Articles Posted in Bankruptcy protection

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sheet musicEvery time a restaurant, nightclub or other performance venue permits performance of a song (such as by radio (with certain exceptions), CD or live performance), the venue owes to the rights holder of the song a royalty for playing that song. In order to collect and administer these royalties, membership organizations known as “PROs” (Performance Rights Organizations) have evolved. The PRO membership is composed of songwriters, composers and music publishers. The PROs charge the clubs a licensing fee, which they then collect and distribute to their membership rights holders as royalty payments. By compliance with this rights licensing system, a night club is assured that it is complying with U.S. copyright law, which protects the rights holders’ right to perform the song.

In the United States there are three principal PROs: SESAC (“Society of European Stage Authors and Composers”, the smallest), BMI (“Broadcast Music, Inc.,” the middle bear), and ASCAP (“American Society of Composers, Authors and Publishers,” Papa Bear). When a performance venue fails to pay its royalties to a PRO, the PRO will come after the club to exact its pound of flesh.

Twister’s Iron Horse Saloon was a bar in suburban St. Louis. It failed to pay public performance licensing fees to ASCAP for a number of years. Over this period, ASCAP made numerous efforts to collect the licensing fee, even offering to settle the claim before suing. Finally, unable to collect the fees voluntarily, ASCAP sued the club and its managing members, including one Doug Walker, for copyright infringement and obtained a judgment for $41,000. The club eventually failed, and Mister Walker sought to discharge the ASCAP judgment against him through a chapter 7 bankruptcy.

A fundamental concept of chapter 7 bankruptcy is that an honest debtor will receive a discharge (extinguishment) of virtually all his debts upon completion of the bankruptcy process. He’ll walk away with a ‘fresh start’. I assume Mister Walker believed he would discharge the ASCAP debt in his bankruptcy. Mister Walker was wrong. Continue reading

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picasso woman-sitting-in-red-armchair-1939Now that I’ve got your attention … Back in the days when I spent a lot of time in bankruptcy court*, the most titillating cases – and there were very few – usually involved pop stars who’d made bad business deals and outspent their royalty income (like the band TLC). That was then, this is now. There’s a juicy case pending in the Central District of California involving Girls Gone Wild, the once-thriving, now-dying (at the hands of the bankruptcy trustee, according to bad boy founder of GGW, Joe Francis) raunchy entertainment brand that features topless drunken co-eds. Now Francis, who has been outspoken in his contempt for the court and the process, finds himself again in Bankruptcy Judge Sandra Klein’s sights.

Joe Francis has written the book on what not to do to stay in the court’s good graces. It culminated this past May when Francis flouted Judge Klein’s preliminary injunction that he not communicate with GGW employees and to stay at least 100 feet away from the company’s L.A. offices. According to documents filed in the case, he showed up May 9, with his girlfriend, at the GGW offices, shouting profanities and generally being mean. He showed up and did it again a week later. The bankruptcy trustee then filed a contempt motion against Francis, asserting the injunction violations, as well as issues of hindering removal of bankruptcy estate property and the failure to turn over to the trustee some pretty snazzy company cars that Francis says are irretrievably in Mexico. What’s a judge to do?

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capture-shipwreckDanny Fisher was riding high in 2008. As a principal in City Lights Media, one of the largest independent film and television companies in the world, Fisher’s company financed and distributed movies, created, sold and produced 63 TV shows, and had over 400 employees. Then the economy collapsed, and with it almost every indie film company in the country, including Fisher’s. When the dust settled, Fisher owed over $15 million in debt he had personally guaranteed on behalf of City Lights and he had only $1,700 to his name. He had little choice but to file bankruptcy.

One of the principal public policies behind the bankruptcy laws is to give an honest but unfortunate debtor a “fresh start” by allowing discharge of most debt. The “fresh start” policy is not without controversy. Some scholars and policy wonks assert that it’s not sound public policy, and increases the ‘moral hazard’, a situation in which people systematically – and rationally – underestimate the real costs of engaging in risky activity, as some of the costs are borne by someone else. Continue reading

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detroit-derelicts-633419-sDetroit’s chapter 9 bankruptcy is the largest municipal bankruptcy case in history. Many unique issues surround the case, but perhaps the most intriguing is the fate of the formidable collection of master artworks owned by the city and held in the collection of the city’s museum, the Detroit Institute of Arts, locally known as the DIA.

The case pits two competing public policy concerns: the legal requirements of the Congressionally-mandated bankruptcy scheme versus the cultural, social and historical value to Detroit and its people of an important collection of artwork. What’s more important: the pension funds contracted-for and earned by Detroit workers, or the trove of art that provides value to a community beyond mere temporal needs? The bankruptcy court is a court of equity and the judge will no doubt seek to balance these competing interests to arrive at a fair solution. However, as in most business matters, money talks.

Significant works by Rembrandt, Bruegel the Elder, Rivera, van Gogh, Matisse, Monet, Degas and others reside in the DIA. In advance of the bankruptcy filing, Detroit’s emergency manager hired Christie’s to appraise the city’s paintings, sculptures, silver, furniture and drawings. Christie’s valuation came in between $464 million and $867 million, a huge swing between the two amounts. Chapter 9 bankruptcy requires the city to put together a plan to pay its creditors at least the value of those assets, and the creditors, who assert total debt approaching $18 billion and which include bond insurers, European banks, Detroit’s retirees and labor unions, get to vote whether to accept or reject the city’s reorganization proposal. Continue reading

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17958150-nice-flying-eagle-on-the-white-backgroundBankruptcy protection for people with serious financial problems is a concept as old as English common law (but was applied only to merchants – hence the debtor’s colony for offending individuals that England created in Colonial Georgia), and is even provided for by the Constitution.  Article 1, Section 8, Clause 4 of the Constitution authorizes Congress to enact “uniform Laws on the subject of Bankruptcies throughout the United States.”  Filing bankruptcy immediately acts to stop creditors from pursuing most claims and provides a framework to allow an honest debtor to get back on his feet.  But in order to obtain these powerful protections, the law requires the debtor to be completely above board and accurately list all obligations and all liabilities.

Rapper DMX (his family knows him as Earl Simmons) recently found out the hard way that in exchange for the benefits and protections the bankruptcy law provides, you have to play by the rules.  DMX filed for bankruptcy protection in July 2013, listing debts of about $1.8 million arising from contract disputes, goods and services and past due child support for his 10 children.  On November 12, 2013, the bankruptcy court dismissed his case – and barred him from filing another bankruptcy case for 18 months – effectively leaving DMX twisting in the wind to be pecked clean by his creditors.

What were DMX’s failings?  In dismissing the case, the bankruptcy judge found that DMX (1) failed to provide requested financial information, (2) filed schedules that included multiple instances of inconsistent information, (3) failed to show up for the meeting of his creditors, (4) failed to provide proof of insurance of his assets and (5) was continuing the pattern of unreasonable delays that had resulted in the dismissal of a prior bankruptcy case in 2009. Continue reading