FlyI Files Ch. 11 BK

[lowecur]

Right, that's from the IRS manual. If you read more closely, there is no mention of "liquidating Ch. 11" No, but they say you can liquidate in Chapt 11.

Plans to sell off all assets in an orderly manner can be submitted to the court, which can be confused with actual liquidation. No confusion, just a different way to liquidate. What you read is a summary line, not a part of the bankruptcy code.

In this case, Flyi did NOT SUBMIT A PLAN TO LIQUIDATE. They submitted under the Ch.11 "reorganization" section. They are really sneaky, don't you think?

If you're arguing that they might liquidate down the road, either by conversion to a Ch. 7 or by submitting a plan to sell all assets, then you are making the same argument I am. No, I'm not. You are saying there is no such thing as a Chapt 11 liquidation, the IRS and many bankruptcy attorneys say otherwise.

In the interim, Flyi's filing is not a liquidation, Ch. 11, Ch. 7 or even IRS--which is where you had to go to find the phrase--note, you didn't find it from a bankruptcy court law, you found it from the tax code. Are you denegrating the IRS?

Lowcur is still an genius, he still understands much more about bankruptcy that me. AND, I get an A for effort. Please point to the part in the filing (it is available publically) or to the part in the corporate press release (avalaible publically) where they refer to liquidation. Hey, it's just my opinion that they will try and liquidate in Chapt 11. Whether they are successful will be determined shortly.....if not, it's on to 7 where a trustee will be more than glad to help.

They don't.

They're currently under a Ch. 11 reorganization. They have not filed a liquidating plan.

Yet. I'll bet you have a law degree and flunked the bar and you are now clerking for Joe Pesce.

 

[radarlove]

For anyone interested, here is the basic concept of bankruptcy:

1) A company realizes that it may not be able to pay all of its creditors. It enters the "zone of insolvency". Even though it is not bankrupt, management has certain responsibilities to not distribute items of value outside the normal course of business

2) It becomes clear that there is no way out of this "zone of insolvency". Payments are about to (or have already been missed). Creditors have the capability to obtain a court order, grab a sheriff and seize assets. "Assets" include everything from the copy machine to the corporate checking account.

3) Management realizes (sometimes this is opportunistic) that the company will have more value as a "going concern" rather than as a collection of assets being slowly carted away by creditors. They go to the court and they ask for "protection", generally under Chapter 11 of the bankruptcy law.

4) Usually it's a a rubber-stamp by the judge. As soon as the filing is approved, all attempts to grab assets must stop. Even telephone calls are forbidden. Trade creditors who have been paid have to continue to grant the same terms to the bankrupt company.

5) Management has assumed control (immediately before losing it) and is considered to be "debtor in possession". They have to continue to manage properly and have an exclusive time to file a plan to pay off the creditors. This is called the "exclusivity period". Once its up (it gets extended easily) then creditors can file their own plan (usually liquidation).

6) If it doesn't look like it's going to work out, the creditors can force the company in to Chapter 7. Management is removed, a Trustee is appointed to liquidate the company.

7) If management can get everyone to agree, it can cancel its stock, print up new stock, give that new stock, plus cash (if it has any) to its creditors on a cents-on-the-dollar or better ratio and emerges, a'la Continental Airlines.

Right now, Flyi has gotten to step 4 from above. They have not filed a plan, they have not started liquidating, they have not even made a motion to sell any assets.

Numbnuts talk from Lowcur about "liquidating Ch. 11" should be valued at pretty much zero.

Down the road, with plenty of notice, Flyi may file a plan that breaks up chunks of the company. But that is not (!) liquidating, as "liquidating" is used under bankruptcy law. There, a trustee ceases operations and sells at auction as quickly as feasible (before assets become "impaired") and distributes what's left.

In a reorg (which is what this is, so far) assets are maintained together as a going operation. Management may not be able to get creditors to agree to take stock in the "new" (old) company, if that happens, they may (may!) be able to convince the court to allow the current DIP managers to sell off assets rather than appoint a Trustee to do the same.

Creditors generally won't allow this, because they have a healthy distrust that the chumps that squandered their money earlier will manage the selling process well--they tend to think that management just wants to hang onto the gravy train as long as possible.

