Bankruptcy, Workouts & Reorganization

Alston & Bird’s Bankruptcy, Workouts & Reorganization practice is one of the most sophisticated practices in the United States, representing debtors, creditors’ committees, secured and unsecured creditors and other parties in interest in major public company cases.   Alston & Bird has litigated contested matters, adversary proceedings, plan confirmation and related issues in jurisdictions across the United States and internationally.  Our international practice is one of the strongest as we are well known by our European colleagues. Alston & Bird has represented international clients in insolvency proceedings in the U.S. and advised elsewhere.

EXPERIENCE

Our lawyers have been involved in public company cases on every side of the table over the past few years and bring unmatched experience and skills to that table, including the following representations:

• Bankruptcy Court appointed examiner in Enron Corp. bankruptcy [read more]
• Representing a number of hedge funds in Chapter 11 plan [read more]
• In a fraudulent transfer action involving U.S., Canada, Nethererlands, UK and Germany, won the largest jury verdict in the United States in 2006 for our client [read more]
• Recovery of substantial investment in Italian company Parmalat [read more]
• Retention by Korean court-appointed trustee in Chapter 15 case [read more]
• Confidential compromise and settlement [read more]

GLOBAL REACH

While most insolvency cases involve U. S. debtors, we have a substantial experience in international insolvency and reorganization proceedings, as well as relationships with co-counsel around the world.   We maintain involvement in international proceedings in Europe, South America, Asia and the Caribbean.

RECOGNITION

By any measure, Alston & Bird’s Bankruptcy Group is recognized as among the best in the United States.  Chambers USA has noted that the group is the “finest bankruptcy department in the Southeast…and reputed to be the first choice for debtor work….”  Our lawyers include members of the American College of Bankruptcy, current and past directors of the Southeastern Bankruptcy Law Institute, a member of the National Bankruptcy Conference who also served on the Advisory Committee on the Rules of Bankruptcy Procedure of the Judicial Conference of the United States (at the request of the late Chief Justice William Reinquist) and a founding member of the International Insolvency Institute.

WHY ALSTON & BIRD?

The litigation skills and experience of the Bankruptcy, Workouts & Reorganization Group are hard to match and make the group the first call for debtor work and sophisticated bankruptcy litigation on behalf of any party in interest in a commercial bankruptcy case.   We have the knowledge of the European comparative laws – to a degree recognized by our invitations to speak in Europe by academia, government regulatory bodies and legal professional organizations, such as Goethe University, EU Commission (Department of State Aid) and the Beck Institute, as well as involvement in preparation of model intra-national bankruptcy laws. 

Enron Case Study  

On Sunday morning December 2, 2001, Enron Corp., ranked by FORTUNE as the seventh largest corporation in the world based upon revenue, filed for Chapter 11 reorganization in the bankruptcy court in New York.  In the months immediately following, allegations surfaced of securities fraud, accounting irregularities, energy market price manipulation, money laundering, breach of fiduciary duties, misleading financial information, ERISA violations, insider trading, excessive compensation and wrongdoing by certain of Enron’s bankers.

Almost six months later the bankruptcy court approved the appointment of Neal Batson as examiner to investigate and report on Enron’s use of special purpose entities (SPEs) and off balance sheet partnerships and the roles of Enron’s officers, directors, professionals and financial institutions in connection with those entities.  As part of that investigation, Mr. Batson was asked to identify whether the conduct of any of these persons or entities could give rise to a claim by Enron.  Mr. Batson retained the law firm of Alston & Bird to assist him in the investigation.  The investigation required the efforts of an interdisciplinary team of bankruptcy, litigation, transactional and regulatory lawyers and accountants.  This investigation was the largest bankruptcy examination ever conducted.

The 18-month examination involved the issuance of more than 300 subpoenas, the production to the examiner of more than 40 million pages of documentary evidence and taking testimony from approximately 300 witnesses.  It required careful coordination with the Enron Task Force of the Department of Justice, the SEC, the staff of the Board of Governors of the Federal Reserve Board, the United States Congress and a multitude of other parties and their counsel.  Ultimately, the investigation culminated in four detailed reports containing more than 4,500 pages and more than 14,000 footnotes.  These reports comprise the most complete analysis of Enron’s off-balance sheet financing activities to date.  They describe the structures of Enron’s transactions, their accounting treatment, their treatment in bankruptcy and the potential liability of Enron’s officers, directors, financial institutions, accountants and lawyers.

