PG&E Bankruptcy and Equipment Lessors
By: Peter C. Califano, LEAN Attorney
On Tuesday, January 29th, 2019, PG&E’s parent and operating company each filed a Chapter 11 bankruptcy case in San Francisco. The cases are being jointly administered with the lead case as Case No. 19-30088 (PG&E Corporation). The Debtors explained that the main reason for the bankruptcy filing was due to the mounting claims from the recent Northern California wildfires (estimates go as high as $30 billion in personal and property damages) that would eventually overtake the utility’s ability to litigate and pay claims. In the meantime, a $5.5 billion post-petition loan has been proposed and the Debtors are beginning the long process to reorganize.
As equipment financing companies and lessors, you may find yourself involved in the bankruptcy with PG&E due to a contract for the purchase and sale or lease of equipment. Here are some points to consider as you decide how to respond to the filing.
First, determine if your transaction is unsecured or secured, or whether it is a true lease of personal property. Each type of creditor claim has various rights and obligations in the bankruptcy. Additionally, if your transaction concluded or you were able to exercise an early terminate option, you may be able to avoid the entire bankruptcy case.
For those involved, the bankruptcy filing created an automatic stay with respect to all pre-petition obligations. Don’t take any steps to collect on these amounts, continue a lawsuit or take any action against property in the possession of the Debtors because a violation of the stay will be eventually void any actions taken, and under some circumstances, the violation could result in damages and the recovery of attorneys’ fees. In appropriate circumstances, relief from or modification to the automatic stay should first be sought and approved by the Bankruptcy Court.
Any lease or contract with the Debtors should be reviewed and a determination made how best to proceed. An order may already have been entered in the bankruptcy affecting the transaction. Generally speaking, the non-debtor party will need to continue to perform, and the debtor will decide whether to assume, reject or assign the lease or contract. The debtor will typically attempt to delay that decision until the end of the case; however, if the debtor defaults, or with cause, an early decision and even termination can be sought from the Court. Lessors may be able to avail themselves of 11 USC Section 365(d)(5) that will require the debtor to begin to making post-petition payments and perform other obligations beginning on the 61st day of the case.
It is also important to monitor the Debtors’ progress in the bankruptcy – events in the bankruptcy and especially asset sales, motions to assume, reject or assign, and of course the Debtors’ Plan of Reorganization will impact all non-debtor parties’ claims and transactions. If your contract or lease is assumed, an additional benefit is that the required cure payment to assume will provide a defense to a preference claim, if avoidance actions are ever pursued in this bankruptcy. Finally, you will need to track the deadline to file a timely proof of claim in order to participate in distributions at the end of the case.
Please call Peter Califano if you would like to discuss further. He can be reached at:
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