwise hide or conceal the assets against which the petition for attachment is directed if attachment were not granted. Under Danish bankruptcy law, a (physical) bunker supplier cannot arrest or seize assets owned by a debtor under insolvent liquidation.

An order confirmation or invoice for bunkers is often issued to the master and/or owner and/or charterers, of the vessel. In some cases it has been submitted that by accepting the bunkers delivered to the vessel, the master has bound the owner to pay for the bunkers on a contractual basis. In a Supreme Court case decided on November 28 2012 the bunker supplier had pleaded in support that the owner was liable to pay for the stem, that an order for supply of bunkers is deemed to originate from the ship, and that the masters acknowledgement of receipt means that the vessel is liable to pay for the bunkers on a contractual basis. This may result in the owner being considered liable for payment of the stem, meaning the vessel may be arrested.

Competing claims for payment of stems

If an owner has paid an insolvent bunker supplier then no claims exist between the two parties. However, if the owner pays the physical bunker supplier the amount which the insolvent bunker supplier should have paid, then it will step into the physical bunker suppliers claim against the insolvent bunker supplier and become a creditor regarding the insolvent bunker supplier. As the insolvent bunker supplier is concurrently a creditor for a claim against the owner (for the delivery of the bunker), there are two claims between the owner and the insolvent bunker supplier.

Set-off between the two claims may be possible under Danish insolvency law, but this depends on a number of issues. The above issues may not necessarily be (solely) governed by Danish law.

Making claims against bankruptcy estate

The trustees will approach all of OW Bunkers known creditors. Through an announcement in the Official Gazette, the trustees will invite all creditors to file their claim within four weeks of publication. However, even after the expiry of the four-week notice period, it will be possible to file claims against the bankruptcy estate. The last opportunity for filing a claim is when the account of the bankruptcy estate is being approved, and it is expected that it will take some time before the bankruptcy estate is closed. However, it is advised that any party with a claim against OW Bunker, having paid the bunker supplier or for other reason(s), file a claim against the company as soon as possible.

For further information on this topic please contact Jesper Windahl at Birch Windahl by telephone (+45 35 25 38 00), fax (+45 35 25 38 01) or email (This email address is being protected from spambots. You need JavaScript enabled to view it.). The Birch Windahl website can be accessed at www.birchwindahl.dk.