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Bankruptcy in the Oil Patch - OCAPL

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OCAPL, Monday, Nov. 2, 2015
Melissa R. GardnerAttorneyPhillipsMurrah, [email protected]
Automatic at the time of the filingProhibits some business activitiesDemanding paymentAcceleration of debtEnforcement of dilution or squeeze out remediesFiling or continuing litigationForeclosing on propertyPossessing collateralDoesn’t prevent actions against guarantorsCan be lifted on motion of the CourtThere are some exceptions to the stay,but not many that would apply to oil and gas companies.
Courts have generally found that an automatic stay will not preclude the termination of an OGL upon its own terms.Royalty owners are unsecured creditors. However, the Court will often allow royalty payment to maintain the OGL, as a valued asset.
In Chapter 7 proceedings, the Court sets a date, all claims must be filed before then.In Chapter 11 proceedings, the debtor creates a schedule of their debt, it is a creditor’s obligation to make sure that its debt is correctly represented there. Correct claims DO NOT guarantee recovery, but recovery is traditionally impossible without a claim.Claims are allowed unless objected to.In the event of an objection, claims don’t move forward until there is a resolution.Traditionally recover a pro rata distribution.
Debtor formulates its plan to exist after the process.Creditors and interest holders may vote on the plan.Court must confirm. Often only considers the Debtor’s plan.
Secured claimsLimited to the value of collateral securing the claimMust be perfected prior to the petitionAdministrative claimsReasonable and necessary to preserve the bankruptcy estateUnsecured claimsAmount can be negotiated
FilingChapter 7 – Creditor must fileChapter 11 – Doesn’t have to file, if on schedule, but might be best to as it serves as proof of claimTimingChapter 7 – Within 90 days of creditor meetingChapter 11 – Fixed by the Court
You can avoid the stay in limited cases, under the necessity of payment doctrine.It’s critical to continued businessDebtor will be harmed if payment not madeThere is no practical alternativeRare to grant this exception.
Trustee can call back business activity that has occurred prior to the filing of the petition.Goods delivered within 45 days may be reclaimed by a written demand. If no letter, the vendor is granted an administrative claim.Reclamation goods are subject to priority treatment.
Within the bankruptcy caseOften involves discovery and testimonyExamplesMotions to lift automatic stayClaim objectionsMotions addressingexecutorycontractsMotions to sell propertyConfirmation of a Plan of Reorganization
Rule 7001Recovery of money or propertyDetermining the validity of a lienApproval of propertyChallenging a dischargeRevoking a confirmation orderDetermining thedischargeabilityof debtObtaining an injunctionSubordinating any allowed claimObtaining a declaratory judgmentDetermining a removed claim or cause of action
Enables trustee or debtor in possession to pull back property and redistribute it to other creditors according to the statutory priority.To prevent race to the courthouse.Preferences can be voided if they are 1) a transfer 2) of an interest in the debtor’s property 3) on account of an antecedent debt 4) made within the preference period 5) while the debtor was insolvent 6) to or for the benefit of the creditor 7) that permits the creditor to receive more than it would under chapter 7 had the transfer not been made.
Within and outside of bankruptcy law.Three types:Actual FraudConstructive FraudPartnership Transfers
Must prove intent to avoid payments and interfere with normal collection processes.EvidenceThe inadequacy or absence of considerationRelationship between partiesUse of propertyFinancial condition of partiesPattern
Must prove that less than value; the company was insolvent or nearly so.Transferring to insiders qualifies
Joint Operating AgreementsExecutorycontracts – not enforceable against bankrupting partyOperator usually agrees to planNon-Operators often reject the planEliminate non-consent penaltiesReduce threshold for Operator’s negligenceAllow for a more favorable JOANon-bankruptcy parties still have to perform their obligations
Farm-Out AgreementsInterest in liquid or gaseous hydrocarbons that the debtor has agreed to transfer are excluded from bankruptcy party’s property.Production PaymentsConsidered an interest in real property.Plugging obligationsUp to the state to determine if they are still enforceable on a case by case basis.
ContractsCannot generally be terminated if value to bankrupting party can be proven.Title Standards – Chapter 7Prior to Oct. 1, 1979 and bankruptcy property is sold, the Order Approving the Trustee should be filed of record. You must also have the petition to sell, notice to creditors, affidavit of notice, Order to Sell, Report of Sale, and an Order Confirming Sale.After Oct. 1, 1979 and bankruptcy property is sold, you must have the Petition and Order; schedule of real property; qualifications of Trustee; Order Approving; and the Conveyance, which should be filed of record.
Title Standards – Chapter11The confirmed Plan and the approved Disclosure Agreements must be provided.
Obtain pre-payment whenever possible.Obtain deposits.Have financial relationships guaranteed by a third party.Avoid changing payment terms.Become active in the Unsecured Creditors’ Committee.
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Bankruptcy in the Oil Patch - OCAPL