Now lowcur, give us YOUR take on bankrtuptcy law. I'm all ears.

 

[lowecur]

For anyone interested, here is the basic concept of bankruptcy: Thank you, no one is.

Now lowcur, give us YOUR take on bankrtuptcy law. No. I'm all ears. Do you look like Alfred E. Newman?

Questions:

• Does the IRS recognize both liquidation and reorganization under Chapt 11?
• Is the IRS definition of liquidation under Chapt 11 bogus?

You didn't answer my question.....Do you clerk for My Cousin Vinny?

 

[radarlove]

Questions:

• Does the IRS recognize both liquidation and reorganization under Chapt 11?

This doesn't even make any sense. What are you talking about? From a tax standpoint? If you're talking taxes, once either a Ch. 7 or Ch. 11 is filed, the IRS treats capital gains differently, when assets are written down and transferred--also, they no longer consider the cancelling of debt to be "income", but I'm not sure I have a clue what you're asking.

• Is the IRS definition of liquidation under Chapt 11 bogus?

How 'come you never learned how to properly quote? Anyway, this question, too, doesn't make any sense, unless you're talking about the tax treatment for transferring assets, as discussed above. The IRS doesn't "define" Chapter 11, that's part of the US Code.

The IRS does have a set of rules for a reorganization under bankruptcy laws, but they're not very interesting. They mostly just allow you to change values/cancel debts with no adverse tax treatments. As far as the IRS is concerned, you're either in bankrutpcy or not. If you're in, you use these sets of rules. If you're not, you use those sets of rules. The IRS has no responsibility for "defining" bankruptcy.

You found an IRS web page dealing with assets being sold by bankrupt companies.

 

[Traderd]

Radar,

I have been lucky enough to avoid any personal contact with a bankruptcy attorney. My time with lawyers has been spent on the business of getting incorporated from time to time, buying into LLPs, real estate and aircraft purchases, the normal run of the mill kind of stuff.

This is an interesting topic. You hold a strong opinion here and I was wondering what your credentials might be that you are so certain that a chapter 11 liquidation doesn't exist. Sounds like you know your stuff.

Assuming you have the credentials sufficient to warrant your strongly held opinion, could you expand a bit on an S363 sale to liquidate under chapter 11 outside of a reorganization and how it would differ from a chapter 11 prepack? Could FlyI petition for the 363 or would a creditor be required to initiate? He$$, for that matter I'm unsure if the local of incorporation is relevant and I have no idea the state in which FlyI incorporated.

When approved, an S363 sale always looked like a chapter 11 liquidation to me but then again, I doubt that I have the depth of knowledge in this subject matter as you.

 

[Mugs]

I think Delta has a lot more pricing power than they think, but they have squandered $6 bil trying to fight AirTran for the bottom customers. I said three years ago that if they didn't stop doing that, that Mullin would be bye-bye, and the end result could be bankruptcy. Even a broken clock is right twice a day, right?


None of us at Airtran are happy that you guys are taking (more) pay cuts. That just makes things worse for everyone. However, our union has done their research and we have found that concessions will not be necessary from our pilot group, in fact, we are looking for modest increases. Also, we have conducted multiple pollings of the membership, and find that the vast majority of our pilots are looking for improvements in pay, QOL and benefits.


Sorry you feel that way, General. That would just be a losing game for you guys, because you'll never get your costs lower than ours- we are hedged, our equipment is new and mostly waranteed, our employees junior. If I were you, I'd be hoping the AirTran pilots stand tall and get an improved contract, not a concessionary one.

I don't believe that Delta had more pricing power than they believed. The fatal flaw of the legacy carriers was the large amount of total revenue that was generated from a fairly small percentage of their customers. At UAL, it used to be some bizzare number close to 50% of revenues coming from less than 10% of the customers (the high yield folks). This lack of diversification in a razor thin margin business proved to be the undoing. That small group of customers providing the largest chunk of overall revenue eventually split into three groups. One group went to the lower fare alternative, one group stayed with the legacy, and the price doesn't matter at all types went more towards the Netjets route. Therefore, each of the high yield customers that were lost resulted in a disproportionately large loss of revenue. Continuing to set fares in ATL higher than Airtran would not have filled the large revenue hole.

