Bankruptcy attorneys for Caesars Entertainment have been struggling in bankruptcy court lately. The bankruptcy judge assigned to Caesar’s case questioned the financial maneuvers of the owners for taking part in transactions appearing to be self-dealings.
The bankruptcy lawyers for Caesars will have to show the company’s good faith leading up to the bankruptcy filing to receive relief under the bankruptcy code. And while the bankruptcy lawyers may not have committed any acts in bad faith themselves, they will be responsible for explaining the actions of their client and any “insiders.”
Consumer bankruptcy has the same requirements of good faith filing, and most cases do qualify. However, if the court feels a bankruptcy debtor has not proposed a bankruptcy in good faith, the bankruptcy lawyer must prove to the court the actions of the debtor were in good faith and merit bankruptcy relief.
As bankruptcy judges do not attend creditor meetings or status conferences, issues of good faith are only decided in consumer cases after the issue is brought forth by bankruptcy attorneys representing creditors or the bankruptcy trustee.
A federal bankruptcy judge dispensed harsh words for Caesars Entertainment Corp. and its private-equity owners Wednesday, marking the second time this month a federal judge has called into question financial maneuvers the owners made before putting the casino company’s largest unit into bankruptcy.
The judge described as “serious” creditors’ allegations that the debtor’s owners “engaged in a series of self-dealing transactions” that transferred substantial assets out of the reach of Caesars creditors before the bankruptcy filing earlier this month.
The remarks, from Judge Kevin Gross of the U.S. Bankruptcy Court in Wilmington, Del., came as he ruled the Chapter 11 case should proceed in Chicago, the company’s preference, rather than Delaware, where some creditors wanted it.
In dispatching the case to Chicago, he cited deference to the debtor’s desires, but said Caesars, its owners, and their “suspect” dealings will be “under a magnifying glass” there.
Caesars said it was pleased with the venue decision. A spokesman said the prebankruptcy transactions were done to “improve” the unit’s financial condition, with advice from independent legal and financial advisers. “We look forward to a full hearing on these issues in the Chicago court,” he said.
Representatives for Apollo Global Management LLC and TPG, which bought Caesars seven years ago in a $28 billion leveraged buyout, declined to comment.
Chicago is seen as a favorable venue for the company and its owners because law there makes it easier for Caesars to try to force creditors to abandon lawsuits against its leaders and parts of the Caesars corporate empire that aren’t in Chapter 11.
Before putting its largest unit, Caesars Entertainment Operating Co. with $18.4 billion in debt, into bankruptcy protection Jan. 15, the company moved assets around, effectively putting them out of reach of creditors of the unit.
Caesars’s moves, driven by Apollo, have sparked debate among distressed-asset investors and bankruptcy professionals about the boundaries that restrict owners trying to protect assets ahead of a filing.
The moves and other financial maneuvers infuriated some creditors, who cited them when pressing for a Delaware bankruptcy proceeding and who have also sued elsewhere, including federal court in Manhattan.
Caesars and others, such as directors and affiliates sued by creditors, have denied allegations of wrongdoing.
Wall Street Journal: http://www.wsj.com/articles/caesars-wins-fight-over-venue-for-casino-unit-in-bankruptcy-1422463133