The investigation identified in excess of $10 billion in potential claims for the benefit of the Enron bankruptcy estate.  Some of those claims were based on state law while others were based on the Bankruptcy Code, including claims for over $3.3 billion in avoidable transfers, claims for equitable subordination and related causes of action and claims objections.  To date, the bankruptcy court has authorized settlements approximating $500 million.  In addition, lawsuits have been commenced seeking the recovery of more than $4.5 billion and a mediation of additional claims between Enron, numerous financial institutions and other parties is currently underway.

The results of the investigation have had a dramatic impact on the Enron case.  We believe that the reports filed with the bankruptcy court represent a truly exceptional work product resulting from a talented group of lawyers, each bringing his or her skills to bear on subject matter that demanded an interdisciplinary team of bankruptcy, litigation, transactional and regulatory lawyers and accountants.   A sampling of what others have said about both the quality and value of our reports include the following:

• “The Committee Members and the Members of the Professional Staff have read varying portions of the First, Second, and Third Examiner’s Reports. The Reports are an excellent professional product. They are well organized. The format of an 'Executive Summary' supported by detailed Appendices, many of which are in turn supported by Annexes, makes it easy to get an overview of a subject and then read as much supporting detail as one desires. The Reports are very well written. They are written in ordinary language, not in legal jargon. The Reports are complex; but the subject matter is even more so. The Reports make the complex subject matter understandable to an intelligent lay person. The Reports are supported with detailed references to the supporting evidence. The Appendices function as lengthy footnotes to the 'Executive Summaries;' the Annexes function as lengthy footnotes to the Appendices; and virtually every sentence of the entire Reports is footnoted with supporting references. Of necessity the Reports were written by committee; but they were molded together into integrated wholes that show very little of the committee authorship. The cost of the Examiner was large. The Committee believes that it is justified by the quality of the Reports. The Committee has taken the quality of the product into account in making the recommendations in this Advisory Report and the Advisory Reports on the Examiner’s professionals.” (Advisory Report of the Fee Committee on the First & Second Fee Applications (Second & Third Fee Application Periods) of Neal Batson, Esq. [Docket No. 16028])
• “Happily, however, on the same day the settlement [among regulators and Citigroup and J.P. Morgan Chase] was announced, a more satisfying answer came in the public release of a report by the bankruptcy examiner. The examiner, Neal Batson, is by all accounts a respected and conservative bankruptcy lawyer. And despite the fact that the report is a masterpiece of legal understatement, readers will find it difficult to suppress the cry: Guilty! The Batson report is deliciously specific, naming names via internal memos, phone conversations, faxes, sworn testimony and, of course, the white collar equivalent of the smoking gun – e-mails.” (The Dismal Science by Susan Lee, The Wall Street Journal, August 11, 2003)
• “Mr. Batson’s report provided Enron a road map for arguing that these claims should be subordinated to those of other creditors.” (Enron Files Court Complaint Against Six of Its Former Banks by Mitchell Pacelle, The Wall Street Journal, September 25, 2003)
• “The Enron Examiner has issued four reports which, combined, total 4,235 pages of text, including 34 appendices that are expanded discussions of topics covered in the body of the reports. In these reports and their appendices, the Enron Examiner dissects ‘substantially all of Enron’s material SPE transactions identified to date. . . He explains precisely how SPEs were improperly used at Enron in conjunction with specific accounting techniques ‘to impact dramatically its financial statements’ in violation of Generally Accepted Accounting Principles (“GAAP”). . . It is not surprising that the Enron and ENA Examiners required, collectively, over 5,100 pages of text to explain the fraud that caused Enron to collapse into bankruptcy. The scope and complexity of the transactions in which certain Enron officers entangled Enron, with the help of the Bank Defendants, during the late 1990s and early 2000s is breathtaking.” (Debtors’ Amended Complaint for the Avoidance and Return of Preferential Payments and Fraudulent Transfers, Equitable Subordination, and Damages, Together with Objections and Counterclaims to Creditors Defendants’ Claims)
• “We have mined the benefits of the Enron examiners’ prodigious report so that we have already proposed to this Court [settlements] bringing in hundreds of millions, if not billions of dollars, based on work done by the statutory creditors' committee and the Enron examiner and also the work of the ENA examiner.” (January 6, 2004 Hearing Transcript (Martin Bienenstock – Weil Gotshal & Manges LLP, counsel for the Debtors), Page 18, Lines 21-25, to Page 19, Lines 2-4)