 

[lowecur]

This doesn't even make any sense. What are you talking about? Are you dyslexic? From a tax standpoint? I was thinking more from a perspective standpoint. If you're talking taxes, once either a Ch. 7 or Ch. 11 is filed, the IRS treats capital gains differently, when assets are written down and transferred--also, they no longer consider the cancelling of debt to be "income", but I'm not sure I have a clue what you're asking. Talking to you is like asking the waiter for a pizza and getting a half hour lecture on the recipe.

My original question still stands: Does the IRS recognize both liquidation and reorganization under Chapt 11? See below for the answer.

5.9.2.3 (08-01-2005)
Chapters in Bankruptcy

1. 1. 1. Bankruptcy Options. Bankruptcy is separated into two general categories:
         1. Liquidation — Chapter 7 and liquidating Chapter 11 — liquidation of assets to pay off debts; or
         2. Reorganization — Chapters 11, 12, 13 — reorganizing to pay creditors over a period of time through a plan. plan.

How 'come you never learned how to properly quote? How come you never learned how to spell? Anyway, this question, too, doesn't make any sense, unless you're talking about the tax treatment for transferring assets, as discussed above. The IRS doesn't "define" Chapter 11, that's part of the US Code. Let me rephrase. Is the IRS perspective of Liquidation under Chapters 7 and 11 bogus?

The IRS does have a set of rules for a reorganization under bankruptcy laws, but they're not very interesting. They mostly just allow you to change values/cancel debts with no adverse tax treatments. As far as the IRS is concerned, you're either in bankrutpcy or not. If you're in, you use these sets of rules. If you're not, you use those sets of rules. The IRS has no responsibility for "defining" bankruptcy. But they do show their perspective by classifying both Chapters 7 and 11 under liquidation, don't they!

You found an IRS web page dealing with assets being sold by bankrupt companies. How bout that?

Sure a hell of alot better than those grimy marketing adds by those slimy attorneys.

 

[radarlove]

could you expand a bit on an S363 sale to liquidate under chapter 11 outside of a reorganization and how it would differ from a chapter 11 prepack? .

I know you're just yanking my chain, but if I remember correctly, a section 363 sale simply has to do with selling assets outside of the "normal course of business". If you are planning on doing this while in bankruptcy, you must file a petition and have a hearing.


I guess if you arrange to sell all assets and all of the creditors agree, that would be very similar to a Ch.7 liquidation. But we're talking Flyi here--where is the section 363 filing for Flyi that turns this into a liquidation, as lowcur was referring?

Here's the difference: in a Ch. 7 "liquidation", a guy (trustee) makes all of the decisions for selling off assets. Under Chapter 11, every time an asset is sold, not in the normal course of business, there must be a hearing and agreement (or not, judge decides) from the creditors. Flyi is not in a "liquidation" and Ch. 11 363 sales are not "liquidations" as the term is used.

 

[Carl_Everett]

I have to side with Lowcur. It's quite apparent from the timing that they have no intension of reorganization. If they had wanted to try and save the company they would have filed prior to the 10/17 law change (like NWA and DAl did) Once the BK laws went into effect I air lost all of their leverage. Form here on in it just a matter of putting the remainng assets up for sale and slowly part out the airline (like Pan Am did).

I feel for the Iair folks, good luck.

Everyone seems to think the the new bankruptcy laws will affect FLYI adversely. In reality new laws or old laws, it would NOT matter. The major change in the law was to limit bankruptcy proceedings to 18 months. There is no way in hell that FLYI would last 6 months let alone 18 under Ch. 11.

 

[BeCareful!]

Concerning these new BK laws: Aside from the 18 month period, isn't one of the biggest changes that of executive compensation? Execs can only make 10 times the average salary of the line employees now in BK....

That would be good for the company's chance of survival, bad for the executive's children's trust funds.

Lowecure? Someone? Can you shed light on this? What is the downside of the new laws for the companies other than the shorter duration of BK?