Commercial Bankruptcies: Assessment of Unexpired Leases

The items below are excerpted from the Business Bankruptcy News Bulletin. A full issue contains information on dozens of troubled companies, as well as informational and analysis highlights. Please visit the insideARM bookstore for information on subscribing to the Bulletin.

The standard that a court applies in determining whether an executory contract or unexpired lease should be assumed is the "business judgment" test. This test is based on the debtor’s business judgment that assumption would be advantageous to its estate. The test is based on earlier cases where it was found the debtor may assume or reject an unexpired least under section 365(a) of the U.S. Bankruptcy Code in the exercise of its business judgment. One case determined that more exacting scrutiny would slow the administration of the debtor’s estate and increase costs, interfere with the U.S. Bankruptcy Code provision for private control and administration of the estate and threaten the court’s ability to impartially control the bankruptcy case.

California Coastal Communities Inc., Irvine, Ca., filed Chapter 11 in the U.S. Bankruptcy Court for the Central District of California. The firm listed assets and liabilities of between $100 million and $500 million each. The filing was under case number 09-21712. Also filing were Signal Landmark Holdings Inc. under case number 09-21713 as well as Hearthside Holdings Inc. case number 09-21715. For more information contact the court at 866-522-6053.

Capmark Financial Group Inc., a big lender to investors and commercial developers, succumbed to financial pressure and filed Chapter 11, which it last month warned it might have to do. The filing, in the U.S. Bankruptcy Court for the District of Delaware, has assets and liabilities of more than $20 billion and $21 billion respectively, as of the end of June. Capmark is a former lending unit of GMAC LLC. Also filing are a number of Capmark’s subsidiaries.  For further information contact the court in Wilmington, De. at 302-252-2560.

R.H. Donnelley Co. has seen the U.S. Bankruptcy Court grant its approval for the bankrupt Cary, N.C. yellow pages publisher to seek creditors’ approval for its restructuring plan.  Under the plan, the company would reduce its debt by more than $6 billion while creditors who are owed $6 billion in unsecured debt would gain control of the company. A 1/12 hearing has been scheduled to seek court approval of the plan.

Seven Falls Golf & River Club filed Chapter 11 listing assets and liabilities of $61 million and $47 million respectively.  The owner of Seven Falls, also owns Zeus Investments, which also filed Chapter 11.  The two companies owe National Bank of South Carolina nearly $16 million.

Valley View Downs LP , Indianapolis, In., filed Chapter 11 in the U.S. Bankruptcy Court in Delaware. The firm listed assets and liabilities of between $100 million and $500 million each. The filing was under case number 09-13761. For more information contact the court at 302-252-2560.