While the Enron examination was the largest investigation Alston & Bird has done, it is certainly not the first.  Alston & Bird has significant complex investigation expertise in many different areas.  In fact, nearly 15 years before the Enron investigation, Alston & Bird represented Neal Batson in his capacity as the examiner in the bankruptcy case of Southmark Corporation, which at that time, was the largest bankruptcy examination ever conducted.

Hedge Funds 

Alston & Bird is currently representing a number of hedge funds as customers of Capital Markets, Ltd. (“RCM”).   This representation involved participation in the litigation of the conversion of RCM to a debtor under sub-chapter III of Chapter 7 of the United States Bankruptcy Code, as well as negotiations resulting in the now-pending Chapter 11 plan for the Refco debtors (and RCM).  Total claims exceed $80 million in the class of claimants, and Alston & Bird has been involved in the international insolvency issues involving the Refco case including the Bermuda proceedings for RCM and the Cayman proceedings for two of the three funds represented by Alston & Bird. 

Fraudulent Transfer

MAN Aktiengesellschaft, a major German truck manufacturer, retained Alston & Bird to pursue a complicated fraudulent transfer action with counsel in Oregon against Freightliner LLC and its affiliates. MAN is a creditor of Freightliner Ltd., a Canadian subsidiary of Freightliner LLC, by virtue of an underlying lawsuit filed in the UK that resulted in an interim award of £250 million. The lawsuit in Oregon resulted in a jury verdict that asset transfers by the Canadian debtor totaling approximately $1 billion were fraudulent under Oregon’s version of the Uniform Fraudulent Transfer Act and that MAN was entitled to $350 million in punitive damages. Throughout the case we worked very closely with counsel in Oregon, British Columbia, Ontario, the Netherlands, the UK and Germany. Trial in the fraudulent transfer resulted in the largest jury verdict in the United States in 2006, in favor of our client.

Recovery

Based upon our international expertise and ability to give clients access to an extensive international network of the best qualified insolvency specialists throughout the globe, Aflac hired our Group to assist them in seeking recovery of a substantial investment in the Italian based company Parmalat which filed for reorganization in bankruptcy.  Not only has the case involved very complicated issues in seeking approval of Aflac’s claims in the bankruptcy proceedings, but has expanded to working in tandem with Italian counsel to pursue civil damages through the Italian criminal proceeding (a recourse not available under the U.S. laws) as well as direct civil actions against numerous former officers/directors and others. 

Korean Court-Appointed Trustee

The Korean court-appointed Trustee of Daewoo Corporation retained Alston & Bird to seek recognition of the Korean case as a main proceeding under Chapter 15. The U. S. Bankruptcy Court, S.D.N.Y, granted an ex parte TRO and then at a noticed court hearing over strenuous opposition granted a preliminary injunction, followed by a third court hearing over strenuous opposition granted a preliminary injunction, followed by a court hearing which concluded with a recognition order being entered within approximately 25 days from commencement date.  The immediate effect was from commencement date to stay a New York State action seeking a multimillion-dollar money judgment against Trustee of debtor. 

Confidential Compromise and Settlement

Alston & Bird served as counsel for Scientific-Atlanta, Inc., in connection with its $89 million claim in the Adelphia bankruptcy case.   Adelphia identified alleged claims against Scientific-Atlanta for (1) aiding and abetting breaches of fiduciary duty by certain members of Adelphia’s pre-bankruptcy management related to product pricing and marketing support services; (2) avoidance and recovery of alleged actual and constructive fraudulent transfers; (3) avoidance and recovery of alleged preferential transfers; and (4) equitable subordination of the Scientific-Atlanta Claims.  Alston & Bird worked with Scientific-Atlanta on these issues, and they ultimately were resolved through a confidential compromise and settlement approved by the Bankruptcy Court.