2009 Chapter 11 Recent Developments (Part III)

Reasoning: "[T]he Bankruptcy Court has authority under section 105 broader than the automatic stay provisions of section 362 and may use its equitable powers to assure the orderly conduct of the reorganization proceedings." Judge Gerber then undertook an analysis of the factors:

(1)

Reasonable likelihood of successful reorganization: Judge Gerber noted that although he, or any other judge, is unable to predict with certainty a debtors' ability to reorganize in any but the "simplest or most predictable chapter 11 cases," he felt that where, as was true in this case, "debtors are proceeding 'on track' and have met the challenges they have faced so far, that is sufficient [for purposes of meeting this element of the test.]"

(2)

Irreparable harm: Judge Gerber made extensive findings of fact in his opinion based on both oral testimony and papers underlying the various credit facilities that existed between the Debtors, LBIAF, and creditors. Ultimately, he concluded that "irreparable injury would plainly result if an involuntary insolvency proceeding were commenced against LBIAF or its subsidiaries--to the Debtors' ability to reorganize and, in addition, to the Debtors themselves." (emphasis added). The involuntary proceedings laws in Europe are such that, apparently, debtors are forced to liquidate; in other words, reorganization of an involuntary debtor is not possible. A forced liquidation of the LBIAF and its non-debtor subsidiaries would have a domino effect, which would probably result in the Debtors being forced to liquidate as well. In sum, Judge Gerber believed that "a voluntary, properly planned and organized, restructuring of the affairs of LBIAF would not result in irreparable injury, or at least that an insufficient showing has been made to me that irreparable injury in that event would result. But I believe than an involuntary proceeding against any of the European nondebtor entities would be a disaster, and the resulting injury would indeed be irreparable." (emphasis original)

(3)

Balance of harms: Here, Judge Gerber found that the balance dipped decidedly in favor of the Debtors. Based upon the evidence presented at the hearing, if "creditors are allowed to commence involuntary insolvency proceedings against LBIAF, the result would indeed be, as the Creditors' Committee argues, 'incalculable disaster.' The foreseeable, if not also inevitable, result would a freefall of subsequent involuntary insolvency proceedings for the Debtors' European affiliates, with the attendant loss of going concern value and the benefits of integrated operations. It will also result in a default under the DIP financing facility, which in turn will result in the loss of the ability to enforce ... [certain] forbearance agreements." On the other hand, the creditors that are being enjoined here do not lose their rights to assert their remedies, "but will merely be delayed somewhat in asserting them..." And, in addition to the 60-day time constraint, Judge Gerber felt that the injunctions that were placed upon LBIAF sufficiently protected the creditors, at least for the 60 days that the injunction remained in place. Judge Gerber noted that the creditors being enjoined here were, in any event, unlikely to receive any, or very little, distribution in the event that LBIAF and its non-debtor affiliates were put into an involuntary bankruptcy.

(4)

Public Interest. Judge Gerber was bothered by this factor. He noted that there were three public interest concerns: the injunction "places constraints on the enforcement of guaranties, raises a risk of theoretical unequal treatment of creditors, and impairs creditors from proceeding with their normal remedies, when the more traditional way by which that would be done would be by resort to courtsupervised insolvency processes." As for the first concern - the enforcement of guaranties - Judge Gerber said that he did not believe "that the law does or should require that the enforcement of guaranties can never be blocked. First,... guaranties are hardly iron-clad assurances of payment... Secondly, there will sometimes be a harm requiring judicial intervention where the needs and concerns of other creditors simply trump commercial predictability." As for the second concern - theoretical unequal treatment of creditors - Judge Gerber simply said that he agreed that this should be avoided "if at all possible." And, with regard to the third concern - creditors being impaired from proceeding with their normal remedies - Judge Gerber conditioned the injunction for a period of 60 days. He did so because he felt that 60 days was enough time for LBIAF to decide what to do- either declare voluntary bankruptcy or work out its issues out-of-court with its creditors.